The Canadian Investor - Selling Gold, Understanding Warrants, and Investing in a Rate-Cutting Environment

Episode Date: November 11, 2024

In this episode of The Canadian Investor Podcast, we dive into practical strategies for selling physical gold, including how to avoid excessive fees and scams. We then break down the basics of stock warrants, explaining how they differ from options and the factors to consider before expiration.  We also discuss the impact of a rate-cutting environment on different sectors, spotlighting opportunities in areas like utilities and REITs. Tickers of stock discussed: ZUT.TO, ZRE.TO, AQN.TO, AAPL, CVE.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

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We're actually recording this episode in advance because Dan is going to be going to Arizona while I'm going to see him in Calgary. So he's trying to avoid me. I'm going to Calgary and he's going over to Arizona while I'm going to see him in Calgary. So he's trying to avoid me. I'm going to Calgary and he's going over to Arizona. So we're recording this in advance. We'll do a mailbag episode. So I think it's a pretty good one. There's a lot of good questions, a lot of questions like we had talked about before that even I would have asked. So yeah, it's going to be a nice break from constantly talking news and earnings. So yeah, excited for it. Yeah. And we're recording this on October 25th. So I think this

will be coming out on the week of November 4th. I think on November the 7th, if my memory serves me well. So just in case we're mentioning something that is more kind of current, I don't think so in the questions, but if people should keep that in mind that there's going to be a little bit of a delay. And because there are some investments questions, of course, important reminder that this is not investment advice. We'll kind of just approach the questions a bit how we would approach them for the most part. But again, we don't know your financial situation. Every situation is different. So make sure, you know, if you're ever unsure, make sure you do your own research, due diligence or work with a financial professional. Now, the first question comes from John was sent by email. John was asking a really good question about buying physical

gold. And he was referring to me because I mentioned it a few episodes ago, maybe like a month or two ago now at this point that I bought some gold from Costco and I have it stored in a safe deposit box at the bank. So he was wondering how I would go about selling the gold without taking too much of a hit on the fees and the returns. So that's a really good question. Dan is listening because that's a question he would have as well. Yeah. The only thing I could ever have thought about was those guys who come on television and say they'll buy your gold. And I would imagine they don't give you a very good price. No, exactly. So there is actually a few different options that people can use. And that's something I had researched. So definitely,

you know, as I bought the physical gold, it's always important to, you know, how to sell it or get rid of it. Because, you know, most shops, you know, if you go to the grocery store and you show up with a one ounce gold coin, they'll probably give you face value, which I think is a dollar. So it's worth a little bit more than that. So there's, I would say I have outlined here. So three main ways. So the first one would be online dealers. So there's quite a few options available here. If you want to sell it directly to an online dealer, one of the better known one and most reputable ones is actually Kitco, which is based in Montreal. And if you go this way, make sure that you do your research and

ensure that the dealer is in fact reputable just look at the reviews Kitco has like a lot of great reviews I think on Trustpilot is I was looking I think it's like 4.8 or 4.9 out of 5 so I think you can rest assured they have a very good reputation here I've never used them myself so take this with a grain of salt. But what I've read seems, you know, no issues there. So here, how it works for Kitco specifically. But they are not the only one, to be clear here. You choose whichever bullion you have.

Because, of course, it could be a Canadian kind of ounce. It could be a U.S. one. There's all these different things. So you have to search it. And then the price will vary slightly depending on what it is. You'll be able to lock in the price. You ship the metals over to them. The shipping is free and they will insure it. Once they get it, they send you the payment. So you'll typically get a pretty good price by doing that. And as I was writing this, the price of an ounce of gold was around $27.30 US dollars and they were buying the Canadian

Maple Leaf for $26.48 US dollars, the one ounce gold coin there. So that means they're buying it at roughly a 2% to 3% discount to spot price. The main downside here, aside from the spread, is the time that it takes for you to ship the coins and receive the payments I don't know exactly how long but I would assume it may take a week or two depending on you know how quickly you do it and so on and so you know there is a time delay depending how quickly you need the funds this second option here is local precious metal merchants this will be

will vary based on your location but you'll find stores that buy gold. If you live in a major city in Canada, you shouldn't have any trouble. I mean, I searched just for fun in Ottawa and there were quite a few not too far from my place. And the biggest advantages here is that it will be quick. So you should be able to get your money on the spot and it really depends in terms of the discount they might sell it to obviously if they're not like considered precious metal merchant but if you go to like a pawn shop they will likely not give you anywhere near close the value but these merchants it will vary so make sure you shop

the one i checked in ot, I checked a couple. Like the prices they were offering was like less than a 1% discount. And it was very competitive. So I was actually surprised. I don't know if they're just posting that online. And then you go in person and maybe they hijack you or something. And that's why they... Yeah, that seems like way too close to...

Yeah. Well, it's also like the spot i was looking at is one in the like shadiest malls in ottawa too so it was kind of funny to see that but anyways i obviously do your research but that is an option but typically what i read for precious metal merchant as a general rule of thumb is that they will give you less than a kit call, for example. So, you know, it really depends how quickly you need the money. And then there's marketplaces. So you can try to sell it on Kijiji marketplace or even eBay. But if you're choosing Kijiji marketplace where you may have to like do an actual like physical interaction, clearly

there are scams that could happen. There's physical safety issues. So that's the big risk there. You may be able to actually get a premium on the spot price of gold. But again, it comes with pretty significant risk, if you ask me. eBay is another one, because if you're using something like eBay, there won't be that safety issue. But you're still shipping the items. So you will want to make sure that you pay for insurance on it if anything were to happen.

Again, for these marketplaces, just be careful. Obviously, you know, if you really want to take that risk, then make sure that you do the trade in a public place. You know, avoid doing it even out of your home or something like that is the recommendation. So yeah, these are the three big ways that you'd be able to get rid of your precious metals. I think most banks in Canada, you'll be able to buy gold from them. I've seen some articles say that I think TD sometimes, depending on the branches, they will buy it. But I think from what I on the branches they will buy it but I think from what I've read is TD would be the only one and it varies from branch to branch I don't know this is what I read so I don't have personal experience with that yeah and I would imagine

like eBay would probably charge you well I don't know what I've never seen yeah so eBay I haven't used eBay in a long time but usually there's seller fees too right so that eats into your profit margins as well. So you have to factor in all these different fees that would be involved. If I were to sell mine, I'll be honest, like I would probably go the Kitco option, take a slight discount on spot price, but it really seems seamless. I mean, they provide the shipping, they provide insurance. You just ship it out and then you get the money they're reputable so considering all the different risk factors

personally that's the one i would choose yeah yeah i wonder if costco will ever start buying it back we'll see i mean when you buy the goal it's non it's non-refundable so it is like non it's one of their few items that you can't refund i get a refund for yeah do you get the cash back oh yeah you get the cash oh that's great so at the end of the day if you get the cash back it almost washes off like it's almost a wash if you use a kitco right with in terms of percentage the actual you know money you'll pay you probably will still end up losing a little bit because if gold keeps going up obviously you know two percent cash back versus a two percent discount at a higher price like you know the dollar value will be higher but um yeah you do get cash back

so that's why it's pretty attractive to buy at a costco and their prices are competitive yeah yeah it just depends if you want to hold the physical or if you want to go like an ETF route. And then even then on the shipping for something like Kitco, like if you own an ETF, you got to sell that ETF. You got to wait for it to settle. Then you got to pull the money out. And like, it probably does take, you know, a week before you actually got the money in your bank account. So, I mean, I don't, I wouldn't say the process is too much longer. No, the big advantage with an ETF is you can own it in a TFSA, right? In a registered account. So that's the biggest advantage with ETFs. I personally do both.

So I have some physical in that saved deposit box, but I also have some ETFs in my registered accounts. Yeah. Pretty good overview. Yeah. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want and they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer

myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some

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disclaimers and more information. Do you want to move on to the- Yeah, the second question from Gord. So I guess I'll read it and you can answer it, Dan. So Gord was mentioning that he has Synovus warrants. I think cVE.WT was mentioning, and he was wondering if you'd maybe throw in warrants and the topic in the future. So we are doing it. He just wants some clarification. He's not like exactly sure how they work, what he should do with them, and they expire on January 1st, 2026. So I'll leave it to you to answer that one, Dan. Yeah. So warrants are actually, I mean, they're pretty confusing for a lot of people, but they're very similar to options. I mean, they're a derivative. The main difference being

the company will typically issue them and they typically have much longer maturities. So it would be rare to see a warrant. You can buy can buy options with, you can buy options with a one or two month expiration, whereas warrants are typically a lot longer in terms of maturity, but they much like an option, they like a, like a call option, they would allow you to buy a stock at a specific price before a specific day. They're often issued in lots, but can actually be customizable. And the one thing about this Constellation software, this was probably like a year ago now, but they did issue, they issued some warrants for some reason. And that was definitely not like, it was just a single or warrant or two, depending on

how many shares you own. So it's not like, you know, options are typically contracts that involve a hundred shares. Whereas with a warrant, they're often the same, but they can be customized by the company. There's a few other differences. One being options do not dilute shareholders when they're exercised, whereas warrants are typically new issued shares. So that's why when you see a company reporting something like fully diluted earnings, one of the factors inside that fully diluted would be the outstanding warrants the company has, the potential for all those to be exercised and turned into shares. And much like options on the American side of things, so there's

European options, you can't exercise them before the expiration date, whereas American warrants or options, you could get them today and exercise them right away. Even if in this case, they expire in January, 2026 with a European option or warrant, they wouldn't really be exercisable until that date, American ones at any time. So they pretty much fluctuate in price in relation to the price of the underlying stock, but also in relation to the time they have left to expiry. So that would be something like the time value, which exists in options as well. Time decay, right? Yeah, exactly.

Yeah. The longer the time frame left, the more valuable the options will be, all other things being equal. Exactly. So if you have an option with a very short expiry, there's going to be more like pricing, current stock price. Whereas if it's a longer expiration, there's going to be more time value there. So let's just say, for example, if you have warrants to purchase a particular stock at $10 and the stock rises to $15, your warrant will be worth more money because somebody could technically buy those warrants off you and exercise them, get the shares for $5 less than market value. You could just as easily exercise them yourself. However, there is, again, a time value element to

this. So if your warrant is for $10, the stock is $15, and you have a year to go to maturity, that warrant will be worth more than if you had one month to go to maturity, that warrant will be worth more than if you had one month to go to maturity. So ultimately, in order to tell, to even navigate the word around this, you would need a lot more information. For all I know, the warrants could be below the current stock price. At that point, all they'd really have is the time value of it. There's not really any, because you're not going to exercise a warrant for, you know, to buy a stock at $10 when it's trading at $8. You know what I mean? Like below market value.

