Selling your house? Here’s where to invest the proceeds

What do do with the proceeds of a house sale, RRSPs and TFSAs? Invest. Here's how robo-advisors might work. The post Selling your house? Here’s where to invest the proceeds appeared first on MoneySense.

Selling your house? Here’s where to invest the proceeds

Q: My wife and I recently sold our house here in the Vancouver area and are trying condo living by renting. We are both in our mid to late 50s with no debt. We have approximately $500k in RRSPs and TFSAs combined and those are invested in Tangerine balanced funds. My question is how to invest the $1.2 million we received from the sale of our house? I am leaning towards a robo-advisor type of investment.


A: I think one of the first things to consider, David, is if you think that you and your wife may be home owners again, whether you ultimately like the condo thing or not. If there’s a chance you may need some or all of the $1.2 million to buy a condo or a house, I would be inclined to keep whatever housing budget you could need aside. Keep this in cash for the next six to 12 months until you make a decision.

Your existing Tangerine solution is a pretty good one compared to most mutual fund investment options. Fees are almost half the going rate at 1.07%, with other balanced funds generally in the 2% range.

From a strictly fee perspective, robo-advisors could more than cut that in half, especially given the potential size of your account. Robo-advisors follow the same indexing approach that you have presumably taken intentionally with your existing Tangerine savings.

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If you believe in passive investing, robo-advisors* offer a good solution, primarily because of the automatic rebalancing and the asset allocation oversight. Your risk tolerance may actually dictate that you should have more or less stock exposure than your typical, plain vanilla balanced mutual fund, David. Robo-advisors will ensure you are matched to an asset allocation accordingly.

One consideration that a robo-advisor may or may not be able to help you with unless you ask them specifically relates to taxation. If you and your wife plan to be renters in retirement and you will be investing all of this $1.2 million, that’s a lot of taxable investment income that will be generated – likely $25,000 or more a year depending on how you invest it.

Ideally, you would want to have more tax efficient investments like Canadian stocks held outside your RRSPs* and less tax efficient investments like bonds held inside your RRSPs. With an investment advisor or as a DIY investor, you may be better able to influence these decisions as compared to working with a robo-advisor. So be sure to raise this as a consideration when you have the mandatory human interaction if you do go the robo-advisor route.

One question I think you need to ask yourself is if you would invest this money differently from your RRSPs and TFSAs*, why wouldn’t you change how you invest that money as well? I often find clients feel invested money is married to an advisor or an investment or an approach. Be sure to look at your portfolio holistically, David, as it may be that you should make a wholesale change to your investments.

For investors who believe in passive investing and who are not inclined to do it themselves, robo-advisors present a good option.

Ask a Planner: Leave your question for Jason Heath »

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

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Making sense of the markets this week: May 17, 2021

Tech stocks are struggling while commodities soar; Elon Musk changes his mind about bitcoin; plus, the relationship between bond rates and inflation (it may not be what you think). The post Making sense of the markets this week: May 17, 2021 appeared first on MoneySense.

Making sense of the markets this week: May 17, 2021

Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.

The Nasdaq is having a bad day…and month

Wow, what a week. Stocks are taking it on the chin in Canada, the United States and around the globe. And U.S. tech stocks that led positive gains in 2020 are getting hit harder than the broad market. 

The tech-heavy Nasdaq 100 (QQQ) is down 7% over the last month, while the S&P 500 (IVV) is down 1.5%. The Nasdaq is below where it was on January 8, 2021. The tech-heavy, and certainly still Nasdaq is having trouble finding another gear, falling 2.6% on Tuesday, May 11, its worst day since March. 

Nasdaq can’t break out of the gravity of 2021—and that gravity is the force of inflation fears and the fear of rising rates. 

Investors, when they factor in inflation fears, will move away from tech stocks because they think of tech stocks as longer-duration assets which will not pay until well into the future. 

On Tuesday of this week, the U.S. released inflation (CPI) data that surprised with its upside implications: Meaningful inflation is being created in the very early stages of the economic reboot. 

Data from the U.S. Bureau of Labor Statistics yesterday showed that inflation this year, from January to April, climbed at its fastest pace since 2008. The Consumer Price Index came in at 4.2% vs. expectations of 3.6%, which is already ahead of the Fed’s 2% target. 

