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By Dale Roberts
Special to Financial Independence Hub
Cut The Crap Investing recently looked at the go-to chart on creating retirement income. The post looked at sustainable spend rates. The 4% “rule” suggests that you can start at a 4.2% spend rate, and then increase spending each year to adjust for inflation. That protects your spending power and lifestyle in retirement.
That said, the 4% rule is based on a very conservative 50/50 stock to bond allocation using U.S. assets. We might be able to boost the spend rate in retirement by adding more growth and more non-correlated assets.
Here’s the post – creating retirement income from your portfolio. The very telling chart in that post looks at 4%, 5% and 6% spend rates for every month start date from 1994.
Check out the updated GIC rates at EQ Bank
See the blog post for how to read this chart.
In the above post and charts we see the challenges of a 5% or 6% spend rate with a traditional balanced portfolio.
Here’s a very good post that shows how we can potentially boost our spend rate. And the go-to table on boosting your retirement start date with gold, REITs, small cap value, and international stocks in the mix. The equity allocation is moved up to 70% as well.
From that post …
So instead of limiting your retirement portfolio to the S&P 500 and government bonds, think about diversifying with small-cap value and gold! If you don’t mind a little more complexity, go a step further with REITs, utilities, and international stocks. This level of diversification has done very well in the past. It includes at least one asset that does well in each type of economic situation.
That post offers a nod to the all-weather portfolio and utilities as a defensive asset. Readers will know I am a favour of both additions, especially the defensive sectors for retirement that includes consumer staples, healthcare and utilities (including pipelines and telco). I’m hopeful that the approach will allow us to boost our spend rate to the 5-6% range.
Canadian banks in 2024
At the beginning of the month we looked at investing in Canadian banks. I noted that it is difficult to pick the winners and there is a surprising variance in returns among the individual banks. Here’s the total returns in 2024.
What is interesting is that you’ll find CIBC and Scotiabank in the Beat The TSX Portfolio for 2024. That high dividend strategy has a habit of finding value among distressed TSX 60 constituents.
And certainly, rate-sensitive stocks are fighting back.
Here’s the sector returns for U.S. stocks for the month and year.
Dalio on International growth
In the above graphic we see that legendary hedge fund manager Ray Dalio sees very little growth in developing markets. The growth is in emerging markets. You can look to an ETF such as XEM.TO for that added diversification.
This past week China announced significant stimulus measures. That more than caught the attention of David Tepper (perhaps the most successful investor of the last 30 years). He looks for big ideas and then goes big. Of course, that increases risks at the same time.
You will get some modest emerging market exposure in the Canadian asset allocation ETFs. If you like the idea you can increase exposure with an individual EM ETF.
Same goes if you build your own ETF Portfolio.
I was happy to see the surprising level of emerging market exposure with our Colgate-Palmolive stock. There is more than one way to tap the growth in those countries. Have a read of …
Cash is not King in accumulation
The oil watch
A look at the energy situation. I find it fascinating that the world is awash in oil and we are largely investing in Saudi oil price control. While that Canadian oil stocks are incredibly cash flow rich, we do need a certain oil price to support buy backs and dividend growth. Experts suggest that we need to be above $50 for Western Canadian Select.
I’ve held on to all of our oil-and-gas stocks and continue to chip away in certain accounts.
This story got some big attention this week. Oil plunged over 2% on rumours that the Saudis are ready to increase output.
The Financial Times were a little more dramatic. We’ll keep an eye on those ‘suggestions’.
Dale Roberts is the owner operator of the Cut The Crap Investing blog, and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on Sept. 29, 2024 and is republished on the Hub with permission.
