All posts by Financial Independence Hub

The renewed case for Global Investing

Franklin Templeton

By Stephen Dover, CFA, Franklin Templeton Institute

(Sponsor Blog)

Any consideration of emerging markets must begin with the case for global investment strategy. The decision to allocate capital internationally is not just about geographic diversification. Rather, it is increasingly driven by fundamental shifts in absolute and relative returns that drive global capital flows, by the discovery of new investment opportunities, and by the need to identify and manage concentration risk.

This section establishes the reasons why active international allocation strengthens institutional portfolios that also reinforces the rationale for emerging market allocations.

In an extended period of “US exceptionalism”—roughly spanning the 15 years from the global financial crisis to the middle of the current decade — investors increasingly gravitated to US equity and credit markets. That was understandable, given the superior returns — in absolute and risk-adjusted terms — delivered by US financial assets.

Importantly, superior returns on US assets were driven by superior fundamentals, including growth, institutional solidity, vast market liquidity, innovation and historic levels of profitability.

At the same time, however, US-based equity returns became more concentrated, as mega-
capitalization stocks accounted for a growing share of widely followed market-capitalization indexes.
Partly driven by concerns about concentration risk and partly because of improving returns in other
markets, investors have more recently begun to look for opportunities in other markets.

Over the past year, European, Japanese and emerging equities, and particularly emerging debt, have episodically produced superior returns to those found in US equity and fixed income markets. Those outcomes have begun to raise awareness of global opportunities, among them in emerging markets.

Renewed interest in global investing stems from other factors as well. Economic and monetary policy
divergence is becoming more significant. Prior to the US-Iran War, the Federal Reserve (Fed) was
biased to cut rates, the European Central Bank (ECB) had paused its easing cycle, the Bank of Japan
(BoJ) had already cautiously begun to hike rates, and various emerging central banks were prepared
to cut rates amid falling inflation. Those divergences in policies had contributed to a weakening of
the US dollar since early 2025, which in turn boosted investor interest in non-US markets, including
in emerging markets.

With the outbreak of the war and the impairment of shipping via the Strait of Hormuz, policy
perceptions have again shifted. The Fed and emerging central banks are now (mostly) on hold, the
ECB and the BoJ are inclined to tighten their monetary policies. Unsurprisingly, volatility, correlation
and returns have shifted markedly.

But the underlying point remains: Divergence in the conduct of monetary policy creates opportunity for tactical re-allocation. And it isn’t just about monetary policy. In many respects, fiscal policy divergence is even more notable.

In the United States, large structural budget deficits are forecasted over the next decade.

Meanwhile, Japan’s new government is promising more fiscal stimulus as well.  So, too, are Germany and the European Union.

In contrast, over the past decade many emerging countries have been pursuing more disciplined,
orthodox fiscal policies, with the upshot that their sovereign credit fundamentals are improving in
absolute and relative terms. That trend lends support to secular declines in risk premia and should
manifest in even lower nominal and real interest rates, as well as stronger emerging currencies.
Directly, that boosts emerging debt returns, but it also lends greater resilience to many parts of the
emerging complex.

As noted, global markets — including emerging markets — have recently exhibited episodes of
outperformance relative to US equity and fixed income returns. That is important, because for most of
the past 15 years US exceptionalism has been dominant. So much so, indeed, that if one compares the
efficient frontiers of investing with and without emerging markets since 2010, it is clear emerging
market allocations had almost no positive impact on portfolio returns, adjusted for risk, over the past 15
years.

But we believe those historic results are not likely to persist. Owing to improving emerging market
fundamentals, which we describe in detail in the next section of this paper, absolute and relative
expected returns are shifting in their favor. Using our estimated year-ahead returns across all
markets — developed and emerging, public equity and debt — a clear upward and leftward shift in the
efficient frontier is apparent when comparing a developed market only to a blended emerging and
developed portfolio. We believe emerging markets (alongside other non-US developed markets) are
therefore poised to contribute to improved portfolio performance in the year ahead: and most
probably for longer.

EMs are undergoing a profound transformation, one that is not cyclical in nature but structural, durable and increasingly self-reinforcing. The traditional narrative of emerging markets as externally dependent, volatility-prone economies is being reshaped by a new set of underlying forces that are redefining their role in the global economy.

EMs have generally shown significant resilience this decade, facing down a series of shocks arising from the COVID-19 pandemic, the inflationary outcome of the Russia-Ukraine war and the US Fed’s sharp interest-rate hikes during 2022-2023, and last year’s substantial tariff volatility. Not only did EMs survive this period, but many have thrived.

As world trade reconfigures and global actors realign geopolitically, EMs have found themselves generally well-placed to benefit from these global shifts: including some that are likely to benefit under the new tariff regime. This compares to earlier years when EMs would often face crises (whether debt, balance of payments and/or in banking systems) from global shocks.

The fact that EMs are in a favorable position now is largely a result of policy choices that have situated them handsomely to face a rapidly changing world economy. In this regard, we note three significant global regime changes that we believe EMs are now well-placed to benefit from: structural improvements in EMs, global trade econfiguration, and a shift in the US dollar’s ability to attract global capital inflows.

