Waiting until late in the year to make your annual RRIF withdrawal has never looked better than it does in 2020.
With the stock markets crashing back in March, the federal government reduced the required minimum withdrawal from registered retirement income funds for 2020 by 25 per cent. The point was to lessen the pain for retirees who had to cash in hard-hit stocks and equity funds to cover their RRIF withdrawal amount.
What happened next was a massive stock market rally that has only gained momentum lately because of optimism that new vaccines will end the pandemic. Now is actually an awesome time to sell something in your RRIF to fund your reduced withdrawal amount. You’re basically taking profits, a sensible thing to do just now. If your stocks have run ahead of your bond holdings, you’re rebalancing your portfolio to return to your target asset mix.
I heard in the spring from quite a few seniors who were unnerved about having to sell investments in their RRIF after the March market plunge that, at worst, saw the S&P/TSX Composite Index down by about 37 per cent. Reducing the required minimum withdrawal didn’t eliminate their anxiety, but it helped.
The stock market rally offers a lesson in not panicking or making spur of the moment investing decisions after a big market decline. Granted, the rebound from the market crash was unusually quick and decisive. But the crash itself happened in a sped-up way, with investors panicking as the pandemic advanced globally. Government financial supports and low interest rates helped stocks start climbing again.
The events of 2020 in stocks also highlight the importance of keeping enough cash in a RRIF to cover two or three years of mandatory withdrawals. Cash is trash these days from an interest-earning point of view, but it offers invaluable peace of mind when stocks plunge.
Now, what about people who took money out of their RRIFs in January and February, before the pandemic hit and the government lowered the minimum withdrawal amount? The word from the Canada Revenue Agency is that you can’t retroactively take advantage of the 25-per-cent reduction in the minimum withdrawal.
“Individuals who withdrew more than the reduced 2020 minimum amount are not able to recontribute the excess amount to their RRIFs,” a CRA spokesman said by e-mail.
-- Rob Carrick, personal finance columnist
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
BBTV Holdings Inc. (BBTV-T) Investors in the Vancouver-based company that owns digital platform BroadbandTV — which helps video creators make more money from advertising that runs with their content on social media platforms such as YouTube — have seen their shares drop by about 20 per cent since it went public at $16 a share on Oct. 28. Analysts believe the drop in BBTV stock is largely due to the sectoral shift away from technology stocks in recent weeks. And some believe that’s setting up an attractive buying opportunity. Sean Silcoff and Brenda Bouw tell us more about CEO Shahrzad Rafatiis’ mission to win over the market. (for subscribers)
Score Media and Gaming Inc. (SCR-T) Toronto-based theScore provides its users with live sports scores, news, and statistics through its “theScore” app, and also allows users to place sports bets through its “theScore Bet” app. Last week, the company came one step closer to being able to offer sport betting in Canada when the Canadian federal government introduced legislation that would legalize single-event sports betting. Over the past two trading sessions, the share price has soared 84 per cent on extremely high volume. The year 2021 offers a tremendous potential growth opportunity for the company as well as other possible catalysts that could lift the share price even higher. Jennifer Dowty looks at the investment case for the stock. (for subscribers)
Tesla zooms past Warren Buffett’s vast empire in market value, putting investors in a precarious position
Elon Musk’s upstart electric-car business is now worth more than Warren Buffett’s entire empire – a vivid demonstration of how obsessed investors have become with discovering the next great tech company. It also raises some serious questions about the market’s obsession with high-growth technology companies no matter how high their stock prices have climbed. Ian McGugan looks at the contrasting fortunes of the two stocks. (for subscribers)
Money is pouring into bond ETFs despite painfully low interest rates – here’s why
It’s a testament to the usefulness of bond ETFs that they’re selling briskly in a year when the outlook for fixed income has rarely looked less appealing. Introduced to the world 20 years ago right here in Canada, bond ETFs simplified life for investors who want to build their own diversified portfolios. Rob Carrick takes a detailed look at the asset class, including how 10 of the biggest TSX-listed bond ETFs stack up in fees and yields. (for subscribers)
Investors weigh prospects for U.S. corporate earnings as stocks set records
As U.S. stocks scale fresh record highs, investors are trying to gauge whether next year’s projected profit rebound will be strong enough to add fuel to the rally. Analysts are projecting that earnings for S&P 500 companies will rise 23% next year after falling more than 15% this year due to the coronavirus pandemic, according to IBES data from Refinitiv. Yet stock prices have already staged a massive recovery from the March lows of the pandemic, with the S&P 500 index rising more than 60% from its bottom to its recent record highs amid progress toward a COVID-19 vaccine and hopes for a speedy economic recovery. Caroline Valetkevitch looks at what may happen next. (for subscribers)
Toronto telemedicine company MindBeacon looks to go public on TSX as demand surges during pandemic
Veteran Bay Street financier and entrepreneur Sam Duboc is set to take his telemedicine startup MindBeacon Software Inc. public on the Toronto Stock Exchange amid a surge in demand for digitally delivered health services during the pandemic. Sean Silcoff reports. (for subscribers)
Others (for subscribers)
Monday’s Insider Report: Director accumulates this large-cap dividend stock as it nears oversold territory
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: What is your opinion of the new VRIF ETF from Vanguard? I’m retired and need monthly income from my LIRA. Also, which dividend ETF do you recommend, instead of picking individual dividend stocks, for a retiree with a mid to low risk tolerance and no company pension? Thanks. - Paul H.
Answer: VRIF is the ticker symbol for Vanguard Retirement Income ETF Portfolio. It was issued at a price of $25 per unit and started trading in mid-September. At the time of writing, the price was $25.80.
Investors receive a fixed monthly payout of 8.33 cents or $1 per year, for a yield of 3.9 per cent at the current price. That should be sustainable, depending on how the assets perform.
This is a fund of funds, which invests in eight Vanguard ETFs. As of Oct. 31, the asset mix was 54.4 per cent stock funds, 45.5 per cent bond funds, and a small amount of cash. Equity positions were 36.4 per cent in the U.S., 17.9 per cent in Canada, 10.3 per cent in Japan, and 5.2 per cent in the U.K. No other country had a weighting of more than 5 per cent. The top three stock positions were all major technology companies: Apple Inc., Microsoft Corp., and Amazon.com Inc.
The MER is a very reasonable 0.29 per cent.
We have no history to guide us here but based on the concept of this portfolio and the assets it holds, it looks like a reasonable choice for income investors. The roughly 50-50 bond/stock split limits the equity exposure. However, there is always a risk that the fund will not generate enough income to maintain the current rate of distribution. In that event, the payment would either have to be cut or, more likely, the shortfall would be made up by return of capital, which would erode the fund’s net asset value.
As for alternatives, the ETF industry has been slow to offer balanced funds, although more are appearing now. For a pure equity dividend fund, I like the SPDR Dividend ETF (NYSE: SDY). It pays a quarterly distribution, which varies. Over the past year, investors received US$2.827 per unit, for a trailing yield of 2.7 per cent.
What’s up in the days ahead
Are we in the early innings of another commodity “super-cycle”? David Berman will share his insight.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
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