This from S&P Global, sent to my email inbox… 

“According to economists, rising unemployment and high inflation (‘stagflation’) may be the result if the money supply is pumped too hard and fast by the authorities, especially if there is also a supply shock—a spike in the oil price, for example. The current massive U.S. fiscal and monetary stimulus, combined with soaring raw material prices, last Friday’s employment report shocker and yesterday’s eye-watering inflation print—MoM growth was the highest since 1982—have spooked the markets.” 

BMO says inflation is more than just the base-year effects (we are starting from some pandemic-induced low prices from a year ago), and meaningful inflation appears more prevalent across a few recent timelines as well. 

Three-month inflation is at 5.6% annualized, and the 6-month rate is at 3.3% annualized. 

Thanks to Scott Barlow of the Globe and Mail for this tweet and numbers


And with the increase in inflation, your U.S. stocks won’t be making you any real return (inflation-adjusted), according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. The real earnings yield has turned negative, and the real earnings yield for S&P 500 is at its lowest since 1981. 

Perhaps that lack of real earnings is and will weigh on stock prices. As investors, we want to own real earnings, in tandem with earnings growth and revenue growth. A real U.S. stock market correction, including growth-heavy tech and the broad markets, would be a healthy event. That would allow investors in the accumulation stage to load up at lower price, and potentially with great current earnings. 

For those of us in the retirement, semi-retirement or near-retirement stage, those corrections are not useful if we’ve planned on selling shares (near-term) to create income. Once again, accumulators might root for a real U.S. stock market correction, and a return to real earnings. 

Lower prices are good. We’ll see if the markets can blow off the inflation scare from this week. And, that said, on Thursday, May 13, U.S. stocks were back in positive territory. In early Friday trading US stocks were adding on more gains. 

The next few weeks might send some strong signals. Does this correction have legs? 

Rising rates do not always accompany inflation

This big and very interesting question was put forth by Mark Noble of Horizons ETFs: Do rising rates always accompany inflation? I would guess mostly yes. 

I would be mostly wrong. 

I suggested to Mark that we check in with Mike Philbrick of ReSolve Asset Management—and, right on cue, Philbrick jumped in with the answer and charts. 

You can go to that to see a description of the chart, and the interpretation of real interest rates. Real interest rate is the rate of return that also factors in the inflation at the time.  

I’ll admit I would have guessed that a serious increase in inflation would be accompanied by short-term rising rates, at least. Central banks increase rates to keep a lid on growth and inflation. But that was not the case in the post-WWII recovery. 

I asked Phibrick for clarification on why rates stayed low in that period. He offered… 

“The bottom line is the central banks control interest rates and when they cannot afford to pay any higher amount of debt due to the [size] of the debt, they pin rates low. This is YCC, or Yield Curve Control being talked about. Post-Second World War, the situation on debt was similar—for example debt, was large and so rates were kept artificially low.”

Yes, we are in that same situation today; with their massive borrowing and printing of money, governments (and the world) cannot afford higher rates or higher borrowing costs. 

Philbrick added… 

“Also in WWII, there were many price controls put in place and as those price controls were removed, you saw sudden spikes in inflation in certain areas but rates were kept constant.”

Fascinating stuff. Will rates be kept “artificially low?” That would remove a partial inflation hedge—that of using short-term bonds to help in the fight against inflation. There was no full hedge during the stagflation of the 1970s and early 80s, but short-term bonds did offer some increasing income for much of the period. 

Of course, we cannot make a guess as to what will happen with short- or long-term rates. We can only protect with a basket of real assets, such as gold, commodities and real estate. 

Commodities stocks might help the cause as well. 

From S&P Global, here are the top-performing stock sectors for the month of May 2021 to date: 

Source: S&P Gloobal

Commodities are up, up and away

Many economists suggest that copper is a bellwether, as the commodity is used in so many areas and we need much more copper when there is widespread global economic recovery. 

And now, copper is up 90% year over year. 

Here is a very good free resource for on CNN Business. From that link, we can see a very complete commodities list, with prices. I’ll use the site to check as well.

