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

What do you buy for income to reduce your stock allocation? There are generally 3 things. 1) Principal Protected Notes, 2) an offering memorandum structured product called the 4 Quadrant Fund by Timber Creek, which is making money out of real estate with public, and private debt. You could also use BMO’s ETF Emerging Markets Bond Hedged (ZEF-T)

Withdrawing from an RSP to eliminate a mortgage? If you take any money out of an RSP it gets added to your taxable income in the year of the withdrawal. Unless it is really desperate, he would not do this.

Where should an 18-year-old put $146 for an RSP? He would put this into a TFSA instead. An 18-year-old would be in a very low tax bracket and $146 is not very much of an RSP payment.

Can stocks that have no capital value be claimed as a Capital Loss? Yes. You have to claim an election when you do your taxes, and you should be able to verify very easily that the things are now worthless and as a result, whatever you paid, is now a capital loss.

How do you calculate the “All In” cost of buying a home above and beyond the simple purchase price and closing costs? Most people would say that you shouldn’t spend more than 30% of your regular income on mortgage payments. There are other things including closing costs, land transfer tax, cost of maintenance, property insurance, and anything you have to do to furnish the home.

Is it prudent to put US ETF’s or US stocks in a TFSA? He doesn’t recommend putting US stocks into TFSA’s because of certain advantages being lost because of the dividend.

If a company lowers or eliminates the dividend, should the stock be sold? A rational investor should be indifferent to a company’s dividend policy, however when a company used to have a dividend and the dividend is cut, it generally means that paying of the dividend was a bit presumptuous, and perhaps it was a company that shouldn’t have been paying a dividend in the 1^st place.

What happens to Principal Protected Notes if rates rise or the market drops? Most of them are based on either a benchmark or a basket of 15 or 20 stocks. What happens to interest rates is of absolutely no consequence regards to a PPN. However, if the benchmark and/or reference portfolios drops in value, you are not going to make any money. You get your principal back if you hold to maturity.

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Market. People felt very uncomfortable last year that we were in a slow growth, low inflation environment. They worried about the Fed increasing rates. This year they are more comfortable with the Fed raising rates, feels the economy is going to grow faster, and maybe more inflation. Globally, we are seeing a lot of positive numbers coming out. We are in a better environment from an economic point of view. Deflation seems to be less of a worry in Europe. The economy can handle the Fed increasing rates and the economy can grow a little faster than people expect. However, he doesn’t think that is going to happen until 2018. The world is looking for faster growth and maybe higher inflation, and he doesn’t expect we’ll see that until later on in the year. There may be a pullback, and if so, he could buy some companies he likes that are cheaper.

Market. S&P 500 has rallied about 10% since the November election. There has been a lot of soft data in terms of sentiment/optimism by consumers and businesses. That has gone up a lot since the election in hopes of Trump’s pro-growth policies, tax cuts and regulatory reform coming into place. It hasn’t happened yet, and now we are seeing a lull, and the S&P 500 has been in a trading range for the last few months at the 2300-2400 range. Going forward, the earning season is coming, but with markets trading at about 18X forward earnings, and historical averages around 15X, it is arguably on the high-end. If we do get some tax reforms, that will boost EPS and moderate the multiple. In terms of earnings, she wants to see what the companies are saying and what they are seeing out there. They may be holding back on capital spending until they see some of these reforms being put in place.

Interest Rates. Doesn’t think Canada will see an interest rate hike in the next year. The Bank of Canada is in a difficult position, because they want to have a strong economy, but are worried about the housing market. The economy, generally speaking, is doing well, but there are concerns out there about trade policies with the Americans. There is no inflation, and other than the housing market, government employment and employment related to housing, there is not really a lot of strength. He doesn’t think they want to raise rates, and raising rates to stop the housing market is a pretty heavy duty club to bear on everybody.

Large US construction companies that can take advantage of Trump’s promises? Whether Mr. Trump’s going to be able to deliver on his promises are unknown. There is a lot of expectations in these companies already. If the market sells off on disappointments, this is going to be pushed out to 2018-2019, which he thinks is reasonable. That is when he would make his investments. He would also look at housing. Rates have gone back down again, which will be a bit of an impetus.

Gold .He is not a big believer in golds, and doesn’t really know how you would derive the price of it.

Energy. We are in the beginning of a new multiyear market, that is going to have its ups and downs. Oil needs to be well above $50 on a global basis to sustain the investment that is going to keep up with the demand that is growing by about 1.5 million barrels a day. Over the last 5 years, energy consumption has increased by 7 million barrels. There is a lot of talk about American oil coming out of the ground at $50 and they can make profits. There are going to be a certain number of fields that can produce that amount of oil, but not 9 million barrels a day forever.