Category Archives: Investing

How to Better Invest Your Money

Some people like the security of their principal and guaranteed returns from Guaranteed Investment Certificates (GICs), which are equivalent to Certificate of Deposits (CDs) in the U.S.

Currently, a five-year term results in an interest rate of about 3%. That’s roughly keeping pace with the long-term inflation rate. So, people are able to maintain their purchasing power that way.

grow a money tree

Invest in the stock market

Investing in the stock market, investors can get markedly better returns. After all, the long-term average stock market returns are about 10% in the United States. The Canadian stock market tends to underperform due to the large exposure to the energy sector.

The simplest way would be to buy periodically in a market-wide fund, such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). For example, if you can save $200 every month for investing, you can invest $1,000 every five months to invest for the long run.

Invest in dividend stocks

For people who’re interested in investing, going with proven businesses that pay dividends is a great way to start. By buying these stocks when they’re relatively cheap, it’s entirely possible to get returns of more than 10% per year in the long haul.

The Big 3 Canadian banks are proven businesses with stable growth. Among the three, both Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) are trading at modest discounts. According to the analyst consensus from Thomson Reuters, both stocks have 12-month upside potential of more than 11%.

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Caution: Avoid Buying This Great REITs for Now

Depending on your investing strategy, you might take (partial) profit off from a holding that has become excessively overvalued or choose to hold on to them as a part of your portfolio for safe income.

However, certainly, when stocks have become pricey as Realty Income (NYSE:O) and Welltower (NYSE:WELL) have, it doesn’t make sense to buy shares, as they’ll likely deliver lackluster returns in the near term. Instead, wait until their valuations have returned to more reasonable levels for a bigger margin of safety and a higher initial yield.

Investors often buy blue-chip REITs for their above-average and generally safe dividends. It’s difficult to say goodbye or even take partial profits from SWAN (sleep well at night) REITs when they have done well.

It’s wonderful if you bought them at a low price when they’re undervalued. But what do you do when they have run up and become excessively overvalued?

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The Big Short in Canadian Banks

Reviewing history, the Big 5 Canadian banks actually don’t have a high short interest, except for CIBC. The Big 5 Canadian banks are some of the most profitable businesses on the Toronto Stock Exchange.

For long-term investors who are looking for stable dividends and stable growth, it does not make sense to sell your stakes in the banks, unless you have a huge allocation, own a large stake in CIBC, or are worried about the health of the housing market in Canada. You’ve got to hold the stock to get the dividends!

We believe there’s a higher probability of slower growth or stagnant growth in the housing market than a meltdown.

Should You Sell Your Big Canadian Bank Shares?

Should you sell your bank shares? The short answer is “no” unless you own CIBC stock and are worried about the health of the housing market. Royal Bank has the least short interest, which indicates investors are finding it to be the safest bank perhaps because the bank is the leader and largest among the Big 5 and also has a focus on high net worth clients.

Here’s a longer answer to the question. Ultimately, investors should answer these questions for themselves and then make a decision on whether to buy/hold/sell accordingly:

  • Why did you buy the big banks in the first place? What’s your goal?
  • What’s your allocation in the Canadian banks or each bank?
  • What’s your investment horizon?

Here’s our answer with regards to our situation:

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