At the bottom of the commodities page, you’ll find many U.S. commodities ETFs. A broad basket of commodities is up about 10% over the last month; 15% over the last three months; 38% over the last six months; and 70% over the last year. For those returns I used the . I hold that ETF in a couple of U.S.-dollar accounts. 

No one knows what will happen with inflation. It’s my opinion that when we need to protect our portfolio value, we should always have some form of inflation hedge in place. What percentage of inflation-fighters to hold is a personal choice, of course. 

But as our friends at offer: “You don’t fix a ship in a hurricane.” And we saw that the commodities markets are also forward-thinking (just as stocks are). They’ve already had a good move. And I’ve been putting commodities and real assets on the table for several months in this space and on my blog. 

That doesn’t necessarily mean it’s too late to climb on board. The winds are blowing, but we are certainly not at hurricane status. 

In addition to those commodity stocks, Canadians might also consider the that I’ve linked to a few times. Horizons offers a basket of. There is also the adaptive asset allocation at Horizons. 

On the equities front, there is the TSX materials . That fund includes base metals miners, agriculture and forestry-related stocks in addition to a heavy gold and silver weighting. 

I have positions in gold ETFs, XMA and PRA, and that aforementioned U.S. Invesco ETF. 

The new kind of risk in a modern economy

The ransomware cyber attack on the demonstrated that a security breach can shut down a company and cause incredible harm to economies. This may be one of the biggest battles (and risks) this century. It is modern warfare where the casualties and the targets are economic, infrastructure, data, intelligence and intellectual property to name a few. 

From that CBC post… 

“The ransomware attack on the pipeline raised concerns that supplies of gasoline, jet fuel and diesel could be disrupted in parts of the region if the disruption continues… 

“The pipeline carries gasoline and other fuel from Texas to the Northeast; its pipeline system spans more than 8,850 kilometres, transporting more than 380 million litres a day. It delivers roughly 45 percent of fuel consumed on the East Coast, according to the Georgia-based company.”

The Colonial Pipeline was shut down for six days, but has now reopened according to his . It will take several days for the pipeline service to return to normal. 

From the CNN post… 

“The restart can’t come soon enough. The shutdown sparked panic-buying and hoarding that has overwhelmed gas stations in the Southeast. A in Virginia, Georgia, North Carolina and South Carolina are without fuel, according to GasBuddy, which tracks fuel demand, prices and outages.

“Oil industry executives warned Wednesday that gas hoarding by Americans during the shutdown of the Colonial Pipeline is worsening the supply crunch.

“This situation is now being exacerbated by panic buying and hoarding,” Frank Macchiarola, an executive at the American Petroleum Institute, said during a press briefing.”

Cyber attacks can inflict considerable damage, and it’s a risk that investors might consider. Cybersecurity firms will become even more important, and perhaps more valuable in the coming years and decades.  

After the attack, we saw related cybersecurity stocks such as FireEye (FEYE), CyberArk (CYBR) and CrowdStrike (CRWD) experience significant price moves to the upside. 

Investor’s Business Daily offered up in the area. 

This might be another investable trend for money. I like undeniable investment trends, although this trend is very unfortunate, and part of an unfortunate reality. 

Payment in bitcoin?

This Bloomberg post suggests Colonial Pipeline . That’s not a positive public relations event for bitcoin and other cryptocurrencies, of course—being the currency of choice for cyber criminals. 

And while the Nasdaq 100 has been having a tough week, perhaps bitcoin is having an even more difficult run. 

While Elon Musk made us laugh as the this past weekend, he made bitcoiners cry when he announced that Tesla will as payment for their electric vehicles. The change in payment policy is due to environmental concerns in relation to the energy used to mine bitcoin. 

To this I would respond: The smartest guy in the world just figured out how they mine bitcoin and how much energy is used? Ha. 

The Tesla announcement set off a Twitter battle, surprise, surprise. Many suggest bitcoin will eventually be part of an energy solution. 

Michael Saynor, the cofounder of MicroStrategy offered… 

I’m still more than happy to be . (I discussed that post and bitcoin in a with Bruce Sellery.) 

And, for the record, bitcoin is down by more than 10% for the week into Friday, May 14, and it has fallen by more than 20% over the last month. 

What a week it was. 

Dale Roberts is a proponent of low-fee investing who blogs at . Find him on

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