I currently own several mutual funds with a DSC (deferred sales charge). Can I move the money in these funds to other funds from the same mutual fund company without incurring a fee? If so, will the DSC be reset thus requiring that I keep my money in that family for another lengthy period? – Robert H.
 

Mutual fund companies set their own policies in this regard but most allow a switch from one fund to another within their organization without triggering a deferred sales charge. However, most companies also allow advisors to charge a switching fee of up to 2%. That is rarely applied in practice but you should clarify that point with your advisor. Usually, the DSC is not reset after a switch but again you should verify this with the company.

I should add that I strongly advise against the purchase of DSC mutual fund units because they tend to lock you in. (For those who are not familiar with them, no sales commission is charged when DSC units are purchased but if they are sold within a specific period, usually seven years, a commission becomes payable). Investors should purchase no-load funds or front-end load units at zero commission. – G.P.
 

You have suggested adding some gold to our portfolio as protection against future inflation. Is there anything else besides gold that we can buy such as REITs, oil stocks, infrastructure stocks, or are there any mutual funds that we can buy in case high inflation sets in next year? When that happens, will cash in money market funds become trash? What can we do besides buying gold? – T.V.
 

Hard assets tend to fare well in an inflationary environment. That suggests investing in resource stocks or natural resource mutual funds if it appears inflation is about to take hold. Normally, real estate would fall into that category as well but the current state of the market suggests caution.

In recent months, hundreds of billions of dollars have poured into government bonds. That makes sense in a recessionary environment but when inflation starts to climb you should dump most of your bonds immediately. As for money market funds (MMFs), they may do well because central banks will increase interest rates to combat inflationary trends. Higher rates will translate into better yields on MMFs, which right now are returning almost nothing. – G.P. 
 

I am planning to invest in REITs and I keep reading that they should be held in a non-registered account (outside an RRSP). Could you clarify why? Is the monthly distribution treated as a dividend (tax efficient)? Also, what is the impact on the new rule for 2011 on the REITs? – Ali J.
 

Part of the distribution paid by a REIT receives favourable tax treatment, which is why it is better to hold the units in a non-registered account if possible. For example, slightly more than half of the 2008 distribution from RioCan REIT (which totalled $1.36 per unit) was treated as return of capital for tax purposes. That means no tax will be assessed on that amount for the 2008 tax year. This is not a tax exemption but a deferral; when it comes time to sell the units some tax will become payable but not as much as if the money had been received as interest. – G.P.
 

What is a usual interest rate banks offer for a TFSA? - Ivan R. 
 

There is no "usual" rate. It depends on the type of plan and the financial institution you are dealing with. If you have a savings account type of TFSA, the current interest rate will be minimal. It should rise when interest rates generally move higher but that may not be for some time. If you invest in a GIC, the rate will depend on the term and the type of GIC (redeemable or non-redeemable). A market-linked GIC will carry no fixed interest rate. Also, smaller institutions usually offer better rates. Shop around.

Remember, a TFSA does not have to come with any interest rate. It depends on the plan and how you invest. If you choose a mutual fund plan or a self-directed plan, no interest rate will apply. - G.P.
 

My husband passed away on May 17, 2009. He has a TFSA with our bank. The chequing and saving accounts are now in my name. It seems that my bank does not know what to do with his $5,000. Any ideas? - Irene D. 
 

My condolences on your loss. It sounds like he did not designate you as a successor holder or beneficiary before he died. Perhaps this was because your province of residence had not approved enabling legislation.

The assets in the plan should pass to you tax-free nonetheless but they might have to be processed as part of his estate, depending on the laws in your province. You should speak to a lawyer who specializes in this field. - G.P.
 

I have 20,000 in an RRSP which matured in June. I did not hear from my bank so I thought the money was still sitting there. When I went over to the bank to withdraw some money because I needed it, they told me that they could not get in touch with me so they put the cash into a GIC which is locked in until next July. I have lived at the same address for many years and still have the same phone number. I did not hear from the bank regarding these funds. Can the bank do that? I need my money now. Thanks a lot. - Charles
 

Yes, they can do that. Nor did they need to contact you first. This is one of the aspects of GICs that few people know about. At maturity, certificates are automatically rolled over for another term at the current interest rate. It is up to the investor to give the bank instructions to the contrary. To prevent this happening in future, give your bank a letter now saying that in future no GIC is to be rolled over without your authorization. Then ask a manager whether the bank is willing to cash in the GIC now because of the extenuating circumstances. You will probably lose any interest but it won't amount to much. - G.P.
 

