What hobbies or activities are you planning to take on in retirement?
Golf? Bridge? Iron-man events? Each sounds good for mind or body. Now for another activity that seems beneficial – managing your own investments.
A reader got in touch recently to ask about this. She and her partner are newly retired and interested in taking a more hands-on approach to their investments, which are currently looked after by an adviser. The adviser charges 1 per cent, which can add up to a significant amount for people who have built substantial retirement savings.
My suggestion: Don’t do it. Set up a small investing account on the side with an online broker to scratch that itch to manage your own investments. Leave your retirement account with the adviser, providing he or she is delivering good service and investment returns.
The argument for leaving retirement savings with a good adviser is partly about the aging process. Last year, I had an e-mail from an 80-year-old doctor who was a lifetime DIY investor. He said he was starting to worry about his ability to manage his investments going forward. Fearing he’d make an investing mistake with his portfolio, he was open to turning his portfolio over to an adviser.
Ideally, taking on management of your own investments when you retire goes well for 10 or 20 years. Then, what? Finding an adviser at any age can be an exhausting process of seeking recommendations from friends and family, having initial conversations and then interviewing prospective candidates.
The reader who asked about self-directed investing was interested in learning more about investing, which is an excellent way to spend time in retirement. The adviser-client relationship works best when there’s a common understanding about the markets, risk, diversification and so on.
But there’s a big difference between learning about investing and managing a portfolio of investments that is relied upon for retirement income, covering big expenses and possibly leaving a legacy for family. Everyone, pros and amateurs alike, make mistakes when investing. The difference is in the mistakes themselves – are they small and fixable, or disastrous in causing long-term damage?
An ideal way to learn about investing in retirement is to open a self-directed tax-free savings account at an online broker. Start fresh with the current year rather than transferring your existing TFSA money, and see how it goes.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
Tourmaline Oil Corp. (TOU-T) The stock has been hit hard since the start of November, as natural gas prices tumbled at the prospect of an unusually warm winter. But if gas prices are now bottoming out at a time when energy stability is taking on a new-found importance, the dividend-paying gas producer could be a sound bet, argues David Berman.
China Automotive Systems (CAAS–Q) Benj Gallander of The Contra Guys last month purchased a bowlful of shares in the company, confident that a more than doubling of the stock price is eminently reasonable. As the investment newsletter founders write, this is one of those few companies that ticks virtually all of the positive boxes that they use.
The Rundown
Think rate cuts are coming soon? Be prepared for disappointment, says CIBC’s Benjamin Tal
The Globe and Mail’s Jennifer Dowty talks to CIBC Capital Markets deputy chief economist Benjamin Tal for his views on the economy and markets. Among his thoughts: the IMF is overestimating Canada’s economic growth potential this year and markets are mispricing the timing of future interest rate cuts. He also makes some predictions about the housing market this year.
Also see: Economist poll suggests BoC will wait until at least June before cutting rates
Investors, tune down the scary stories du jour. Much of the ‘old normal’ has returned
Remember “experts” in 2020 shrieking how COVID unleashed a “New Normal” upon everyone? The travel industry is doomed! Dining out is dead! Supply chains are broken! Handshakes and hugs are history! But now that economic normalcy has returned, many of those same experts are falling prey to FEAR (false evidence appearing real). Ignore them, says billionaire investor Ken Fisher. Instead, he says look to CHEER (celebrate hidden examples of equilibrium’s returning.) False doomsday predictions are obscuring this hugely bullish force.
Is a market pullback imminent? The S&P 500 is oddly no longer in sync with this key indicator
Scott Barlow serves up a chart that compares the PMI Manufacturing survey new orders with the year-over-year change of the S&P 500, and finds something stock investors may want to monitor.
Give your RRSP a big boost every year without needing more cash
Tax pro Tim Cestnick on how short-term borrowing at the start of the year could boost RRSP returns in the long run.
Why lump-sum investing beats dollar-cost averaging
If you have the good fortune to be starting the new year with a lump sum of cash you’re looking to invest, you’re likely worried about getting into the market at the wrong time. There are three main options as to how you invest that money: dollar-cost averaging, in which you systematically invest equal parts into a risk-appropriate portfolio over a set period; investing the lump sum in a risk-appropriate portfolio immediately; or sitting on your cash until what feels like a good time to invest. Dollar-cost averaging may seem like a smart strategy. But as Benjamin Felix tells us, dollar-cost averaging has been proven suboptimal many times.
Others (for subscribers)
Number Cruncher: Eight private equity firms paying attractive dividends
Number Cruncher: 14 strong performing managed ETFs
The highest-yielding stocks on the TSX, plus risk data
Thursday’s analyst upgrades and downgrades
Friday’s analyst upgrades and downgrades
Monica Rizk: Bullish potential on Toromont Industries
Ted Dixon: Insiders buy as Kraken Robotics resurfaces
Scott Barlow’s top links: Scotiabank analyst’s top picks in outperforming apartment REIT sector
Reddit seeks to launch IPO in March
Globe Advisor
Why this $2.1-billion money manager favours growth stocks over dividend-payers
Six satellite ETFs for an RRSP
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Ask Globe Investor
Question: It would be interesting to know what the effective yield of John Heinzl’s model dividend growth portfolio is after taking into account the dividend tax credit. Can you share that?
Answer: Before tax, the portfolio yields about 4.85 per cent, which is the sum of all dividends and distributions on an annualized basis, divided by the portfolio’s current market value. However, it’s not possible to state the after-tax yield, because it will vary widely depending on a person’s total taxable income, province of residence and the tax characteristics – which vary from year to year – of the REITs in the portfolio.
What I can say is that, especially at low income levels, dividends are taxed very favourably thanks to the dividend tax credit. In Ontario, for example, a person with total taxable income of $55,867 or less will have a negative tax rate on dividends. The DTC is a non-refundable credit, which means the government won’t send you a cheque for the negative amount. But you can use it to offset other taxes owing.
Even at higher income levels, tax rates on dividends are still very attractive in many provinces. A person living in British Columbia with income of $100,000, for example, would have a marginal tax rate of just 5.49 per cent on eligible dividend income, compared with 31 per cent on interest, employment or other income. To determine the marginal tax rate on dividend income for your province and income level, check out the combined federal and provincial tax tables at TaxTips.ca
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
Major central banks kick off first 2024 meetings: World market themes for the week ahead
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Compiled by Globe Investor Staff