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

Gross capital gains are applied against the OAS threshold even though there are offsetting capital losses. Is this correct? That is correct. The OAS claw back is based on income for any kind of allowable adjustment. This is for people who are in the top 5% of income earners. There are things called flow through shares that you can buy, which are not applied against line 234 of the tax return, and that gives you a tax deduction against all sources of income.

Behavioural Finance? The most applicable thing in this might be anchoring. A lot of people don’t like to Sell losers, because they want to hold them until they come back. You have to let these go. If it is something that has gone down, you should sell it. Also, if something has gone up very well, don’t be afraid to trim.

With 3 accounts, RRIF, TFSA and non-registered account, which type of investment should be steered to which account? The 1^st thing is, do not put US investments into your TFSA because there are tax problems associated with that. You should put equities into your TFSA, unless it is going to be something you need for buying a car, an emergency fund, etc. Has no strong opinion on what to do with your taxable account and your RRIF.

Should dividends that are DRIP be changed in order to put the dividends into a new RRIF, or should I sell something instead? There is no right or wrong answer on this. It is a matter of personal preference.

TFSA for a 20-year-old? If the 20-year-old turned 18 two years ago, this will be the 3^rd year. The TFSA limit was $10,000 2 years ago, and was $5500 last year and $5500 this year, which comes to $21,000 which is what the limit will be for them. Remember that TFSA limits carry forward forever. If this is going to be long-term money, something like iShares MSCI World Index Fund (XWD-T) would be a good way to diversify.

Russell 2000 versus the S&P 500? These are 2 different benchmarks which get you 2 different things. The Russell 2000 are the 2000 largest companies in the US. The S&P 500 is only the 500 biggest companies in the US. The S&P 500 is a blue-chip sort of benchmark and the Russell 2000 has more mid-cap and small-cap names. If you go back 50-60 years, the Russell has outperformed the S&P 500 by about 2.5% annualized. If you have a long-term horizon, you should consider putting some money into the Russell 2000.

Maximum number of ETF’s you would recommend for a traditional portfolio? He traditionally builds portfolios with 6 asset classes, and normally has no more than 2 ETF’s per asset class. That would be 6 to 12. If you have a very small account, it might be just 6 or 7, but if you have TFSAs and RRSPs in various multiple accounts, it would be closer to 12.

Take CPP when turning 60, or wait if continuing to work? If it were him, he would wait longer. People are living longer, and if you are still working, it’s not like you are going to need that extra income.

Index funds? These are a lot like the plain-vanilla ETF’s that were the 1^st ones in the market. These compete with mutual funds and give the exact same benefits. They are cheap and broadly diversified, and track a benchmark. If you are a long-term buy and hold investor, this is not materially different from a mutual fund. However, you should still look at costs. A lot of them frequently cost over .05% or more, whereas you might be able to find an ETF that is tracking the exact same benchmark, and cost 1/10th of 1% or less.

Markets. With markets going up, it is time to look at alternative assets through using Pair Trades giving some hedging protection for portfolios. The markets have had a heck of a rally since the election on November 8, a good start for 2017. You have to question as to how long this could last. The forward valuation of the TSX index is trading at 16.4X forward earnings. That is the highest it has been this time of year since 2001. If you look at the expectations for earnings growth in Canada, the market is looking for about 24% this year, twice what it is in the US. The VIX, a measure of volatility, has only been this low 3.5% of the time in the last 2 decades. We are a lot closer to the top of the market than we are to the bottom. It makes sense to put some sort of portfolio protection into place.

Market. Looking back over the past 15 years or so, last year was the 2^nd year since 2002 that we have had negative returns in healthcare. The other was in 2008, but it was the best performing sector. There is a lot of noise around the politics in the US about the affordable care act. His view is that the election was a critical pivot point. Given where valuations are right now, if you have a longer-term perspective, the fundamentals for the sector are intact over the medium term. The healthcare sector currently is very inexpensive. The forward multiple on the S&P Healthcare is 2.5 multiples below the market. We haven’t seen that in the past 15 years. That means that the price you are paying for the earnings for the companies is significantly below where it has been, compared to the market over the past 15 years.

Market. Using Schiller’s cyclically adjusted PE, US stocks are not cheap. At 28X, it is 70% higher than the long-term average. However, valuations in most cases is not a good measure for market timing. More important is what is happening to interest rates. A lot of people indicate we still have another year or 2 for the market to run before there needs to be concern about an economic slowdown. Goldman Sachs thinks interest rates would need to go to nearly 4% before the economy would be markedly slowed down.

Energy. Charts are pointing to a $75 oil in the next year. If oil breaks out, you are going to see a lot of people in Alberta having a spring back in their step.

Market. There is more bullishness. Canadians, with our much more centric political viewpoint, have taken the Trump election much more cautiously than the US, which are putting the pedal to the metal, as they are realizing it is really, really good for business. Canadians are slowly starting to clue in that it is really good for the US economy, and consequently good for Canadian and global economies. We will get indigestion in certain areas as we move on through 2017, but in other areas we will get some very positive results.

Markets. Valuations have run ahead a little bit. The Trump rally surprised a lot of people as did Brexit. The French election will probably get the world’s attention. Breakdowns are not always what they seem. There are some things that are not adding up. What is the fuel for the year? The VIX is also going up. Part of this last little push last week is that a hedge fund had to cover an error in their prediction. The breakout confounded everybody. Now we have a pause. For a month or two there is a risk of a correction.