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There is more to worry about than usual for Canadian investors. A short list of concerns includes NAFTA, rising interest rates, potentially peaking global growth, intensifying credit stress in China (the country responsible for half the world’s demand for most commodities), rising oil production by OPEC and U.S. shale operators, and domestic household debt combined with a softening real estate market. That’s just off the top of my head.

There’s ample reason for investor anxiety. Reasonable equity investors probably should be nervous. It is periods like these when the rules of investing are most important, and ironically also the time when they are hardest to follow.

I’ve frequently compared investing to dieting in that most people know the rules – ‘don’t eat the Timbits when they’re in the office kitchen’ and ‘don’t react emotionally and sell everything during market downdrafts’ are variations on the same self-disciplined theme.

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There are some classes of investors who should consider marginal changes to their portfolios because of volatility. Canadians close to retirement, or already retired and looking to make their savings last, would be prudent to raise cash by trimming some of their most aggressive investments. There are a number of economists and strategists, notably Gluskin Sheff’s David Rosenberg and Morgan Stanley’s Andrew Sheets, who believe the bull market is either over or on its last legs.

Investors with time horizons of 10 years or longer can also raise cash if they’re having trouble sleeping at night – it’s not worth it. But by and large the academic research overwhelmingly suggests that the best strategy when markets get dicey is to do nothing. Long term investment returns have been shown to decline in line with the number of portfolio transactions. – the more tinkering investors do in their portfolio, the lower returns become. If you liked your holdings last month, you can like them now as long as nothing fundamental has changed.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.

Stocks to ponder

Brookfield Real Estate Services Inc. (BRE-T). This stock would have appeared on the positive breakouts list (stocks with positive price momentum) except its market capitalization is just under the minimum screening threshold of $200-million. It is a micro-cap stock with a market capitalization of $179-million that pays its investors a monthly dividend, currently equating to an attractive 7.1 per cent yield. The share price has been in a multi-year uptrend, rising 14 per cent year-to-date and closing at a record high on Wednesday. The company offers investors exposure to the Canadian residential real estate market. Toronto-based Brookfield Real Estate Services Inc., or BRESI, is a real estate brokerage company operating under well-known brands: Royal LePage, Johnston & Daniel, and Quebec-based Via Capitale. Jennifer Dowty reports (for subscribers).

Kelt Exploration Ltd. (KEL-T). This stock is on the verge of appearing on the positive breakouts list (stocks with positive price momentum). The company has a strong growth profile that is anticipated to continue. As a result, the stock has 14 buy recommendations. Year-to-date, the share price is up 22 per cent and analysts are forecasting a potential further gain of 24 per cent. Calgary-based Kelt Exploration is a natural gas-weighted producer with operations principally in west central Alberta and northeastern British Columbia. For 2018, management expects the production mix to be 53-per-cent gas and 47-per-cent oil and NGLs (natural gas liquids). Jennifer Dowty reports (for subscribers).

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Corus Entertainment Inc. (CJR-B-T) Corus Entertainment Inc. slashed its dividend, took a $1-billion impairment charge and saw its share price plunge to a record low on Wednesday. With so much bad news weighing on investors, is there now a compelling case for taking a flyer on this troubled broadcaster? It’s certainly challenging to construct a bullish case given the long list of problems facing the company, but investing at the point of maximum pessimism sometimes has its rewards. David Berman reports (for subscribers).

Constellation Brands Inc. (STZ-N). Certain investors, like Warren Buffett, make money just being themselves. When his Berkshire Hathaway reveals an investment in a public company, investors rush in on Mr. Buffett’s imprimatur, driving the shares up and providing the Oracle of Omaha with a tidy profit. Alcohol giant Constellation Brands Inc. does not have such a reputation, at least not yet. But its wildly successful investment in Canada’s Canopy Growth Corp. seems like a page out of the Buffett playbook. Constellation’s $245-million investment in Canopy shares at the end of October was worth, at Wednesday’s close of $36.93, nearly $1.2-billion. That’s a gain of more than 385 per cent in less than eight months. David Milstead reports (for subscribers).

The Rundown

Scotiabank division faces class action suit over advice fees

Two law firms have filed a proposed class-action suit again Bank of Nova Scotia’s investment management arm, alleging that investors in its funds paid millions of dollars in fees for advice they didn’t receive. Ontario-based firms Siskinds LLP and Bates Barristers PC filed the $200-million action against 1832 Asset Management LP. The suit claims that investors who bought the firm’s funds through discount brokers were overcharged because the funds paid a trailing commission. Those commissions are normally provided to financial advisers who recommend funds to their clients – but investors who buy funds through a discount brokerage do not receive any advice or recommendations. Clare O’Hara reports.

The remarkable chart that shows just how important trade has become for your portfolio

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Global stocks may be rebounding on Tuesday following Monday’s big selloff, but is global trade still lingering as a top concern among investors? It sure looks that way. Economists at National Bank Financial examined export sensitivity among four economies – comparing their share of exports to gross domestic product – and found that the United States may be the least sensitive to decreasing trade flows, while the Eurozone is the most sensitive. Canada is somewhere between the two. David Berman takes a look at what this all means (for subscribers).

Economists’ predictions for bond yields suggest big gains ahead for the loonie – but don’t believe it

Economists’ predictions for domestic and U.S. bond yields paint a very bullish picture for the loonie in the second half of 2018, but there’s a problem – where Canada is concerned, the forecasts make little sense. Scott Barlow examines the charts (for subscribers).

Did you get faked out by soaring bond yields?

