A cheap and easy investing strategy for your FHSA. Plus, where to find GICs still paying rates of at least 5%

Kudos to the digital broker Questrade for getting the jump on its competitors in offering a First Home Savings Account, the new and best way to save for a home down payment.

FHSAs combine the best elements of tax-free savings accounts and registered retirement savings plans in that investment gains and withdrawals are not taxed, and you get a tax deduction for contributions. Let’s take a look at a cheap and simple FHSA investing strategy you could put into effect at Questrade, or any other broker.

Questrade has zero commissions for buying exchange-traded funds, so we’ll use those as a portfolio building block. Normal commissions apply when selling, but you’ll be doing a lot more buying than selling in the years you own an FHSA.

To minimize the work involved, asset allocation ETFS will be used for the FHSA portfolio. These ETFs are pre-fab portfolios tuned to different levels of risk tolerance. There are conservative, balanced, growth and all-stock versions, each with a different mix of underlying fund holding bonds and stocks from Canada, the United States and other parts of the world. You don’t need anything else in your FHSA than one well chosen asset allocation ETF.

Go with the risk level that suits you when choosing an asset allocation ETF. For many people, a growth fund weighted 80 per cent stocks and 20 per cent bonds will make sense initially. Investors more comfortable with stock market risk could go with an all-equity fund.

FHSAs can remain open for as long as 15 years, or until the end of the year you turn 71. If you don’t buy a house at some point, you can transfer your FHSA into your RRSP tax-free or withdraw the money and pay tax.

Assuming you buy a house, you’ll want to tamp down some of the risk in your FHSA at some point. If you plan to keep the FHSA for 15 years, you could think about lowering the risk level around Year 12.

If you decide suddenly to start looking for a home, then de-risk your FHSA immediately. One way to do this would be to sell your aggressive asset allocation fund holdings and put the money into high interest savings account ETFs or mutual funds, or cashable guaranteed investment certificates.

Someone who is seriously looking to buy a home wants an FHSA that is both liquid and safe. You don’t want to be worrying about what the stock market is doing on the day you make an offer to buy a first home.

-- Rob Carrick, personal finance columnist

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Stocks to ponder

Constellation Software Inc. (CSU-T) Its share price has surged to record highs after shaking off a lull in 2022, and David Berman says there’s at least one good reason to stick with this rally: The company is picking off acquisitions at a brisk pace.

Prime Mining Corp. (PRYM-X) This exploration company has seen its share price jump 42 per cent year-to-date and the average one-year target price implies the share price may nearly double over the next year. Jennifer Dowty looks at the investment case.

The Rundown

Want to know how to profit from AI? Here’s what ChatGPT advises

How we can profit from the dizzying new branch of science known as artificial intelligence? What better way to find out than to go right to the source. Gordon Pape asked the question to ChatGPT. The reply he received in less than a minute was impressive - and scary.

Looking to catch some smaller stocks with big dividends? Try the Perch portfolio

Norman Rothery’s “Perch Portfolio” screens for smaller-sized stocks in Canada that pay dividends and looks for low price-to-earnings ratios. Since 1999, it has more than doubled the annualized returns of the S&P/TSX Composite Index. He discusses the portfolio here and provides updates on this and other dividend and value portfolios here.

Being smart can take a while to pay off as an investor

Does it require unusual intelligence to succeed as an investor? Not really. All the evidence suggests the opposite may be closer to the truth. As Ian McGugan explains, true intelligence lies in managing your expectations – particularly when it comes to understanding what investing research can and can’t do for you.

Short seller bets against Canadian banks are nothing to worry about

The recent failure of three U.S. regional banks and the merger of Credit Suisse with UBS Group has heightened worries about the global financial system. What about Canadian banks – is the contagion going to spread to them? One way to assess the risk is to look at short-selling activity in bank stocks. And despite some headline-grabbing media reports last week about TD Bank, short sellers have not significantly ramped up their bets against any of the major banks when looked at from a wider perspective, as Larry MacDonald reports.

Also see:

John Heinzl explains why he’s buying Canadian banks when others are fearful

Heroes or villains: Short sellers’ role in the U.S. bank crisis

The 5-per-cent GIC is fading into the sunset - with one exception

We hit a sad milestone in GIC investing in early April – 5-per-cent returns were no longer widely available on terms of two through five years from alternative banks. Yet, they are still available for those clever enough to find them, as Rob Carrick reports.

‘Powell’s curve’ plunges to new lows, flashing US recession warning

The Federal Reserve’s preferred bond market signal of an upcoming recession has plunged to fresh lows, bolstering the case for those who believe the central bank will soon need to cut rates in order to revive economic activity.

Also see:

Another Fed milestone? Policy peak with negative real rates

How markets and economists are reacting to Canada’s surprisingly strong jobs report

U.S. dividend funds see biggest quarterly outflows in over 2 years as investors seek safer investments

Others (for subscribers)

The highest-yielding stocks on the TSX, plus risk data

The most oversold and overbought stocks on the TSX

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: President invests nearly $1-million in this diversified miner

Number Cruncher: 13 U.S. health care stocks starting to shine again

Number Cruncher: 19 active global stock ETFs with oil exposure

Globe Advisor

Why this $1-billion fund manager is betting on a mining takeover target and selling high dividend-paying utilities

DWS Xtrackers stages largest ETF launch in history

Hedge funds made US$7-billion from betting against banks during turmoil

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: In a recent article, there were references to meme stocks. I don’t have a clue what that term means. What is a meme stock? – Jane R.

Answer: A meme stock is one that becomes popular with retail investors through social media. They become the topic of on-line discussion groups, who sometimes use their collective buying power to purchase shares in a company to drive up the price. The results can be astounding. On Jan. 27, 2020, shares in GameStop (GME-N) reached a high of US$86.88, up 134 per cent from the day before. The company wasn’t worth anything like that, either from a financial or business perspective. Needless to say, the inflated price didn’t last long. Investors took profits and the shares plunged. By year-end, they were down to US$4.82.

We still see periodic social media activity around GameStop and other meme stocks. GME traded as high as US$49.85 in 2022. As I write, it’s at US$23.98. I don’t recommend GME or any other meme stock but some young investors love playing them, as if they were video games. The U.S. Securities and Exchange Commission has investigated but took no action, beyond issuing a report.

--Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question in the subject line)

What’s up in the days ahead

U.S. inflation data to test market’s bets on future Fed easing

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Compiled by Globe Investor Staff