Dear Nancy Woods:
My close friend told me about a penny resource stock that he made a lot of money on. He wants me to invest in it, too. He says he thinks it could still double in value. What should I do?
Penny Shy
Dear P.S.:
Your friend could very well have made a lot of money on his stock and wants you to benefit. However, past experience has taught me that people will often tell you about their winners, not their losers. Rarely is someone eager to tell you how much money they lost while speculating on junior resource stocks. It would mean they made a mistake.
My words of caution are to remember you would be buying after the stock has made a significant move and you can never be sure of the future upside. Consider buying an amount that you can afford to lose so it won’t be disastrous if the price goes down. If your friend is right and the stock price does double, you will be happy you bought and made some money, even if it is not enough for you to retire on. These types of stocks are very speculative and not for everyone. Manage your expectations and you won’t be disappointed.
Dear Nancy Woods:
There has been lots of press about income trusts and the possibility of change in how these investments are taxed. I own a number of these. How could I be affected?
Trusting Investor
Dear T.I.:
The recent announcement by BCE that it will convert itself into an income trust has raised the awareness of the loss of tax revenue to the federal government. You can be sure the government is watching this closely and that this deal raises the probability of a change. The opinion of RBC’s Portfolio Advisory Desk is in the past, these tax rumblings hardly affected REITs and oil and gas trusts. You should review your income trusts and do a careful analysis with your advisor to fully understand the underlying businesses of these trusts. Pay extra attention to business trusts that may be more susceptible to changes — if there are any taxation changes.
Source: canada.com
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