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It’s been a while since I’ve checked the Q&A inbox, so let’s see what issues people are concerned about.

Next wave

We are in another ‘wave’ in this pandemic with the Delta variant, with the fear of even more serious variants developing. What is that going to do this time to regular blue-chip stocks?

Stocks (blue-chip and others) have done very well throughout the pandemic, after the market plunged in March, 2020, when the seriousness of the coronavirus became apparent. It turned out to be the shortest bear market in history as all North American indexes rallied back to record highs.

There are four major reasons why this happened.

First, central banks slashed interest rates to near zero and reintroduced quantitative easing programs to stimulate the economy.

Second, massive government spending programs provided support for laid-off employees, small businesses, renters and others affected by the pandemic.

Third, stock markets always look to the future, not the past. Markets rose in anticipation of a recovery that would produce higher corporate profits, which has happened.

Finally, low interest rates have reduced real yields on bonds (after accounting for inflation and taxes) to negative territory, leaving stocks as the only profitable option.

As you note, we are now in the fourth wave of the pandemic. How bad will it be and what will be the impact on stocks? Even if it’s as bad as previous waves, which is doubtful because more people are now vaccinated, I doubt we will see the kind of reaction as we did in March, 2020. The safety mechanisms I mentioned are still in place and the recovery mentality continues to drive prices higher. Even record new infections in places such as Florida and Texas aren’t slowing down the markets.

However, given the strong run the markets have enjoyed, we are likely to experience a slowdown going forward. Prices are high and the components aren’t in place to sustain the recent momentum we’ve enjoyed.

The bottom line is the growth pattern of your blue-chip stocks is likely to slow, no matter what happens. That said, I’d continue to hold them for the long term.

ETF managers

With so many different types of ETFs in existence today, what is the difference between someone who constructs an ETF and a portfolio manager for a mutual fund? Except for the cost, there doesn’t seem much difference between mutual funds and most exchange-traded funds. It’s difficult to find out information about the people who construct an ETF, but easy to research performance of different mutual fund managers.

Most ETFs are passive, meaning they track the performance of a specific index. These can range from large indexes such as the S&P 500 to small, sector specific indexes. Because of this, no one picks individual stocks, and no extensive research is needed, which reduces costs significantly. There are a few ETFs that are actively managed, and you’ll find they charge higher fees.

By contrast, most mutual funds use active management, either by a team or an individual, with all the costs that entails for screening stocks. Someone must pick up the tab for all that work – and that someone is the individual investor.

U.S. investing

I have a little U.S. money in a U.S. cash account and I would like to invest in a non-registered investment – but not have the tax ramifications. I see there is the Harvest Healthcare Leaders ETF (HHL.U-T) which is denominated in U.S. dollars and pays its dividend in U.S. currency. Am I right that there would be no withholding tax on this investment? Are there any others of this type that might also be considered to keep my money in U.S. funds but on the TSX?

Yes, there are several ETFs that trade on the TSX and are denominated in U.S. dollars. However, they do not escape the withholding tax on U.S. dividends when held in non-registered accounts. You simply don’t see it. The tax is an expense to the fund and is deducted before the results are published.

Here’s what the iShares guide to foreign withholding tax has to say:

“While most countries impose some level of withholding tax on dividends paid to foreign investors, the exact amount that Canadian ETF investors are required to pay can vary depending on geography and asset class, as well as the structure of the exchange-traded fund and whether or not the ETF is held in a taxable or non-taxable investment account.

“When choosing which product to use, tax implications should be weighed against other product features, such as the investment strategy of the fund, its overall liquidity and management fees.”

Firm Capital

I am a senior planning to invest in Firm Capital shares yielding approximately 6 per cent for my retirement income. What effect will higher inflation and higher interest rates have on this stock?

First, I would never suggest investing all your assets in one stock, good as it may appear. I’d put a maximum of 15 per cent to 20 per cent on any security.

Firm Capital Mortgage Investment Corp. is a conservatively managed mortgage lending company, so higher rates mean it can charge higher interest on its loans.

Firm Capital is doing very well during this period of above-average inflation and gradually rising interest rates. The shares were trading below $13 at the start of 2021 and are now over $15. That’s near the stock’s all-time high so I would phase in your purchases over several months and take advantage of any pullbacks.

Also, remember this is a small company with an average daily volume of less than 25,000, so place limit orders.

Transferring RRIF assets

I have just changed my RRSP into a RRIF. At this point, my husband and I don’t need the extra money that I can access in this account. What I would like to do, instead, is transfer stock shares out of the RRIF account and put them in my tax-free savings account. I would like to do this instead of putting in the allowed yearly $6,000. I realize I would only be allowed the equivalent of $6,000 with my transferred shares. Is this doable?

Sorry, this idea won’t fly. You can’t transfer assets from a registered retirement income fund or a registered retirement savings plan directly into a TFSA. If you could, everyone would do it because RRSP/RRIF withdrawals are taxable whereas those from a TFSA are not.

The only way to do this is to make an in-kind transfer of the shares to a non-registered brokerage account and be assessed tax on the value withdrawn from the RRIF. Then you could transfer the shares into a TFSA.

The bottom line is that any RRSP/RRIF withdrawals in any form are taxable.

If you have a money question you’d like answered, send it to and write Globe Question on the subject line.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.