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Gordon Pape is a well known investing and personal finance guru and author.

Your financial questions keep coming in so let's look at the latest batch.


Q - BMO has advised they will be terminating three ETFs effective Aug. 7. They are the 2015, 2020, and 2025 corporate bond funds. What is the best strategy now for unit holders: exit now or just ride things to the end? – Bob K.

A – If you sell now, you'll have to pay a sales commission. You'll save that expense by waiting until the ETFs are liquidated and the cash distributed to unitholders. However, given the way the bond market is performing, selling now may actually cost you less, especially if you hold the 2025 target date fund.

The 2015 version is sitting mainly in cash (82 per cent of assets) so there is little downside (or upside) potential with it. Most of the 2020 fund (almost 70 per cent) is invested in the BMO Mid Corporate Bond Index ETF. It has a decent track record but has been losing money lately amidst the worldwide turmoil in the bond market.

The 2025 fund is the most vulnerable. About 75 per cent of its assets are in the Mid Corporate Bond ETF with the rest in the BMO Long Corporate Bond ETF. Long bonds are especially vulnerable in the current climate and this fund is showing the effects, losing 1.74 per cent in the 30 days to June 3.

To sum up, you can hold the 2015 fund if you want to save the sales commission. I would be inclined to sell the other two, but talk to your financial adviser first.

Interest rates

Q - Let's suppose the Bank of Canada does another interest rate drop of 0.25 per cent in the near future. If I hold a Canadian bond ETF I will see an immediate capital gain. However, we know that bonds will mature at par value regardless of interest rate changes. Does that mean investors need to sell their ETF holdings to realize the capital gain? Alternatively if the investor does nothing and the bonds mature at par value, it would seem that the benefit of the rate drop is completely missed. – Robert C.

A – Bond ETFs and mutual funds do not have a maturity date so the dynamics that affect the prices of individual bonds do not apply to them – although, of course, the bonds within a portfolio will be affected. In the case of actively run mutual funds, the managers will rarely hold a bond to maturity. Rather, they will often trade aggressively to take advantage of market movements. ETFs, which are passive investments, track an index and the assets in the fund at any given time will reflect the composition of that index. The bottom line is you should not expect a fund to function in the same way as an individual bond. – G.P.

Do-it-yourself money management

Q – When I retire in three years should I manage my own portfolio? Right now I pay 1.75 per cent to my RBC financial adviser. If my portfolio gets less risky I believe I will need less advice. Paying $8,750 a year on a $500,000 portfolio seems like a lot of money if there is not much risk. Could I have your thoughts on this? I feel my financial knowledge would be medium. – C.S.

A – For starters, check to see what you've been getting for your money. What has been the average annual net return (after deducting the 1.75 per cent) on your portfolio over the past five years? If it has been better than 6 per cent, your adviser has been doing a reasonable job and you should think twice about dumping him.

Unless you plan to invest all your money in GICs, even running a low-risk portfolio takes time and knowledge. For example, do you know what percentage of assets will be held in each of the key groups: cash, fixed income, and growth? Do you know what stocks to buy? What bonds or bond funds? Can you set up the portfolio to generate the cash flow you need? If you can't answer these questions, then you may wish to leave the decisions to the adviser.

One option is to leave half the money with the adviser and manage the rest yourself. See which portfolio performs better over the next three years and then make a final decision.

Drawing money in retirement

Q - My husband just retired at age 60, while I am two years younger and also retired. We have a few years before we will collect CPP and OAS. We are not sure if cashing our investments first will work for us as we have both built up a good RRSP base with both fairly equal in value. My husband has a defined pension (I don't have one), but should he die before me it carries a 100 per cent survivor benefit. My husband qualifies for full CPP, whereas I would get half. We would both qualify for full OAS.

We read in a few places that it was better to draw down the RRSP first to avoid the OAS clawback should one of us die before the other. We were wondering, should this be a concern if we are building our investments tax free, versus what we stand to lose in OAS? Is there a threshold in RRSP savings where this could be a problem?

I hope I have explained our situation adequately. Thank you for any advice you can give me. - Kate M.

A – You should seek the help of a financial planner to find the best solution. But based on what you have told me, it appears it might be a good idea for you to start drawing down your RRSP now. Your income appears to be very low since you are retired, have no pension, and are not yet eligible for CPP or OAS. Unless you have income from some other source, you could withdraw several thousand dollars a year from the RRSP at zero tax (although your husband would lose some or all of the spousal credit). You could then put up to $10,000 a year of that money into a TFSA and tax shelter it forever.

It's not likely you will be subject to the OAS clawback however your husband could be depending on the amount of his pension. Here again, advice from a financial planner who could look at your complete situation is advised. – G.P.

House rich, needs cash

Q – I'm a senior in mid 70s. All my money is in my house and car. I have two grown children one who should not get a large sum at one time. How do go about getting some money from the house, as I have very little savings? – Jean F.

A – The obvious solution is to sell the house and move into a smaller rental accommodation. This would give you a significant amount of capital, which could then be invested.

If you want to stay in the house, consider renting out a room or, if available, a basement apartment. You could also apply for a home equity line of credit, which would have to be repaid over time. Or you could consider a reverse mortgage, which would not require any repayment until you move or die.

If you have a money question you'd like me to answer, send it to and write Globe Question in the subject line. I can't promise personal answers but I'll publish the most interesting questions here periodically.

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