Falling off the Fiscal Cliff: With the US elections over and done with, we are going to hear incessant referrals to the term “fiscal cliff” in the news. This CNN Money article explains the budget and tax cut items that make up the fiscal cliff. Unfortunately, Canadians need to pay to this as well because US estate tax parameters will revert back to 2001 levels.

Vanguard DRiP and new ETF ticker symbols: Vanguard announced today that six new ETFs have started trading on the TSX. The new ETF lineup includes some long-standing demands from ETF investors — a dividend ETF, a REIT ETF and an unhedged S&P 500 ETF. The fund company also announced that it is introducing a DRiP program.

The Coming Bond Massacre: Earlier this year, Warren Buffett said that bonds should come with a warning label. Investors, of course, are still piling into bonds. In colourful language, the Reformed Broker says here that investors piling into bonds are “walking beneath a dangling piano hoisted 10 stories above their heads”.

New Books on Warren Buffett: Jason Zweig did a short review of two upcoming books on Warren Buffett in The Wall Street Journal. He finds one — a compilation of 80 articles on Warren Buffett called Tap Dancing to Work — to be worthwhile and the other — a compilation of quotes called The Oracle Speaks — not so much.

Investing in Commodities: A column in The Wall Street Journal explained the options available to investors who want to gain exposure to commodities in the metals, energy and agriculture sectors.

A New York Times article offers some tips to picking passwords that can thwart hackers.

Want to ruin your financial life? Author and comedian (remember the “Bueller? Bueller?” scene from Ferris Bueller’s Day Off) Ben Stein has some tips in the hopes that people will do the opposite.

Is today’s low interest rate environment good for stocks? This article in The Economist says that based on past experience, low interest rates portend low stock market returns. That may be true but it seems to me that long-term investors would prefer a 2.3 percent real return to negative real returns.

Carl Richards has some tips for putting together a list of financial goals even though future goals may just be best guesses at this point.

Larry Swedroe has six reasons why the US economy is performing much better than the headlines indicate.

This article has 11 comments

  1. Gonna get that Tap Dancing to Work Buffett book. Clicked through to the brilliant supremely common sense 1999 article he wrote with Loomis. Ironically, though Zweig touts it as warning the Internet bubble would burst, the 1999 article mentions the word Internet not a single time – it’s only in the title. Ram, suggest you do a post applying the Buffett logic to today – interest rate likely direction, finance industry fees (remaining high, going higher or perhaps to decline?), corporate profits as % of GDP (declining?) Thanks for posting.

    • I think I’m going to buy that book as well Jean, even though I could find most of the articles in the book online (but the graphs etc. are not always there). Thanks for the story idea Jean. Personally, I think The Reformed Broker is right. Stocks are reviled today but they look like much better value than the main competition (bonds). Long-term GoC bonds yield just 1.8%, the dividend yield on the TSX alone is 3.0%. So, stocks appear to be a better buy today. Your thoughts?

    • I think we can guess the direction of interest rates :) I’ve heard that the corporate profits as a percentage of GDP are unusually high in the US (can’t remember the number or source). Together those don’t seem like great signs, but I’m not much interested in taking the special punishment reserved for those who invest in fixed income today. I have no idea about Canadian profits…

  2. Are there any benefits to the unhedged s&p 500 etf that trades on the tsx over buying an equivalent one that trades in the US?

  3. Hi Ram. My bond ladder is definitely getting shorter these days. As they mature I’m not reinvesting long term, holding a lot more of the very short term cash savings or money market funds for now. The other day I saw an article that said bonds in some European country were yielding their lowest in 500 years or something. That cannot continue forever. Stocks, like Canadian and European but not US, seem to be relatively low valued right now. Nevertheless I want to maintain my 65% stock, 35% fixed income allocation more or less. Also I’ve looked to preferred shares like some of few CEFs of investment quality (e.g. BNA.PR.C) with a hard maturity date as a bond alternative.

  4. The outcome of the fiscal cliff is the biggest uncertainty plaguing the markets. Let’s hope the US government makes the right decision because 80% of our trade is dependent on it.

  5. @PM
    The only advantage of an unhedged S&P500 ETF denominated in Canadian dollars (compared to holding a US S&P500 ETF in a US dollar account), that I can think of, is that if the distributions are paid in Canadian dollars, you wouldn’t get hit with a loss on currency conversion.

    I’m not sure if there is any tax advantage. If you hold a US ETF directly, any dividend distibutions are subject to 15% US withholding tax. And the distributions are taxed at the individual level as “other income.” I think Canadian mutual fund trusts (I think Canadian ETFs are structured this way), just like individuals, are subject to US withholding tax on dividends. Also, any “other income” distributions pass through the Canadian mutual fund trust (or ETF) and likely retain their character (meaning that they are taxed at the unitholder level as “other income”). It is possible that there could be tax advantages for unitholders if the Canadian ETF mimicked the return on the S&P500 through index futures, rather than by investing in a US ETF or directly in the index. This is because index futures don’t pay dividend distributions that would otherwise be subject to US withholding tax.

  6. Read the press release and looked over Vanguard’s Canadian site but I’m still uncertain: how do we go about participating in the DRiP?

    Thanks in advance…

    • @Bitterest: Call your broker and ask to enroll in the Vanguard DRiPs. My understanding is that the enrollment process is not exactly the same at every broker. Some allow you to enroll in DRiPs for the securities you want; at others it is an all-or-nothing proposition. Once you enroll in a DRiP the custodian will transfer your dividend payment to the DRiP plan agent, who would pool that cash with that of other participants and purchase additional shares in the market within the five days following the dividend payment date.

      I was able to confirm this with Vanguard. Hope this helps.

  7. I can’t stand all this bond market fear mongering. If you only hold short term bonds like I do you’ll be fine. I’m mostly in XSB in addition to some XRB.

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