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The inbox is full of questions again, so let’s plunge right in.

Investing for the kids

Q - I have three kids who are four years apart from each other. My eldest one just turned 18. My plan is to open a trading account for each of them when they turn 18 and lend them $200,000 each (from my company) and invest in the VFV ETF for the next 25 years. Is this a good investment plan or would there be something better that you would recommend? – Trishan R.

A –You plan to invest in VFV (VTC-T), which is the trading symbol for the Vanguard S&P 500 Index ETF. That’s a decent choice. The fund has a 10-year average annual compound rate of return of 14.34 per cent and a very low MER of 0.09 per cent.

But, good as this fund is, are you comfortable putting all the eggs in one basket for years to come? Market conditions can, and undoubtedly will, change dramatically over that time. And the tax position of your children may be such that at some point they would like to own more tax-effective securities.

The all-in-one approach leaves no room for diversification, either by security type or geographically. An alternative that would be easy to manage is to divide the money between four ETFs based on the S&P 500, TSX, EAFE, and bonds. The asset allocation can be adjusted depending on market conditions.

The bottom line is to retain flexibility. The financial markets are volatile and unpredictable. Manage your money accordingly. - G.P.

Portfolio size

Q - Can you give me some guidance regarding the number of holdings based on total dollars invested? I began my journey about 12 years ago following your newsletter suggestions. I had never previously been a DIY investor but decided to try to see if I had the aptitude and confidence to do so.

I began with approximately $50,000 to see if I could manage to successfully invest. With your help I have been successful.

I have a non-registered account, a TFSA for my wife, and I and manage a TFSA for my son. Recently I took over managing my RRIF account from the investment manager I was using because their performance was significantly worse than my accounts and I was paying a large fee in addition.

In addition to those funds, I was fortunate to inherit money from my parents.

At present my total of all the portfolio is more than $1-million. I currently have about 60 stock/bond positions across the five portfolios. Is this too many to manage? – Gord Z.

A - You certainly have done well. Congratulations.

As for the number of positions, 60 is a lot. The fact you’re asking the question suggests you feel the same. That’s an average of about $16,700 per position, which is small in a portfolio of that size. If you aimed for 25 positions, the average would be $40,000 each. This strikes me as more manageable, while maintaining good portfolio balance.

You could reduce this even more by using five index ETFs to cover the TSX, S&P 500, Russell 2000, and EAFE, plus the bond market. Then choose 10-15 individual stocks from the U.S. and Canada to target companies you feel have above-average prospects. Portfolio size: 15-20 positions.

Having said this, if you are generating above-average returns and you’re comfortable with the current situation, don’t change. - G.P.

Son plans to invest

Q - My son will be turning 18 soon and he is eager to begin investing in equities with money saved from his part-time job. Assuming that his total annual income (including RESP withdrawals) remains below the personal exemption income tax threshold, are there any advantages to him by investing within a registered account rather than a non-registered account? I presume that a non-registered account would be faster and easier to open up.

Thank you in advance for your consideration and advice. - Richard M.

A – I suggest he consider a Tax-Free Savings Account. Since he is interested in equities, it means he is hoping to generate capital gains. Why not protect those hoped-for profits from tax? He is eligible to open an account when he turns 18 and can contribute up to $7,000 this year. He can use a discount broker to set up the plan. I suggest he start with a one or two equity ETFs, since the amount of cash he’ll have to start with is minimal. As the value of the plan increases over the years, he can move to individual stocks. – G.P.

Cash wedging

Q – I am 62 and considering retirement at 66 or somewhere around there. Recently a retired colleague mentioned about cash wedging one’s retirement portfolio. Apparently, this helps protect the portfolio from withdrawing income when the market is down.

As I understand it, the idea is to withdraw a cash buffer of three times the needed annual income and invest it as follows: one-third in a high interest savings account, one third in a one-year GIC, and the rest in a two-year GIC. In the event of a downturn, one would withdraw from this reserve and hopefully the market would recover in three years.

Is this a worthwhile strategy? I was considering doing it right now, in advance of retirement. I would invest a third of my anticipated income in retirement in a three-year GIC, one-third in a four-year GIC, and one-third in a five-year GIC. So, by the time I retire, I would have one-third ready to use, and two more years remaining.

I will greatly appreciate your considered opinion on it. To me it makes sense. – Kamal G.

A – This is a very prudent way to approach retirement planning, but it comes with a price. If the market continues to rise, you’ll forego much of the potential profit, with your money tied up in interest-based securities. On the other hand, you’ll have peace of mind, knowing that your income is guaranteed for the next three years no matter what the market does.

One point to note. You mention withdrawing money to do this. If you are talking about taking it out of a registered plan, I would advise against it. Such a withdrawal would attract tax at your marginal rate, which could be over 50 per cent depending on your total income and your province of residence. You could achieve the same goal by setting up your high interest account and GICs within a registered plan. You would then withdraw the money each year as you need it at, presumably, a lower tax rate. – G.P.

OAS clawback

Q - I understand that if you are above the top income limit of Old Age Security (OAS), it will all be clawed back. I am 65 and have not started OAS payments. Can I decline them if I don’t get the income? - Pamela Z.

A –There as an OAS “clawback” that kicks in if your net income is over $90,997 for the 2024 tax year. But you don’t have to repay all the money. The “pension recovery tax”, as it’s called, is 15 per cent of every dollar you receive above the income threshold. According to the Canada Revenue Agency website, your income would have to exceed $148,065 for the total payment to be taxed away in 2024.

You must apply to start payments. You can delay until age 70 if you wish. Your benefit will increase by 0.6 per cent for each month you delay. If your income is high, delay applying but do so when you reach 70. No one knows what the future may bring and you might need the money at some point. – G.P.

If you have a financial question, send it to me at and write Globe Question on the subject line. I can’t promise a personal response, but I’ll answer as many questions as possible in this space.

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

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