So overall companies issue warrants for a wide variety of reasons. I mean, they can attach them to debt offerings to secure lower interest rates. Like when they're getting finance or something, they can attach warrants to it. They can issue warrants to strategic investors or even possibly an acquired company that is keeping old staff around, old operations around in terms of motivation, in terms of future performance. Because again, if you own the warrants of the company, the call warrants of the company, you will, you know, directly benefit from an increase in the share price. And like overall, they're just, they're very much the same as options, except options contracts are usually, you know, created by the market, whereas mature warrants are often issued by the company themselves. Yeah. And I guess it makes sense too, for a company in some instances where they can get,

you know, financing with the potential upside that they might not ever be in exercise right yeah exactly yeah yeah yeah so that's why it could make sense for companies to do that yeah yeah and i mean you could give them to employees like anything like that like they're they're pretty common vehicles especially on like the financing end and especially in like acquisitions when they attach warrants to an acquisition uh just because you know hey we're buying you you know here's some underlying motivation that you can get these warrants for not at this price the stock price goes up you're going to realize added you know gains from that no i think uh yeah i think that's a good overview i mean great question because yeah we can't remember if we've ever talked about

warrants so no definitely and i mean like there's a lot of details right for that so we can't remember if we've ever talked about warrants. So definitely. And I mean, like there's a lot of details, right? For that. So you can't really like suggest anything because like I said, like you have no idea what the warrants, you know, the details of the warrants or anything, the price that you could buy them at stuff like that. So. Okay. No, that's great. So I know good answer there. And so we'll move on to the next question. So question from Cam. Cam is asking that with a 10 to 15 year time horizon to retirement, you know, should she put her money into mutual fund with an advisor or into ETF stocks in a brokerage account? How would one fare at retirement with taxation giving similar performance of both investment scenarios?

Which scenarios comes out ahead so this is um this is a very vague question so i'm just going to give some big uh big guidelines here and feel free to add in if you'd like dan as well and again just to reiterate this is not financial advice and if you're on a 10 15 year from retirement you can still have a pretty large allocation to risk your assets like stock. I mean, you're not like, you know, nearby either. You're not that far away, but you're also, you know, not 25 years or 25, 30 years away. The question, like I said, is a big vague. eggs I would usually say about mutual fund and mutual fund advisors is you'll often be able to find similar identical ETFs to mutual funds that are offered by mutual advisors at a much lower

fee if you do that in a self-directed account. Not all mutual funds have high fees. I know sometimes some platforms will offer them at very competitive fees, but the ones that are being pushed by mutual fund advisors, I mean, we saw it, right? Like the CBC investigation, I think it was at the beginning of this year or late last year. Yeah. I think it was TD Bank. Yeah. I mean, I think it was multiple banks. I don't think it was just TD. Oh, was it? I thought they just narrowed in on TD. No, I think they did all of them except National Bank. So it wasn't a great look. So all that to say, a lot of you have to keep in mind.

And I'm just going to say like mutual fund advisor. I'll just go with that assumption. I have no idea like who the kind of advisor they would be working with or whatnot. But, you know, these mutual fund advisors, which I qualify oftentimes as mutual fund salesmen, you know, they, you have to be careful because their incentives are not necessarily aligned with, you know, your best interests either. So they, yes, they should have your best interest, but oftentimes they have a lot of incentives to put people in these funds that are not necessarily optimal for them that have high fees. Yeah. Go ahead, Dan. Yeah. I yeah i was just gonna say it's been like pressured

you know they these people are pressured by the banks to pretty much sell the products no matter how like suboptimal they are for people i remember even during that study i think they were like some of them were like suggesting people leave like credit card balances and stuff like unpaid and buy these funds like yeah it yeah, it's, it's kind of a ugly situation. I mean, it really, you know, there wasn't a lot of trust in this industry to begin with, and now it's even worse. Uh, the one thing I will say too, is like, not all mutual funds are bad. There's also some very strong performing mutual funds. I mean, you really got to look at, you know, a lot of people, they're obsessed with selling their mutual funds. But what I would say is check how well they're

doing first before you just like, you know, there's a really negative stigma around them. But I mean, some of them have performed quite well. Obviously, I can't name one off the top of my head, but I could probably dig out a lot of, you know, mutual funds that have, you know, performed quite well despite having higher fees. So, yeah. I think where people have to be careful is mutual funds that are like almost identical to index funds and index ETF, for example, that's the most blatant situation where you have a mutual fund that's essentially mimicking the index, but instead of charging you 10 basis points, so 0.1% of fees, they're charging you 1.5% or 2%. That's where it's outrageous and you should ditch those mutual funds. But I think you're right. Some mutual funds will maybe still have decently high fees, but if they're actively managed and

they consistently outperform the market, then obviously there's a case to be made that they could be worthwhile. So it's kind of a case-by-case scenario here, so you have to keep that in mind. One of the biggest considerations with the question from Cam is, are you ready to manage your own investments or not? For some, this might be stressful. For others, it's not a big deal.