May 17 was a big day in investing for the year so far. That’s when high rate hysteria peaked. The five-year Government of Canada bond yield hit 2.33 per cent, which compared to 0.91 per cent a year earlier. Bonds and bond funds were in full retreat at this point and utility stocks, long an investor favourite, were being pushed steadily lower. What’s happened since then with interest rates is a lesson on why investors shouldn’t over react to periodic shifts in financial markets. Rob Carrick reports (for subscribers)

John Heinzl’s dividend-growth portfolio report card: Good, but with room for improvement

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Kids are getting their final grades this week, so this seems like an appropriate time to hand out Yield Hog’s report card, too. John Heinzl takes a look at his model portfolio and how well it has done since it was launched in late September. (for subscribers).

Lower fees, fund closures and other trends to watch for in the ETF industry

Consolidation in the exchange-traded funds industry would be a healthy development for retail investors, particularly in high-risk investment categories, industry executives say. “We have too many products that are not healthy for clients and too many manufacturers that are not bringing enough to the table to add value to your business,” said Christopher Doll, vice-president of ETF sales and strategy at Invesco Canada. “Especially in light of the fact that we will likely see the entrance of the remaining banks, the insurers and the integrated asset managers that are already in this space coming to market.” Mr. Doll spoke on a panel about the future of ETFs at the Inside ETFs conference in Montreal last week. Clare O’Hara reports.

Momentum investing can make you money – too bad the downside is brutal

Shh! Don’t tell anyone, but in the dark corners where financial professionals congregate, momentum investing is many people’s quiet obsession. Playing the momentum game consists of nothing more than buying stocks that have gone up in recent months. After a while, you repeat the process, plucking a fresh crop of winners. Despite this simple –some might say, idiotically simple – approach, momentum strategies have produced standout results in the past few decades. Should you jump in? The answer most likely has more to do with you than with the strategy itself. Ian McGugan reports for Report on Business Magazine (for subscribers).

Top Links (for subscribers)

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Cannabis investors adopting unwise ‘growth at any price’ strategy

Chinese think tank warns of ‘financial panic,’ threatening global commodity prices

Others (for subscribers)

Thursday’s analyst upgrades and downgrades

Thursday’s Insider Report: Companies insiders are buying and selling

Wednesday’s analyst upgrades and downgrades

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Wednesday’s Insider Report: Companies insiders are buying and selling

Others (for everyone)

More pain looms for emerging markets as lousy quarter sputters toward finish

In flip-flop, money managers now say S&P 500 has seen 2018 lows

U.S. investors dump Canadian stock ETF as trade fracas intensifies

Loonie forecasters still buying theory trade turmoil will pass

Tech stocks are killing it in Canada

GE fails to win over Wall Street

Number Crunchers (for subscribers)

Best of the best: Twelve mid-caps poised to stay in analysts’ good graces

Ask Globe Investor

Question: I am getting a divorce settlement in the form of a lump sum of money. Other than my house and a small RSP, this is all I will have. I am 68 and not working. I will need this money to pay all my expenses. I have talked to my adviser and there are a few things I am confused about. I am going to have her set up the account so I get a monthly payment into my bank account. She said that the monthly distribution I get is taxable. How can that be since tax was already paid on that money by my ex-husband? How do I have her send me just the money I put in so I don’t have to pay tax? Should I just take what I need from the original amount or just the income? I want to make sure I have some money to leave to my estate. Is that possible?

Answer: There are a couple of things I need to clarify for you so you’ll understand better what will be happening. The lump sum settlement will probably go into a non-registered investment account. The income or growth (also called capital gains) is taxable in this type of account. If you don’t already have a tax free savings account (TFSA), and you haven’t contributed to one before, you can contribute $57,500. The income and growth generated from your investments in this type of account are not subject to tax.

The cash flow that you will be receiving monthly cannot be specified as either capital or income. The income you earn on your invested capital is paid into your investment account and either re-invested, sits in cash or is paid to you. The income paid from your investments will, in most cases, be taxable. The same thing is true for capital gains that you earn. At the end of the year, you will get tax slips for the total amount of income you received, and you will need to report any gains or losses resulting from the sale of any investment. In a non-registered account, all income and gains are taxable even if they are derived from funds that were already taxed.

As for whether or not you should use some of the lump sum is more a matter of awareness. If you don’t invest the total settlement amount then you are limiting the amount of income you could potentially earn.

Here is a simple analogy to help you. Granted, it’s not exact, but you’ll get the idea:

Your capital is invested in stocks or, in this illustration, cows.

The cows produce milk - that is your income.

The cows also produce calves. The calves are the growth, as they will grow to increase the number of cows you have and, subsequently, the amount of milk you generate.

If you can cover your expenses using just the milk produced it would be best. You will always have a known amount of milk, or income.

However, if you reduce the amount of cows (taking more money out of your account than is generated), then you not only reduce your income, but also your growth potential. You need to be aware that if you keep reducing cows over time, there will be less income and little growth.

Depending on your income needs, and needs to draw on your original capital, you could conceivably run out of money and you don’t want that to happen, of course. Having a full financial plan done for you with projections and expectations would be best.

Speak to your financial adviser to get a better picture of your known income and fixed expenses. Draft a budget so you know what you are spending your money on and where. Hopefully, you have already done some planning in order to make sure that the lump sum you are going to receive is sufficient.

--Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc.

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

What’s in store for markets for the second half of this year, and how can investors protect themselves for any looming downturn? We’ll have an extensive package of stories and columns this weekend.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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