A Comment -- General Comments From an Expert (A Commentary)

Expectations of earnings have fallen so companies come deliver at those expectations or higher. Bond yields have fallen a lot, reflecting slower world growth, but the stock market has rebounded a lot of in effect saying that the market is fine. The curve rate is flat, and inflation will remain low. In this environment you can still do reasonably well. The risk to global markets is the difficulty in getting out of QE going forward. How can interest rates rise in a strong market? How can world banks create the buffer they need if the economy declines later?

REITs REITs are one of the best-performing sectors in Canada lately paying high dividends. Apartment and industrial ones have done very well. Some have done poorly, but they are specific, like Boardwalk which focuses on Calgary. It may be tougher for REITs to generate much beyond yields, though, because they have run up so much in recent memory. Also, there's less capacity of apartments coming on. Lower interest rates are a tailwind.

Societe General today is frustrated over the loonie and the price of oil, that the relationship has broken down. The relationship hasn't broken down, but yes, there is a great divergence in the CAD's perforance and the rising price of WTI. One, Canadian oil is very hard to get out. Two, the Bank of Canada says that Canadian and global growth has been slower. Plus, there are housing concerns. These pressures weigh down on the CAD.

Market. If you roll back the clock and review predictions for the first part of 2019, it continues to notch down today. The best is in the review mirror. Something not priced into earnings is the relative strength in the US dollar over the year and that should be a headwind as well. The deceleration in the economy is possibly not priced in or maybe there are better earnings coming due to the FED backing off on rate hikes. We are going to get a resolution in trade tensions with China & the US sometime this year. There may be a significant number of tariffs. The resolution will be a bit disappointing. Negative rate policies in Europe are proving to be catastrophic when looking at financial ETFs for Europe, the S&P and Canada.

Fixed Income. We are in a low down phase and not in contraction of the economy. In the next year or two, ZTL-T or TLT-T are ways to play longer term treasuries.

Educational Segment. Why has inflation been so soft when we are at full employment? The FED is told to seek full employment and stable inflation. The FED is NOT meeting their goals as of today, however. Both are a little low of target. Labour's share of business profits is going down and so that will prevent inflation. This has been happening for decades. Also, life expectancy has been increasing and so people have to save more during their working years.

Market. He believes that China stimulates their economy. But factories are now getting orders again after pessimism in North America in Q4. We are within 2-3% of last year's highs. The easy money off the recovery has been made. We will see how first quarter earnings are. The economy has to slow down just but the law of large numbers. There will be casualties along the way. We are looking at 3-5% return in the markets for the remainder of the year. We already saw 14% this year. He still likes the US because the focus on new technology is from the US.

People were hasty in calling a recesssion within the year. Only part of the curve was inverted recently. We're in a slow-growth economy, an interesting time with no meaningful inflation despite lots of stimulus the past decade. We just have to keep rates low to keep the economy going--he isn't worried. Bonds are now paying 2% like inflation, so that means zero returns. To build wealth, you have to buy stocks. So much exposure in equity can you tolerate? Your risk level? Dividend players are not bond proxies to him, though. He believes in total return whether it's in a growth or defensive stock. Canada: He tries not to get too worried in a macro sense about trade (talks), though he's mindful of it.

Is doubling up a way to avoid capital gains tax? He's unsure about the question, but most people use capital losses to offset gains. Or you don't sell the stocks (which will defer the tax). Or flow-through limited partnerships are another method, but they are riskier and not for everyone. A lot of junior minors and oils use this instrument.

Is there a geographic allocation recommended for ETFs or just buy a single ETF? His portfolios hold 8 or 12 products, mostly ETFs. That's all you really need. You can build a totally diversified portfolio for a small account ($250K). 25 stocks doesn't match 8 ETFs in diversity and it takes on much more risk. Instead of stocks, spend the extra 25-30 basis points to get ETF that give you global exposure and reduce risk. Also, use ETFs to gain exposure around the world and reduce Canadian bias.

What type of investments to set up for a new baby? Set up an RESP and put in $2,500 each year. The government pays a grant on top of that. The baby will need a SIN. Use one product like the XWD ETF to get diversification (or use separate ETFs to achieve that global spread). At age 10, invest some new money into income stocks. When the child reaches 14, add bonds which are safer investments. In a few years they will use that RESP money.

What's the best way to withdraw money out of a USD RRSP when I retire in a few years? Transfer to a CAD RRSP account and pay the FX charge then or a non-RRSP USD account? You pay tax on the withdrawal, so do you pay that FX charge in stages or all at once? Do you need all that money at once? If not, keep that RRSP USD account open and withdraw some USD. If you will spend all your time in Canada, then you didn't need an RRSP USD account in the first place. However, if that's the case, then move it all into the CAD RRSP account to keep it simple and minimize trustee fees.

Aren't 8-10 ETFs in a portfolio over-diversifying? He keeps no more than 12 in a larger, million-dollar portfolio: Canada US, emerging markets and Europe. He may add say an ESG ETF or a behavioural one (a top pick tonight). No, 8-10 builds a robust portfolio and isn't over-diversifying. Just don't double-up on ETFs.

Keep bonds in a portfolio? What's the best asset allocation? 70/30 stocks/bonds is the new 60/40 because bonds are yielding 2%, but inflation is 2%. You need to invest more in stocks, especially as you approach retirement (and people are living longer, to 80-90). You need stocks, though keep some bonds in there. If you're more aggressive then allocate 80/20. Have more money when you retire than you expect.

An alternative to a RRIF? You can take the money out all at once, but it'll get added to your taxable income. Not great. You can take some/all of the RRIF money and put it in an annuity but that isn't too different from your current defined benefit plan. Your alternatives aren't great. In your late-60s, you have a few years left to do a referral (till you convert your RRSP into a RRIF). Your real and best route is to convert the money into a RRIF.