I have a question about corporate class mutual funds. It has been suggested that I use this kind of class for revenue purposes. I'm told that I will not pay tax on the income that the fund will generate, only on dividends and capital gains. Is this true and is there a catch? I'm looking for a monthly revenue stream. This seems to be all good with no downside. Is this too good to be true? - Patrick A.
 

Yes, I'm afraid it is. Either the concept of corporate class units was poorly explained or you did not understand exactly how they work. The idea of corporate class units is to allow you to move money from one type of mutual fund to another without triggering a taxable event. This is done by creating investment "pools" of various types under the umbrella of a single large fund. Money movements under that umbrella fund are tax-free. But when you withdraw money, it becomes taxable.

Here's an example. Suppose you own units in an ordinary global stock fund and you want to invest that money in a bond fund. You would have to sell the stock fund units first, thereby creating a taxable capital gain or loss, assuming the units are not in a registered plan. You then use the cash to buy the bond fund.

Within a corporate class account, your money could be moved from the global fund to the bond fund with no tax liability. But if you decided to sell the global fund and withdraw the cash, then tax becomes payable on your profits. - G.P.  
 

I borrowed Sleep-Easy Investing for a weekend last November after my RRSP declines (100% equity) and revamped my allocations with a better spread of GICs, fixed income, large and small cap equities. I'm much more comfortable with the set-up now and had no trouble sending in my bi-monthly contributions even through the dark months prior to the March 2009 rebound. Thanks again for the advice. I'll no doubt have to weather more downturns before retirement but I'm pretty much sold on this investing philosophy.
 
Question: are there any rules of thumb for being temporarily overweight/underweight in a sector while still adhering to the Sleep-Easy approach? 
 
I'm 42 and a father of six. My preferred target allocation mix is 42% bonds and 58% equities. For the last 10 months I've been investing at a 32% bond - 68% equity ratio because the latter had been grossly oversold (generally speaking) during the meltdown. Over the next few years I plan to alter the mix by 4% per year so that by age 45 I'm back where I need to be (45% bond - 55% equity). Good idea? Or is this a departure from the Sleep-Easy ideology? - Regan B. 
 

Market fluctuations make it almost impossible to maintain exactly the same portfolio balance from week to week or even month to month. What's more important is to have a target and to adjust your portfolio periodically to get as close to it as possible. I recommend reviewing the portfolio at least once a quarter. In the case of a cosmic shift in the markets, such as we experienced, it may take some time to make adjustments, as you have recognized. You have a good plan so stick with it. - G.P.
 

Please let me know if I can claim capital losses for U.S. mutual fund purchases in an RESP (RBC O’Shaughnessy U.S. Value) made years ago. I would like to sell so I can place the remaining money into more viable Canadian mutual funds. If possible, what steps are necessary to do so and how do I go about claiming the capital loss? Thanks very much. - Cathy C. 
 

You're out of luck. Capital losses incurred within any type of registered plan (RESP, RRSP, RRIF, TFSA, etc.) cannot be claimed. The offset, of course, is that any capital gains earned within the plans are not taxed. - G.P.
 

I have just finished reading your book on Tax-Free Savings Accounts (TFSAs). Very informative and easy to understand. My question is: you gave examples of how couples can become millionaires. Great, but what does a 70-year-old widow do to achieve similar status? I did start a TFSA this year and have investments in mutual funds, GICs, etc. How do I position myself to get the best results? Thank you for paying attention to those of us who don't want to leave ALL our money to the governments! - Gail M.
 

I wish I could promise you too could become a millionaire with your TFSA but unless you plan to live until about 110 I really can't. It takes time, especially given the low annual contribution limit of $5,000.

However, you can use your plan to maximize your tax-exempt investment earnings for as long as you live. The best way to achieve that is to hold securities that you expect to generate the most taxable profit inside your TFSA. These would normally be stocks or mutual funds, especially in this low interest rate environment.

Let's say you have a choice between investing in a GIC that pays 2.5% and a stock that you expect to gain 10% over the next year. For every $1,000 invested in the GIC, you would shelter $25 annually in interest. The stock would generate a capital gain of $100 for every $1,000 invested. Half of that ($50) would be taxable outside a TFSA. So you double the tax-sheltering value of the plan by holding the stock in the TFSA. Of course, that involves more risk but your question was how to get the best results. - G.P.