Prepare to become intimately familiar with the limits of deposit insurance if you’re a downsizing baby boomer.
I’ve heard lately from several people asking what to do with the money they’ve been left with after selling the family home. Some of these people have cash remaining after buying a smaller home and some are renting, at least temporarily. Whatever the origin of this cash, the goal is the same. Keep the money safe by holding it in a savings account protected by deposit insurance.
In a recent edition of the Carrick on Money newsletter, I discussed the case of a reader whose father was about to receive $500,000 in proceeds from the sale of his home and wanted to use the funds to live in a retirement home. This reader asked whether he needs to spread the money between multiple financial institutions to get full protection from Canada Deposit Insurance Corp.
I noted in my answer that you can have multiple accounts eligible for $100,000 of coverage each (note: that’s principal plus interest) at the same bank. For example, a tax-free savings account holding guaranteed investment certificates and a regular, non-registered savings account would each be covered. But it’s quite possible this reader’s father would need to have accounts at multiple banks to stay fully within CDIC limits.
Readers reminded me that there’s another option – use a credit union. Credit unions have their own provincial deposit-insurance plans and coverage limits can be higher than CDIC, even unlimited. For example, Ontario credit unions have a $250,000 limit, while Manitoba credit unions have unlimited coverage. Manitoba’s unlimited coverage is noteworthy because the province is home to several credit unions with online banking divisions offering excellent rates on savings accounts and term deposits.
Deposit-insurance plans have their differences, though. CDIC is a federal Crown corporation, while the Deposit Insurance Corp. of Ontario is a government agency. By contrast, the Deposit Guarantee Corp. of Manitoba is not part of the Manitoba government.
Downsizing boomers with hundreds of thousands of dollars to park do not have to subdivide their money to have it protected by deposit insurance. But they may want to anyway if they prefer deposit insurance with government backing, particularly the federal government.
-- Rob Carrick
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Northland Power Inc. The stock provides investors with stable monthly dividends with a current dividend yield of 4.7 per cent and a conservative payout ratio. Analysts have been making minor adjustments to their target prices – all increases. And while the share price has rallied over 17 per cent year-to-date, the stock has underperformed relative to its peers. Jennifer Dowty profiles the stock
The key trend you now need to watch as stock prices begin to succumb to slowing economic growth
Global equity markets were treading water for much of September as signs of a slowdown in worldwide economic growth continued to mount. Then came October, and that complacent tone changed. It’s clear at this point that stock prices are adjusting lower to reflect the slower growth environment. So, what now? Our market strategist, Scott Barlow, shares his thoughts.
How this $925-million fund manager has been beating the market and what he’s buying and selling right now
Some portfolio managers talk about getting more defensive when markets are volatile and threats of recession loom, as is the case today. In that context, Daniel Goodman, chief executive at GFI Investment Counsel Ltd., believes he’s already in a good place. The Globe and Mail recently spoke to Mr. Goodman about his investing style and stocks he’s been buying and selling.
Will free stock trading ever come to Canada? It may be better if it doesn’t
Leading U.S. online brokerages are slashing their trading commissions to zero, leaving Canadian investors wondering whether a similar trend will take hold in Canada. But free stock trading comes with a downside: It can encourage too much trading. David Berman explains
Canadian securities regulators approve new investor protection rules but advocates want more
Canadian securities regulators have approved a set of investor protection rules that aims to hold advisers accountable for the investment decisions they make for clients, but investor advocates say the changes fall short. Known as client-focused reforms, the set of rules requires financial advisers to put clients’ interests first when deciding on which investments best suit their needs and do more to clarify what investors should expect from their advisers. Clare O’Hara reports
Neglected stocks aren’t always bargains
As a small-cap value investor, Robert Tattersall recognizes that many of the stocks in his portfolio have little or no sell-side research coverage. In fact, he often argues that this neglect creates the value opportunity that will be corrected as analyst coverage emerges to fill the void. Neglect is in fact a bigger contributor to value added than either a small cap or value strategy alone. Now, a recent article in the Britain’s Sunday Times suggests that there may be a different outcome from a looming dearth of analyst coverage – and it will not be positive. Mr. Tattersall explains what this may all mean for a Canadian investor.
Others (for subscribers)
Thursday’s Insider Report: CEO tops up his investment in this stock paying a regular and special dividend
Others (for everyone)
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: I purchased CI Cambridge Global High Income Fund several months ago. The price of has not moved much during this time. I note the yield is about 3.41 per cent. I am wondering why this equity is called “high” income when the results I’ve seen are so modest. Do you still recommend this equity? Please note I have some very good returns on a number of your recommendations. I look forward to your comments.
Answer: I recommended this fund in one of my newsletters in April 2013 when it was priced at $13.29. At the time, it was named the Cambridge High Income Fund and invested mainly in Canadian securities. The annual payout was 72 cents per unit, for a yield of 5.4 per cent. Since then the word “Global” has been added to the title and the fund now holds over 40 per cent of its assets outside Canada. The NAV (net asset value) at the time of writing was $11.60, and the fund continues to pay out 6 cents per month, or 72 cents per year. At the current price, the yield is 6.2 per cent.
The higher yield looks attractive, but the problem is that the fund has not been able to generate enough profit to sustain it. As a result, we’ve seen a gradual erosion of the NAV in recent years in order to maintain the 6-cent monthly payout. Three years ago at this time, the NAV was $12.53.
As a result, total returns are less than the current yield because of the gradual decline in NAV. The five-year average annual compounded rate of return to the end of August was only 3.4 per cent.
This is a case in which the yield can be deceiving. We need to focus on total return, and it is underwhelming. My advice is to consult with your financial adviser about other options.
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Ian McGugan explains why you should be skeptical of claims that one stock market is cheaper than another.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff