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

$100K into single ETF that was diversified? It depends on how big your portfolio is. The US is 52% of the world. If you have a Million dollars, then 36% of your portfolio could be in a broad US diversified ETF.

Rental Properties in Alberta. It does not matter what province you are in. He is a big proponent of diversification. You need to put 50% down today to be cash flow neutral on a rental property. It is not a cheap investment, there are headaches, but otherwise he likes the idea of rental properties. The problem is if you are concentrated too much in one area because of how much you have to invest in one property. Real estate will correct at some point.

Another correction? The S&P 500. There is very strong resistance here and we went through it. There is a bit of a double bottom through Sep/Oct. He is not sure if we get another dip. The Russell 200 is really lagging.

What if people only bought ETFs and not individual stocks? The ETF or mutual fund is simply a wrapper for the underlying stocks so it does not matter if all investors only own funds. ETFs are more efficient in trading fees than buying the individual stocks.

Educational Segment. Retirement and an encore career – you leave the corporation, but keep doing lots of work, possibly part-time. One of the challenges for this is the uncertainty of returns from investments going forward. An encore career makes your money last longer in retirement. People are living longer, perhaps 10 years longer than you expected. Millennials are looking at living to 110 years old.

Markets. At the start of the year growth expectations are higher, and at the end of the year they taper off. The exact same pattern that we have seen over the past few years. Not negative growth, just below consensus, and he is a bit more cautious than most. The longer-term is positive for the US$. China has a bit of demand for commodities and that will continue. Even if it drops a half a percent, it is still quite high. Chinese equities are looking attractive and he invests in that through ETF iShares Xinhua China 25 (FXI-N). Thinks China is pretty constructive.

Markets. There is not a lot of reason to have a lot of interest rate sensitivity in your portfolio. If you have some utilities and REITs, offset those with lifecos or rate reset preferreds. That gives you a bit of a barbell that will even its way out over time. If rates go up 25 or 50 basis points, a portfolio will be isolated. He only buys dividend paying stocks, and it is very important that those are companies that will grow their dividends. Looks for businesses that have free cash flow yield, pays some of the yield in dividends, has growth in the business and at the same time do some buyback of their shares. About 80% of his portfolio is rate agnostic, i.e. rates don’t matter; it is all based on earnings growth. He is expecting a nice rally before the end of the year.

Markets. There is some activity in mining such as lower costs, 1 or 2 new mines being built, etc. This all seems to be ignoring the low level of commodity pricing. Oils will come up later, but you should own oils.

Markets. He is seeing a global slowdown. After 2008 we had growth on all fronts. We were spoiled with above historical normal returns. We are not going to see a resumption now that we have had a correction. The US dragged their feet raising rates and then could not when we hit turbulence in the last couple of months. He thinks they won’t miss the window again when they meet in December. If rates are raised, he will still be content with dividend yields. You aren’t going to see share price appreciation of the previous magnitude so you need to have dividends. He has 20 Canadian and 20 US dividend paying stocks for new clients. He shies away from ETFs. 2/3rds of his dollars are in the US. Yes you are diversified, but you are still heavily weighted very high in the largest companies of that index.

[12 year time horizon] You can achieve an income mutual fund performance with a small portfolio of good dividend paying stocks as it will have lower costs (MER). Canadian stocks are the best to go with so you don’t have currency risk.

Bank Dividends and DRIPs. The idea of reinvesting dividends into another sector is a good idea for diversification reasons, rather than reinvesting them in the same sector using DRIPs.

Markets. The “bad news is good news” is kind of going away now. We want to see more good news happening in the markets. In October we saw a big move upwards with the S&P and the Dow up about 9% or so. Interest rates and quant easing are happening in other parts of the world such as China and Europe, and that has helped the market quite a bit. The question will be “when will the Fed make their move”. That is going to linger into the marketplace along with earnings along with how strong is China’s economic growth and falling commodity prices. We are bumping up against the overbought zone in technical analysis and he sees a little bit of bumpiness in the market going forward. For a very long time there has been a lot of cash sitting on the sidelines. Now the question is, has the October thunder taken away or stolen from the Santa Claus rally. More than likely we are probably going to see that sideways movement again. We are at 17X forward earnings on the S&P 500. That is a point or 2 higher than the 10 or 15 year average. Sees technology as a space where you want to be a bit more overweight than some of the other sectors. Thinks resources will remain challenged for some time.

Companies with negative PEG ratios? If a company has negative PEG ratios, then it probably has negative earnings. You need to screen out companies with a negative Peg ratio. When you look at PEG, it doesn’t just stop at the PEG ratio and that’s it. You want to look at its competition. A Starbucks (SBUX-Q) might be a higher PEG ratio type of name, but it is really a leadership name with nothing competing heavily against it. A negative PEG ratio is not something you want to buy.

Markets. We are in pretty good shape right now. There was a big downdraft in August, it bounced around down there a little, and people didn’t know if the market was going to go down further or go up. Technically, the S&P 500 formed a double bottom. When we broke above that it was a very positive sign. That took place at the same time when we went above the 50 day moving average. We have now moved up to the 200 day moving average which is also a good sign. The market may pull back from here, but that is a good sign of support. Everybody focuses on the whole negative aspect and it is so easy to get sucked up into that. It is important to have discipline and to know when to get back into the market. Seasonally a 3^rd of corrections, 10% or greater, have all ended in October. Usually when you get past the period of high volatility, there is a good case to move forward.

Canadian Dollar? The best month for the Canadian dollar is April. There is also another smaller period in the summer months when it can do well. Up until mid December, this is not a strong period.