The email box is filling up with questions again, on a wide range of subjects. So let's get to it.
Investing in India
Q - Many authors compare India's booming markets to what happened in China some years ago when their valuations were growing exponentially. How can we invest to participate in this? I heard about Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM-N). Part of this ETF is invested in India. How would you rate this? – Pierre D.
A – This ETF is coming off a strong year, with a gain of 25.6 per cent (market price) over the 12 months to the end of February. However, you're not getting much exposure to India here. It represents just 9.7 per cent of the fund's assets, less than China (27.1 per cent), Korea (15.4 per cent), and Taiwan (10.8 per cent).
There are many ETFs that invest exclusively in India. The largest is the iShares MSCI India ETF, which was showing a year-to-date return of 16.1 per cent as of March 27. There are also some India small-cap funds, which have been shooting out the lights recently. Look at the VanEck Vectors India Small-Cap Index ETF (SCIF-N), which is ahead 27.2 per cent this year.
But India funds can be very volatile – SCIF lost almost 5 per cent in 2016 and shows a cumulative loss of 44 per cent since it was created in 2010. Be sure you understand the risks before you invest. – G.P.
RRIF conversion
Q – Thank you for all fine articles and books over the years. I have learned a lot by reading.
I have just turned 65 (Feb. 2017). I plan to convert my LIRA and RRSP to a LIF and RRIF and start drawing income. Question: In 2017, can I split RRIF income with my wife, as I was 64 on Jan. 1 of this year? My wife is turning 60 in March and will have no income for five years. – Dave M.
A – Yes, RRIF income can be used for pension income splitting and for claiming the pension tax credit in the year you turn 65 (in your case 2017). You both have to sign form T1032 to enable income splitting. The fact your spouse is five years younger doesn't matter. According to the Canada Revenue Agency website: "You are not prevented from splitting your eligible pension income because of the age of your spouse or common-law partner." – G.P.
RRIF withdrawals
Q – I have to start withdrawing from my RRIF this year. Is it better to take out dividend paying stock first rather than cash? – Fred C.
A – No. The stock is generating tax-sheltered dividends for you. The cash is producing a zero return, or close to it. It makes sense to keep the income-generating assets for as long as possible. – G.P.
Covered call options
Q - Could you please explain what a covered call option is and how it works? – David S.
A – Covered call options involve selling someone else the right to buy a stock you own at a specific price, within a set time frame. You receive a payment (premium) for doing this. If the stock reaches the target price before the option expires, it is called away and you receive the agreed upon payment for the shares. If it does not, then the option expires unused and you can sell another one. Canadian options trade on the Montreal Exchange.
For example, let's consider BCE, which was trading at $57.78 at the time of writing. The bid price for a May 19 call option on the stock at a strike (selling) price of $60 was 16 cents. If you owned 1,000 shares, you could have earned $160 (less any commission) by selling covered calls against your stock. If the shares did not hit $60 by the expiry date, you could repeat the process all over again.
The upside of this strategy is that it generates more cash flow from a portfolio. The downside is that it limits the capital gains potential on a stock to the agreed-upon strike price. – G.P.
Withholding tax
Q - Is there a simple way to know which U.S. stocks will tax dividends paid into a Canadian RRSP? – Paul P.
A - If the company is a corporation based in the U.S., dividends paid to a Canadian RRSP will not be subject to withholding tax. However, if it is structured as an ADR (offshore companies) or as a master limited partnership, different tax rules apply. Check with your broker before you buy. - G.P.
Spending it all before you go
Q – I want to spend all my savings before I die. I am male age 61 and have a variety of health issues. So I am looking at my portfolio and trying to figure out how I could spend it all plus my pension in 20 years or sooner. My question is can I reliably predict I will be dead by then? Actuary studies just give averages and my GP and cardiologist don't forecast an end date anytime soon. – Jerry L.
A – We often hear people say they want to spend their last penny on the day they depart this Earth. It's the "you-can't-take-it-with-you" philosophy. But short of suicide, there is no way of predicting when any of us will go. You say you have a variety of health issues. That may be, but medical science is evolving very rapidly and new cures are being found all the time that a few years ago no one could have dreamed of. The problems you have now may be curable in five years and you might live well beyond your target date for running out of money. Then what?
Since we don't know how long we'll be around, the best course is to be prudent with your finances. Don't be profligate and blow everything in the expectation your time is limited to 10 or 20 years. Invest your money wisely so as to generate enough income to supplement your pension without taking undue risk. And cheer up. Stop dwelling on death and enjoy your life. You've earned it. – G.P.
That's all for now. If you have a financial question you'd like to submit, send it to me at gpape@rogers.com. Please write Globe Question in the subject line. I can't guarantee a personal answer, but the most interesting questions will be published here periodically.
Gordon Pape