So obviously, Dan and I manage our own investment. I had someone on Join TCI even ask about that. Someone who had a pretty substantial portfolio was working with an advisor and thinking of managing their own investments. And, you know, there was clearly I could tell there was a bit of stress with managing such large amounts. So at the end of the day, it doesn't have to be an all or nothing either. You can, you know can start a little bit. Maybe you just use 10% of the investments you have. You transfer that to a self-directed account and then you start managing that as you build confidence.

Then maybe you transfer the rest and continue to manage it. It doesn't always have to be an all or nothing. The one thing I'll mention in terms of advisors, so I'll kind of talk more about financial planners here, but you have to consider the value you're getting, right? For higher or for fees, for higher fees. So if they're a percentage of your asset that you're getting charged, say you're getting charged 1% of your assets, and then for the most part, the rest are investing in low cost funds, so low-cost index funds. But what other value are you getting? Are you getting things like retirement planning, assistance, tax planning, estate planning, etc.? Because if you are and you're satisfied with

these services, then it may be worth the 1%. Again, you just have to make sure you understand what you're getting for those fees. It's hard to just stay like a blanket statement, depending on what kind of value that you have. Now, of course, if, and I'll just reiterate what we just said, if the mutual fund's identical as the ETF and you're not getting any other benefit and you're just paying high fees, then yes, you're probably better off with the ETF. Now, I personally enjoy managing my investment. I think you like that as well, Dan. I don't think you'd be doing what you're doing if you didn't enjoy that. But there's things that I don't know very well, and I'm sure you as well, whether it's like,

you know, something like tax planning or estate planning. If I had to do that in my personal situation because I manage my investment, I would just go to a fee-based advisor that would specialize in that. Whether it's a fee-based advisor that specializes in tax planning, where you pay them, you know, you consult with them. They charge you $200, $300 an hour, whatever their fee is. You get that service. I will probably do that at some point in the future because it's well worth the cost because the tax laws are super complicated. And someone that's an expert in that, that can help me optimize my portfolio, then I would do that. And in terms of the taxability, the last part of the

question, you'd have to compare the different fund or taxability, potential returns, your potential taxable income at retirement, and lots of other variables. So it's way too complex to even try to answer that question. And like I just mentioned, for my own personal situation, I would just use a tax professional for that kind of stuff. Yeah, Same. I mean, a lot of people, like investors do kind of get the idea that all your advisor does is kind of click a few buttons and look at your account a couple of times a year, which I mean, I imagine some of them do, but like you said, a lot of them do provide added value. So it's important to understand what exactly you're getting for the costs. And the other thing I will say, and this is not like meant to scare anybody from going into

like self-directed, but I mean, if you're paying a, you know, it doesn't take much of a mistake, like from a self-directed end to make that 2% fee look like an absolute low fee. You know what I mean? Like there's a lot lot of there's a lot of people who you know they go on their own and they completely blow up their investment accounts and i mean you you could do that even you know simply owning an all-in-one etf i mean you panic and you sell at the bottom of a market or you know so there's that element where you know if you have somebody managing your money they might you know if you have somebody managing your money they might you know provide you with a bit more insight in that whereas i mean let's take for

example you're doing it during the covid crash when the markets fell what did they felt they fell like it was 20 30 i think it was 25 30 percent yeah in like a span of a week or two yeah yeah and they were back to previous crash levels very quickly i mean you panic and sell during that bottom i mean that's a that's a lot of and then you wait till you know it continues it never happens then you buy back you know in mid 2021 and then it crashes again in 22 yeah yeah but a big correction i would say a of people, like a lot of the trend right now is like XEQT and chill. But I think a lot of people have a very hard problem with the chill part. Yeah.

Which I mean, can, yeah. Yeah, that's totally true. And so, I think it's more of a nuance. The answer, I think people will get it with the answer that we provided here. answer. I think people will get it with the answer that we provided here. I mean, I've seen horror stories of fees where literally people like, you know, financial advisors and air quotes, but they're mutual fund advisors that basically I've had stories of people I know telling me that, you know, they showed me the investment. I'm like, oh, well, how often do you meet with them? Oh, once a year. I'm like, OK, okay what do they provide you they just go over the investments that's it they don't do anything else i look at the fees they're

paying two two and a half percent and they're like you know they're like 40 fixed income when they're like in their late 30s early 40s yeah which makes absolute no sense um and stuff like that so these are the situation where yeah you're probably not getting the value you deserve and you're underperforming the market and you're paying some fat fees for really nothing. Yeah, I had a family member who swapped over. It was probably in 2021, but like the previous 10 years, they had just had their money with an advisor and they earned, it was four and a half percent annualized. Whereas, I mean, that is such a large underperformance. It's absolutely nuts. Yeah.

It was, yeah. And you were talking like, I think it was like, you know, probably two or three different mutual funds, all of them with, you know, anywhere from 1.75 to 2.25%. So, I know, anywhere from 1.75 to 2.25%. So, I mean, yeah. It's interesting how the brain works, right? Because oftentimes I've heard stories of, you know, people will have those returns, right? While the market is doing 8, 9, 10%, but the mutual fund advisor or whatever you want to call them you know and tells them oh look like you're getting four and a half five percent a year like that's pretty good and they're like okay yeah my money's growing like and then you know the same people would then you know like it's a psychology it's a psychological thing but the same people would panic or not be happy if

their investments would be down 5%, but the market would be down 15, right? They're still out in that situation, they're actually doing better than the market. But it's the fact that you're seeing a negative versus a positive. So I think, yeah, that's, that's all a relative game. But oftentimes, people will only focus on the positive thing, and not putting it into context versus what the market is doing. Yeah. And I think like now there's a lot more like over the last, even over the last five years, there's a lot more like education and people becoming much more informed on the market in general. So like that was the exact same situation. just they didn't really realize what a good return even

would have been yeah so i mean for 10 years they just earned very i mean they earned money but i mean nowhere close to even what you know a 50 50 tsx s&p benchmark would have earned like not even close half probably maybe a little less than half, but yeah. Yeah, those stories, they exist. There's a lot of them. Yeah, there's a lot of them in Canada, especially. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now.

Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questtrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March

in an Airbnb in South Florida for a combination of work and vacation, and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So not so long ago, self-directed investors caught wind of the power of low-cost index investing.

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with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. We'll move on to the next question because we have one, two, I think three left. So we'll try to get that done because I have a hard stop in 25 minutes. So the next question, what investment should you put in a FHSA? So the first home savings account.

I will caveat, so I'll let you answer. So Dan Afosch and I will be recording an episode next week. We're planning to do on the Canadian Investor Podcast and the Canadian Real Estate Investor Podcast, do kind of a two-parter. And we'll be looking at the different investment vehicles, including the FHSA, how to save for a down payment to purchase a home, but also an investment property that you would be living in. So duplex, triplex, because the FHSA is also eligible for those as long as your owner occupied and you meet the rest of the criteria. So make sure you tune into that because, again, depending on the amount you are able to save

and the type of homes you're looking at, the market you're looking at, I know you're going to talk about GICs or even looking at savings account. You know, in some situation, I mean, I think you have to also consider taking a little bit more risk if, you know, you simply cannot realistically save enough for a down payment. Some people may push back at that, but the reality is, if you're saving, you know, $2,000 a year and within the next 10 years, you want to buy a home that requires $100,000 down payment, I hate to break break it to you but in the gic or savings account it's not happening so i think it is um we'll talk about different kind of strategies that you can take so make

sure you tune in it should be again uh posted during the the first week of november but having said that dan i'll let you answer the questions. Yeah, I go over like this. This is always an interesting question to me just because of the exact things you mentioned. I mean, obviously what somebody owns in the FHSA is directly related to, you know, like your own goals, your risk tolerance. I mean, you can't really give anyone guidance as to what an individual should put in the account because generally i mean these are not you know your standard buy and hold account until retirement like your rsp your tfsa which is like i mean if you've got a 30-year time horizon you just you know for most people they'll buy equities hold them for the long term but with this it's like a medium term i would say time horizon for

the most part short or medium term yeah like short to medium term which makes it like it makes it you know for this reason a lot of people are kind of stuck as to what they should buy in these accounts i mean most people know now that you know buying stocks over the over the short to mid term can create some pretty volatile returns and the last thing you want to do is put your down payment money into the equity markets and say you're going to buy a home four years from now, you get there and they're 30% lower when you actually want to pull that money out. So I mean, it is a tricky situation and it becomes even trickier now as interest rates start falling. I mean, when rates were higher,

like when you were getting, you know, five plus percent on a GIC, you could put this money into a GIC. And I mean, especially over that time, because if we think about 2022, I mean, the markets didn't really do all that well in 2022. Although I don't know if this account existed in 2022. I know it got launched on April 1st 1st 2023 i started my notes for the episode with dan so i yeah so it didn't exist in a situation like that but i mean it realistically it could and you know you might have been a bit freaked out there so you could buy one of these high interest savings etfs or igic earn i believe at one point you could get one with eq bank for like five and a half percent but i mean these rates are not as attractive now. So people might opt for exposure to equities

inside of this account. And I mean, with the markets at all time highs, it's definitely concerning. Again, for somebody who has a 25, 30 year time horizon, buying the markets at all time highs is pretty much a non-factor. If if you if you're thinking that long term but if you're sitting there thinking oh i'm gonna need this money in five years gets pretty it gets pretty scary but it gets tricky too but it's not you know it all depends on the situation too right so if you're someone let's let's say the fhsa right so it's eight thousand dollars a year maximum of forty thousand lifetime that you can contribute. So if, you know, let's say five years down the line, that's your plan to buy a home and you are putting $8,000 a year and you'll need $50,000 for your down payment. Then yeah, doing a GIC strategy is probably the

smartest thing you can do because you're pretty much, you know, you'll be very close just with your contribution. So as long as you get that interest, you'll end up pretty close to your goal. So why would you want to take equities risk? But if you're going to potentially fall short, then maybe you want to do 80% GIC, 20% equities. It doesn't have to be an all or nothing. So I think that is where Dan and i will get into the nuance of it is you know looking at different type of scenarios and what approaches that could be taken yeah and i mean it again it's highly dependent on you like if you you know if you're using this account to i mean even like the thing is in the canadian real estate market at least for like a detached home

fifty thousand dollars is uh well it depends where you are, right? It depends where you live. Yeah. Dan Foch will always push back on me. Cause I, I always approach it with the same reasoning as you are right now. And you'll just remind me like, oh, if you go to like Regina, for example, yeah, you know, you can get a home for much cheaper. So it really depends, but I would say, say you know it's safe to assume that most people live in a major city in canada or around a major city and yes i agree with you that you know 50k is probably the minimum that you'll need for yeah for a lot of options yeah like if you're looking to buy a detached home in toronto you're uh you're probably gonna need to take some added risk with this account whereas i mean even

