Skip to main content

Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group

It's time for another visit to the Q&A inbox to see what has been on your minds. Here are some of the latest queries.

Bond funds

Q - In a recent Q&A column you recommended to a reader that he buy XSB (iShares Canadian Short Term Bond Index ETF) as a low-risk bond fund. I am curious why you wouldn't recommend iShares Core Short Term High Quality Canadian Bond Index ETF (XSQ). Those funds seem nearly identical with respect to holdings and returns but XSQ charges half the management fee and MER. What am I missing? – Lorne D.

A – Both are short-term bond funds and, as you point out, the holdings are similar. In fact, when we look at the positions in the two funds it's hard to understand why Blackrock felt the need to create XSQ, which was launched in July 2014. Both funds have similar portfolio allocations. Federal bonds make up 45.8 per cent of the XSQ and 48.3 per cent of XSB. Provincial bonds are 13.9 per cent of XSQ and 16.9 per cent of XSB so overall XSB has slightly more exposure to government issues. Corporate bonds represent about 40 per cent of the XSQ holdings and 33.3 per cent of XSB. The biggest difference is sector exposure; almost all of XSQ corporates are in the financial sector.

As you point out, XSQ has a low management expense ratio of 0.14 per cent versus 0.28 per cent for XSB. But the one-year return to the end of March was almost the same for both: 1.01 per cent for XSQ and 1.02 per cent for XSB. Since XSQ has only been around since mid-2014, we don't have a longer history to compare.

The bottom line is these are very similar funds. You could choose either one. Longer-term, XSQ's lower MER may make a difference but we have not seen evidence of that yet. – G.P.

Tax-effective investments

Q – I'm 71 and I will be taking RRIF payments this year. My TFSA is maxed out. I've started investing outside my registered plans. What are the most tax-effective investments? – Maurice B.

A – There is a wide range of tax-effective securities from which to choose including REITs, limited partnerships, preferred shares, and Canadian dividend-paying common stocks. Some mutual fund companies also offer tax-effective funds, such as the Nexgen line from Natixis Global Asset Management.

While all these securities are tax effective, some are more so than others. Eligible dividends (those paid by large companies) are the best bet if your total income is relatively low. Because of the way the dividend tax credit is calculated, the effective rate for someone with an income of under $45,000 is under 10 per cent in most provinces. – G.P.

Managing a LIRA

Q - I was wondering if you could share some information about locked-in retirement accounts (LIRAs). I am required to transfer pension money to one and I'm having difficulty finding information about them, and would like to have some knowledge before contacting an advisor. Specifically I'm wondering if I can manage it on my own or am I required to go through an advisor? Do RRSP rules apply to LIRAs? – Jen C.

A - You can set up a self-directed LIRA and manage it on your own but it has to be with a brokerage firm if you want to buy stocks, ETFs, etc. If you only want mutual funds, you could work with a bank. As for RRSP rules, yes they apply to LIRAs but LIRA rules are more restrictive in terms of the amounts you can withdraw. That varies from province to province. – G.P.

U.S. dollar account

Q - Would there be an advantage to opening a U.S. dollar account to invest in stocks that have to be purchased in U.S. funds and having dividends paid into it? This would eliminate the currency exchange cost once we purchase the U.S. dollars to fund the account with. We do travel to the sunny south occasionally and could use any U.S. proceeds then. – Ann H.

A – Yes, it makes a lot of sense to do that. Most Canadian banks offer U.S. dollar accounts so you should have no problem in setting it up. – G.P.

Senior bank accounts

Q - Could you do a story about bank charges for seniors? At one time, seniors were not charged anything for monthly administrative charges. I remember that my mother got bank drafts at TD bank for free.

I have just turned 65, bank with Scotia, and am shocked to learn that they do nothing for seniors. I have their basic banking account, which pays absolutely no interest, and also charges me for dealing with the bank tellers. – Bea L.

A - CIBC has a 60+ Advantage Account that offers an interest rate of 0.2 per cent. However, it is strictly a savings account – no cheques. TD offers rebates on various accounts for those over 60. If any readers have found good deals for seniors from the banks, please let me know. - G.P.

That's all for this session. If you have a financial question you'd like me to tackle, send it to gpape@rogers.com and write Globe Question in the subject line. I can't guarantee a personal response, but the most interesting questions will be answered here on a regular basis.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca. Follow Gordon Pape on Twitter at twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe