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Obviously none of this is investment advice and should not be relied upon, but we can speak to what we have done in our experience.

This week, all of our questions were from Canadian investors.

Should I buy using my CAD TFSA or my USD TFSA (tax-free savings account)?

If you are looking to purchase CAD stocks that trade on a Canadian exchange, use your CAD TFSA and if you are purchasing US or global securities via an American Depository Receipt (ADR) use USD. We would caveat that if you do not have any USD on hand and are looking to purchase USD stocks, do not buy them with Canadian dollars. Your broker will embed foreign exchange spreads into your purchase price which can be quite wide so it is better to exchange them for US dollars first.

The bank is not compelled to give you a good rate as a small client, but the bigger the amount you are willing to exchange the more likely they are to lower your spread. A good way to get spreads down is to find competition – going to a small currency exchange place and getting a quote will usually result in your bank trying to match it (you do not have to physically go in, just call). Tellers love this too because they will generate sales revenue when they “steal” the business away from the currency exchange. They will dial in to a retail desk in Toronto on the trading floor to see if they can get the match.

For larger transactions, we outline a way to avoid FX spreads almost completely (although with mild price risk) via a journal method here.

Also, because you are asking about a TFSA make sure that you are not breaching your contribution limit as there will be consequences from the government that can be extremely punitive.

Are oil stocks more risky and fun?

You certainly get a dopamine rush when stocks go up and plummet, but you want to remove emotions from investing and invest for the long term. There are certainly other market actors but the only investment strategy we know and endorse is to buy and hold long-term, quality stocks. This way you also collect dividends over time and get to defer tax gains. By deferring tax gains, I am referencing that you only pay tax or get a tax credit for REALIZED gains and losses (so if a stock you purchased is up 30% and you sell it, you have to pay tax on the profit – if you do not sell it yet you do not pay tax yet – this system makes it advantageous to hold on to stocks long term to compound your investment).

Commodity stocks are inherently more cyclical and volatile than a stock such as Walmart or Costco but there are still oil and gas companies that are prudent allocators of capital and will generate cash flow and pay their dividend in any oil price environment with no risk of going bankrupt or diluting your investment. Look for companies with strong free cash flow – and they do exist in the oil and gas sector.

Would also mention that the volatility is most prominent in exploration and production companies and oilfield services firms within the energy industry. A pipeline is more likely to have long-term contracted cash flows, making it a stable and dividend paying investment (in theory).

Dividends are good! Should I get the highest dividend?

No – you want a stable dividend from a strong, cash flow generating company that can comfortably meet their dividend payments with room to increase it (investment analysts frequently look at payout ratio, which is the dividends paid divided by net income – without getting too deep into the weeds, if you consistently pay more than what you make, you are going to need to raise new equity, thus diluting the ownership percentage of shareholders).

From my experience, the stocks with the highest dividends are either pricing in a dividend cut or are going to dilute your ownership through equity issuance (if you own 10 shares out of 100 and the company issues 10 more, you now own 10/110, and your ownership percentage has fallen), either through a physical DRIP discount or tapping into equity capital markets. There are no free lunches and you tend to lose more than you gain with a high dividend stock (although opportunities exist when the financial crisis happened bank stocks were yielding crazy dividends – but you can’t see any of those financial institutions going bankrupt, not in Canada anyway).

Do I get the dividend percentage I buy it at forever?

Assuming the dividend never changes you do – on your initial investment. So if you bought TD for $75 and the dividend was 3.5% you will earn 3.5% on whatever you bought initially forever assuming they do not go bankrupt. However, TD is likely to raise their dividend over time and if you reinvest your dividends into TD the yield may not be the same as the price has fluctuated.

What do you think about weed stocks?

Decided I had a few thoughts on this topic so answering it in another post.

Which mutual funds/ETFs would you recommend?

Well it depends on what you are comfortable with and admittedly I have not gone into every fund, just ones that meet my investing threshold. Now I have a guy as most people with a private banking relationship manager do, that markets third-party mutual funds and they are marketing star portfolio managers Will Danoff and Joel Tillinghast.

You will see them up on billboards at Union Station with returns versus their benchmarks. A top-tier institution like Fidelity Investments will not have poor benchmarking so the returns do speak for themselves. They have been stellar and outperformed the market over time. They are also very old people.

As for ETFs, index funds for S&P 500 from Vanguard/Blackrock or total world or All-US are all nice long-term market exposure.

China has sold off so MCHI can be worth a look – we have been vocal on our China beta thesis for a while (when we refer to beta we mean the performance of the specified market, in this case China, versus Alpha which is value added by picking individual stocks).¹

Technology is also a popular smart beta (smart beta being a new industry term where you do not select individual securities but will choose factors you want exposure to – for example growth, technology, size) choice amongst millenials and we admit that we adhere to that strategy (we own technology focused funds).

It is questionable as to whether smart beta is really passive investing or rather implicitly somewhat active but we will save that for another post.

What do you think of roboadvisors?

Hate them. I see them as the millenial version of a crappy investment advisor – fees for things that you can do yourself. If you are in index ETFs anyway and the roboadvisor does that too, what is the point of giving them fees that end up being even more expensive than the management expense ratios (MERs) on the funds themselves!

You get whacked on rebalancing and they are generally countercyclical to momentum in line with modern portfolio theory – you know, the stuff they teach in schools because the strategies do not make anyone money. When stocks go up you rebalance and buy more bonds and when they are doing poorly you sell bonds and buy stocks. Momentum is very real and you are going to get whacked doing this while your dumb buddy who bought a bunch of Canopy and Amazon knowing nothing about them is going to be employing you one day.

If you are putting money in and never taking it out anyway as your gains compound over time you have no business being in bonds anyway if you are under 40 years old.

Looking at the Danoff and Tillinghast funds, there are different Series and DSC. What’s the difference? What is a DSC?

Depending on how you buy the fund, you will be slotted into a different series. If you buy in from the branch, you will get a series that pays a heavy fee. If you go in through an investment advisor you will have a lower rate plus you can write off what the IA charges you against your taxes.

Never look at anything with a DSC (deferred sales charge/commission) or load. Fees need to be no-load, not low-load. Loads are a way to compensate poorly incenvitized mutual fund salespeople (i.e. their objectives are not lined up with the investor’s).

Deferred service charge means that when you buy, you have a sales charge locked in for 5 years that is forgiven piecemeal over the time horizon. If you sell the fund before this time period, you get the sales charge lopped off what they give back to you. If you stay in, the fund will have made more than enough money off of you from the MERs so that they can justify the commission.

This is complete rubbish because there are versions of the same series without the DSC and funds with DSCs are not necessarily good funds – they are often quite bad.

So it is basically a transfer of wealth from you to the salesperson. Avoid and walk away from anyone who offers this to you – they are a stain on the financial industry. In my experience, the banks do not sell anything with DSCs or loads – usually independent financial firms will have these products.

1. On a risk adjusted basis