achieve that yeah yeah i mean or even like even in calgary i mean calgary is not too too bad i think we're like you can get a detached home for i mean i might be way off point with this but 600 700 000 so i mean to that case i mean you you know, you could get there just borderline on your contributions. So, I mean, it all depends. I mean, some people might want to put $40,000 into this account and, you know, try to grow it at, you know, 10%, 12% a year. And then, like, you know, if you consider that, if you actually did that strategy, you

got, you know, a little bit lucky to an extent. And it did earn that much over the next five years, even though they're sitting at all-time highs. I mean, that's quite a bit off your mortgage that's you know a little bit more on your down payment but i mean again it's so dependent on the investor like yeah because i mean your savings rate your savings rate will have such a big impact too like like you said like for some people taking a large amount of risk just based on their situation because they can't save nearly enough to ever get close to retire, to put a down payment for the market they're in, then, okay, sure, take a lot of risk. But again, with a lot of risk, you may end up not like, you know, it swings both ways, right?

Yes, you may achieve it, but you may end up, you know, losing a whole lot of money as well. So you have to keep that in mind. Yeah. Like there's also the other added element of say, you know, say you have a high rate of savings and you can put 8,000 in this account and you can also save elsewhere. I mean, maybe those people are more, you know, likely to take added risks in that account, whereas somebody who doesn't really save all that much, and this is literally their 100% savings towards their home. I mean, that would be absolutely devastating if five years down the line, it's 30% lower. It's a really tricky account. And I thought it was a pretty good question.

And I mean, the answer is just, it depends. i mean yeah i can see a lot of canadians because like you said a lot of canadians live in major urban centers where i mean vancouver toronto they're all just ridiculously expensive i can see those who don't have you know high rates of savings just taking extensive risks inside of this account kind of taking the old like well i'm gonna put it in there see what it turns out and you know in five years if i got enough i got enough if not i don't that's yeah can you blame him at the end of the day like it's probably if if they have a dream of home ownership and that's really the only way they can achieve it i mean i don't know i would do that myself because I think at the end of the day, if

home ownership is such a long shot for you in that situation, consider renting and, you know, having a better balanced portfolio and better balanced risk with the money that you are able to save. And maybe there's a correction in the future, but, uh, and you're able to actually purchase a home with a smaller down payment. But I think it's really important to just understand what you're signing up for. But again, it's hard to blame people if they, they would want to take a lot of risk there. Yeah.

It's kind of sad that we're in like such a housing crisis right now that the main vehicle that people are going to be taking crazy risks is like a government tax sheltered vehicle. And they're going to have to like, I know a lot of people who are taking this route, the like hyper aggressive in this account route to just try and, you know, save up enough to buy a home because I mean, it's so expensive to live here now. Yeah. Yeah. And I mean, at the end of the day too, if you're flexible on the market, maybe you're a remote worker, you're more of a nomad or something like that. I'll just finish on this. Maybe consider looking at other markets. Like I know I mentioned Saskatchewan, but there's, you know, smaller cities if you're OK with living with not necessarily in a large city. You know, look at those smaller communities that could present some, you know, more affordable homes within your budget and the amount of down payment you're able to. Yep, for sure. Okay, so next question here from Ron. Ron was saying he loves the show, listening to it all the time.

Well, thank you, Ron. Ron has, he's probably done well because he has 19% of his portfolio into Apple. And Apple, you know, has been doing well. So he's asking us, is that unwise? So, of course, I'll just reiterate, it's not investment advice. So I'll go over some of the pros and cons against having a lot of concentration in one holding. Keep in mind, I mean, for those who are subscribed to Join TCI, and I've mentioned it on the podcast, like, I mean, I have a very large allocation to bitcoin specifically doesn't get more volatile than that it's worked very well for me you know my allocation it's around like 25 30 percent of my

portfolio so i can handle volatility i mean that's fine with me i know brayden has like a big allocation to constellation software as well. So, you know, keep that in mind. But again, having that concentration, it does increase the volatility in your portfolio and the risk as well. You know, I believe in Bitcoin, I have a conviction in it, but, you know, it's not a zero percent risk that something really bad could happen and it could completely crash. I don't think so. But I just wanted to preface with that. So at the end of the day, again, 90% is a big allocation. You'll have to make your own decision, like I said, whether it's too big or not. But here are some factors to consider. What would be your reaction if that position went down 50%. Can you handle that?

Are you going to kind of panic sell? Are you going to lose some sleep overnight if that happens? So I think that's a good scenario because, hey, I lived it with Bitcoin. I can tell you multiple times gone down more than 50%. It's not fun, but I did not panic and sell. So keep that in mind. I'm using 50%, but it could happen. Nothing is a 0% probability. How close are you to retirement or your end goal for your investment? That's something else because the closer you are, the more you may want to try to diversify a bit more, maybe take a little bit of risk off the table, you know, a little bit of profits. That's something else to consider. The hard cold reality here is that no matter how good the company is, and I think most people would consider Apple to be a blue

chip company, once it starts having very large position and portfolio, it increases the risk significantly. That's because bad outcomes are not zero probabilities. Outcome, again, may not be high, but it can still happen. On the other side, if things are good, very good with a position this big in Apple, it's going to just drive your portfolio and you will probably exceed the market if Apple is really crushing it. Position sizing is definitely a good way to increase or decrease risk. So keep that in mind. We've talked about this time and time again. You know, that's why like, again, coming back to Bitcoin a little bit, that's why, you know, I still don't fully understand why people would

not want to have at least like 1% of their portfolio in Bitcoin because, you know, yes, it's volatile, but it's a asymmetrical bet. Whereas, you know, let's say it goes to zero. Okay. It's 1% of your portfolio. Is that going to make or break your, your plan, your investment plan, your retirement plans? Probably not. If it, you know, two, three, four, five, 10 X from here, then it's going to become a big driver of your portfolio returns. I just use Bitcoin because of the volatility. That's why it's, you know, I think it's a good example here. Now back to Apple, the issue I have with Apple personally, and I've been very critical of Apple in the last year or so and i used to own shares and i sold all of them although i

do own some index funds that apple is uh you know is a big allocation in those fun is that you know where does the growth come for go forward where's the growth for apple like it's i mean they unfortunately like apple's revenue have stagnated over the last two years plus now. So they've actually declined 2% since peaking in 2022. Net income has been on a similar plateau trend. EPS has gone up, but EPS is literally being boosted by buybacks, which they are doing massively. So they're not actually growing profits. Free cash flow has increased a little bit, but not by a lot in the last three years. They are trading at a very high valuation. I was looking at 36 on a backwards looking basis for P and 29 for free cash flow. And the reason I'm using backwards is just there's just so much

uncertainty in my view going forward. So I just I think it's just easier to look at what has actually happened to look at that. And those are some of the highest multiples that Apple has been trading at over the last decade in times where it was growing faster. So I think, I don't know if it's a reflection of the market, but what are your thoughts on that then? Well, I just like in terms of the actual concentration, I don't typically run anything that large. I mean, I remember Bitcoin. I own crypto. It's usually like my Bitcoin position is just like a core position for me.

It would be around 5%. And it ended up running up to it was over 10%. And I just I trimmed half of the back because he was texting me at night. Like, he's like, dude, I can't sleep. I'm just too stressed out. Should I sell? Should I sell? I did end up selling though.

And I'll tell you that reduced- You trimmed. You trimmed it. Yeah, I still do own. It's back around that five or 6% range. But I mean, there's a lot of different strategies around this. I mean, Warren Buffett himself said, you know, you never get rich off your seventh best idea. So for him, he just, but I mean, that's a completely different situation.

I mean, even now Buffett, you know, Berkshire, they own more than, you know, that many companies, but I mean, there's been, there's a lot of talk on how diversification, some people kind of take it way too far, own way too many companies. I myself will admit I probably own too many stocks. I think I own in the high 20s now. But I mean, it's a very difficult thing to ever give any sort of insight on. Because I mean, like you said, Braden, he's got a large chunk in Constellation. He's got high conviction in constellation i mean apple if you have high conviction in apple i don't see any problem with that high of allocation you just have to be able to you know accept the fact that you know there's a lot of issues that can come from

publicly traded companies no matter how large they are i mean we've seen i mean one thing one company i can think of like right off the top of my head that used to be a Canadian blue chip with S&C, Lavalin, and then they got caught up in a scandal. Their stock price fell, what, 75%? It was in, you know, over the course of five, six months. Like, is that likely to happen to Apple? I would say, you know, probably not. But I mean, the odds are not zero. So, I mean, you just have to be able to, you know, accept that risk.

I mean, there's a lot of manufacturing in China for, you know, a company like Apple, which is, you know, that's an added risk. I mean, as long as you... Let's not forget about that antitrust Google lawsuit because Apple is a big benefactor of what Google has been doing. It's essentially they've been paying $20 billion a year to Apple. So, you know, and I'm sure that goes like most of it goes like a lot of it must go straight to the bottom line. Exactly. Because I can't see that having a lot of costs around it. So you're they're also going to potentially be losing that 20 billion dollar in revenue because i can't i can't see the department of justice not telling google that yeah you're you're not you're not

doing that anymore deals like that might be axed yeah yeah i and yeah like that's that's a hit and that's like that could happen to any sort of company no matter how blue chip they are i mean apple has been like it's held up very well considering like how slow it is growing it's still like one of the more you know expensive mag seven stocks which i mean is surprising considering its growth and it could carry on in the future but i mean just you have to just understand you know holding 20 of your portfolio effectively in one corporation as long as you you know, holding 20% of your portfolio effectively in one corporation. As long as you, you know, understand the risks, accept them, then I don't see any problem with it.

But that's ultimately completely up to the investor themselves. Okay. Yeah, no, that's great. So we'll move on to the last question because I have to, you know, leave soon. So I don't want to, you know, run this too long. have to you know leave soon so I don't want to you know run this too long so with the rate cuts from the Bank of Canada so far this year and likely cut tomorrow so this was a bit before the Bank of Canada actually did the 50 basis points rate cut which would have been on October 23rd a quick math where the 25th

it's Friday what sector you feel would experience the biggest benefits from this rate cut so dan i'll let you answer that one yeah so the one thing that i would say that the rate cuts and the pace of rate cuts are relatively already known by the market so like if you're sitting here and they cut 50 basis points two days ago, like it's probably too late. You know what I mean? Like the market typically prices these in advance instead of, you know, reacting immediately when it happens. I mean, where you'll often get drastic moves is, you know, if they surprise, like say they're expected to hold flat or cut 25 basis points and they go 50, then you might see a little bit of surprise movement. But like overall, a lot of this stuff

