blog24feb2008

Hot Off the Web
Tim Cestnick had two articles in the Globe and mail explaining how options are taxed in Canada. In “Options trading and the taxman”  he outlines what puts and calls are and explains the roles of the option writer/seller and holder/buyer. The seller essentially commits to sell (call) or buy (put) some stocks at a given price prior to some date in exchange of an a premium received from the option buyer; the option buyer/holder gets the right, not the obligation, to buy or sell at the predetermined price. Gains or losses are taxed the same way as the underlying shares; either as income (if option buyer/seller is in “business” based on factors such as frequency and holding period)) or capital gains/losses (a typical investor). In his follow-on article “Determining how to tax options” Cestnick present a matrix of options are taxed depending on whether it is income or capital, for the seller/writer or holder/buyer, for puts and calls and if option expires or it is closed out.
In “The upside of ETF bounty” the Globe and Mail’s Rob Carrick presents some model portfolios based on the large variety of available ETFs. A 65% stock and 35% fixed income portfolio that he feels should provide portfolio stability and low maintenance, is composed of 5% Claymore Money Market, 25% iShares Canadian Bond Index, 5% iShares Canadian Corporate Bond Index, 35% iShares Canadian Composite Index , 15% iShares Canadian S&P 500 Index and 15% iShares MSCI EAFE Index . A second more aggressive portfolio that he recommends as suited for those with 30 years until retirement and high risk tolerance is composed exclusively of equity and commodity ETFs. (You may wish to consider if you really wanted a portfolio fully hedged back to the Canadian dollar; my inclination would be to select the unhedged versions of the indicated funds in the case of the more stable model. In the more aggressive model you might want to consider whether you really wanted a portfolio with zero fixed income component and if you really needed an extra 10% oil sands exposure in light of the high proportion of energy component built into the 40% Canadian equity index component).
Jonathan Chevreau tackles the same problem in the Financial Post’s “Willing to go the distance”  He refers steve Lowrie’s ETF based Lazy Portfolio, which is 30% bonds (Claymore 1- to 5- year Laddered Government Bond) and the equity portion is divided approximately into 23% iShares Canadian Composite index, 23% Vanguard U.S. Total Stock Market, 17% Vanguard Europe Pacific and 6% Vanguard Emerging Market. (I actually would add some commodities to the mix, and no doubt some would also include some REITs)
Andrea Coombes in WSJ’s “How to value a buyout offer”  warns readers to do their homework before jumping to accept a voluntary buyout package. Among others, consideration must be given to: (1) retirement risk (i.e. the plan to insure that you’ll have adequate income and the investment strategy to achieve that- professional help may be appropriate for such a significant decision), (2) income shortfall (planning to take another job to get extra income and is it realistic in terms being able to secure and hold the job), (3) healthcare cost (for Americans may be significant issue), (4) rejection risk (will you be let go anyways later with a lesser package)
In WSJ’s “Ruling allows workers to sue over 401(k) losses”  it reports the latest U.S. Supreme Court ruling upholding workers’ individual (not just collective) right to sue their employer/sponsor over 401(k) losses. Some of the recent issues pertained to employers offering unsuitable investment choices and high management fees.
And finally James Stewart in WSJ’s “Agriculture stocks belong in long-term portfolios” suggests another way (instead of an agri-commodity ETF or ETN) to participate in the agri-price boom. Why not invest in Monsanto (biotech based seed and herbicides), Deere (farm equipment), Bunge (soybean processor). He argues based on growing population, growing affluence in populous developing countries, and move to biofuels.
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