is priced in beforehand. I mean, two prime examples actually. So ZUT, which is BMO's utilities ETF and ZRE, which is BMO's REIT ETF, they're up by 32% over the last year. So if I were to answer this question, like what would benefit the most moving from rate cuts, I would probably say utilities and REITs to a a large degree but i mean the run-up in price you rarely see utilities and REITs move 30 plus percent in a year like that's a big run-up and that's what they've done over the last year in anticipation of of rate cuts i mean that said it doesn't mean utilities and REITs can't perform well moving forward because of the rate declines. Falling policy rates tend to help the entire market overall. Primarily, they reduce the risk-free rate, which ultimately lowers the discount rate

in terms of discounted cash flow analysis, which ultimately typically results in higher prices and equities. However, it would be more helpful to debt heavy, high capex companies thinking pipelines, utilities, telecoms, REITs. And I mean, if we look to Canadian stocks over the last while, I mean, what are the best performing ones? Pipelines, utilities, REITs, to an extent. Telecoms, I think they haven't really recovered all that well, but I think that's more of like a regulatory issue. And although these companies do carry very little floating rate debt, one prime example of a company that did not contain very little floating rate debt would have been Algonquin. And we kind of seen what happened there.

They were 20% plus floating rate debt, whereas a you know, a company like Fortis is I think 3%. It definitely does provide some relief on floating rate that these companies have, but it also impacts future refinancing, new debt, things like that. I mean, the cheaper these companies can expand infrastructure for the higher profits they can drive from those assets. That's why you see utilities, telecoms, they have huge capital expenditures because these are very expensive industries to operate in. And it ultimately doesn't make sense for them to lay out the cash right away. So they typically do end up financing them. But yeah, I mean, there is also an added element here that a lot of REITs, utilities, pipelines,

telecoms, other high debt defensive stocks are mature companies and typically a lot of those mature companies are higher yielders so as rates go down fixed income investment yields also go down which could encourage investors to move out of those investments and you know back into equities i mean when we look to 2022 it didn't make a lot of sense for you know somebody who's risk averse to you know take on the equity risk of owning like say a utility company yielding four percent when they could just buy a gic or a heisa fund and and earn you know five and a half however now that rates are coming down yeah or anything like that yeah but now the rates are falling i mean you well actually i did a youtube video on this not too long ago and i did the fund flows out of these funds.

And there is money flowing out of these funds. And it could be heading back into dividend-paying equities, those high yielders, those defensive stocks. So that would be areas that I would look at. But what I would say is if you're looking for those big run-ups like post-interest rate cut, I would say they've already happened. Like I said, you're looking at 30% plus from utilities and REITs. Those types of returns don't really happen in that sector on an annual basis. Yeah, I love – and just to add on the debt portion. So what I have sharing here for Joint T TCI is the Canada five year bond.

And people will notice that the bond, the five year bond is actually up despite the Bank of Canada cutting. So the bond market was actually pricing that in for quite some time where the bond yields of five years started coming down. I think in the spring before the Bank of Canada started cutting. think in the spring before the Bank of Canada started cutting. And if, you know, companies are financing in Canada fixed rate debt, the five year will have a big impact on that or maybe even longer duration. So the recent rate cuts will probably not have the biggest impact. But like you said, the overnight tends to impact, you know, things like treasury bills, Canadian treasury bills, and of course, GIC rates. So it could be a tailwind for people who are looking for income and then selling those funds or taking their cash out and then looking do research, but I think it was a big tailwind for dividend stocks for a better part of the last decade, right? Like people went to these stocks because they wanted income. If you wanted yield.

Exactly. If you wanted yield. If not, you had to be satisfied like with 1% or 2% GICs. Yeah. And there was also an element of, you know, like post-financial crisis rates were so low. And there was also an element of, you know, like post financial crisis rates were so low. I mean, you had a lot of these high debt, high yielding companies like Canadian telecoms. They posted just crazy high returns over that period because, I mean, rates were they were financing, you know, building assets, expanding infrastructure for very low rates.

And I mean, they did so well. And now you can see the opposite end of that spectrum. They did so well. And now you can see the opposite end of that spectrum. But yeah, I mean, as people will generally, you know, people who are looking for yield, I mean, when fixed income yields are high, dividend equities generally are not as attractive, especially slower growing ones, which ultimately will probably benefit the most from rate cuts just because of the situation I've mentioned before. But there was actually a CIBC, this was probably like three, four weeks ago now, but they predicted like 200 billion in flows out of fixed income investments and into dividend equities. So I mean, they're predicting a big shift, which is, it's but like i said a lot of it has happened already at least here in canada with a lot of you know defensive industries uh doing quite well over the last year yeah yeah no i totally agree with that i don't have any

more uh to say to add there because i also have to go so um we'll end it on that uh thank you for everyone for the questions we We got a lot of emails. I know Dan went on Blossom as well, got some there. Like I said, we'll try to do these mailbag episodes maybe once every couple of months. And we try to respond to all the emails we get. But again, because of time, we don't always get to respond. So for those that we haven't responded to, we do appreciate the support. and, you know, we'll try our best to respond to them in the future. So thanks again for listening and we'll be back next week. The Canadian Investor Podcast should not be construed as investment or financial advice.

The host and guests featured may own securities or assets discussed on this podcast. May own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.