Regime change: EMs are structurally sounder

Policy responses with respect to both monetary and fiscal policy have improved significantly across EMs over the past couple of decades. Adoption of sound, credible policies and nurturing of institutions (such as inflation targets, fiscal rules and independent central banks) have helped policy formulation and improved the market’s perception of the credibility of EM policymakers. Continue Reading…

Book Review: Rethinking Investing

Amazon.ca

By Michael J. Wiener

Special to Financial Independence Hub

 

I liked Charles Ellis’ book Winning the Loser’s Game so much that I had to read his latest: Rethinking Investing.  It is very short at just over 100 small pages, but is packed with good advice.  Some of it is specific to U.S. tax laws, but most of it is useful for Canadians.

Ellis takes on three huge areas of personal finance.  The first is your portfolio allocation, or what you should invest in.

The second is your savings plan, and the third is your “spending rule,” or how to spend your assets during retirement.

A detailed treatment of these areas could easily run to thousands of pages, so this book is necessarily at a high level.  Ellis wants you to get the broad ideas right, so that you won’t make big mistakes as you fill in the details.

Ellis calls compounding investment returns “your power curve.”  He explains that most of your investment growth comes at the end, which provides motivation to begin early.  Saving is “your first priority.”

Saving

He offers thirteen specific suggestions for saving money, such as use employer matching, automate deductions from pay, invest bonuses, buy preowned cars, consider a smaller house, “self-insure for auto damages under $10,000 — or whatever you can comfortably afford to pay in the unlikely event of a major accident” — and use term life insurance.

Unlike recent popular advice to focus only on big expenses, Ellis says that “Lots of small-expense items can add up and cut your potential savings.”

Investing

Ellis repeats the main themes of Winning the Loser’s Game to explain why low-cost index investing is the way to go.  “The growing market dominance of expert professional investment managers … has made the market harder and harder to beat.”

There are three factors slowing down the “widespread adoption of indexing.”  Referring to index investing as “passive” has negative connotations for most people.  “Nobody wants to be known as passive.”  The second factor is that “most investors find it hard to believe that talented active managers with superb information won’t beat the market.”

These active managers “fought against indexing as though they and their careers were seriously threatened: as they surely were and certainly are!”  The third factor comes from the media, who know “that indexing’s persistent successes would not make for compelling or even interesting copy.”

When investors make active choices on market timing, they tend to perform poorly.  Unfortunately, Ellis points to reports from DALBAR for evidence of this pattern.  While it’s true that retail investors make poor market timing choices on average, DALBAR’s methodology for computing their losses is nonsense.

Bond allocation

Ellis makes an interesting pitch for investors to own more stocks and fewer bonds.  He asks investors to include the following as part of their bond allocation: “home equity, the present value of your Social Security benefits [CPP and OAS in Canada], and your future estimated savings plus any likely inheritance.”

While I think many people would be better off with a lower bond allocation during their working years, I have to push back on the future estimated savings and inheritances.  Maybe government workers can treat future savings as bond-like, those in the private sector have a lot of uncertainty in their future savings.

As for an inheritance, I see huge uncertainty in most cases.  A parent may end up needing the money for elder care, or may give it to someone else, or may have less money than you think.  The money I will leave to my sons is mostly invested in stocks, and they will get what’s left after all my spending.  The amount they will get does not have bond-like attributes.

All that said, if thinking about home equity, government payments, future savings, and an inheritance helps people tolerate the short-term swings in stock prices, then maybe Ellis is right to give this advice, even if it isn’t all technically correct.

Retirement spending rule

Ellis encourages people to think about drawing from their savings in retirement like a university endowment.  “First, average the year-end values of your assets over the prior several years (preferably more than five years) to dampen the impact of market fluctuations.”  Then choose a prudent annual withdrawal percentage, “likely 4–5%.”

“For example, if you settle on a 5% rate of withdrawal and a six-year moving average of the year-end value of your assets, a 30% drop in the stock market would lead to only a 5% reduction in your payout that year.”  This approach offers an alternative to “having a portfolio laden with low-return bonds.” Continue Reading…

Where the Market Is Moving: Sector Rotation for Self-Directed Investors

Learn how leadership shifts can change your portfolio and how sector rotation can help you respond.

By Saakshi Mehta, VP, ETF and Alternatives Strategy at BMO GAM

(Sponsor Blog)

Market commentary often reduces equity performance to a single question: are markets up or down? But equity markets do not move as a single block. They are made up of many industries, each responding to different economic forces and expectations around growth, risk and profitability. What looks calm at the index level can mask meaningful shifts beneath the surface.

Chart 1 introduces the Global Industry Classification Standard, or GICS, the framework most investors use to define equity sectors. By grouping companies based on their primary business activities, GICS provides a consistent structure for observing how leadership shifts across the market over time.

This is why sector rotation matters. Whether you actively rotate sectors or not, understanding sector exposures is essential for knowing what risks you’re taking and what’s driving your portfolio’s performance. Ignoring sectors can mean flying blind to some of the most important forces affecting your investments.

Sector rotation strategy is a valuable tool for individual investors seeking to enhance returns and manage risk, but it requires discipline, realistic expectations, and an understanding of both the opportunities and challenges involved.

Chart 1: Global Industry Classification Standard (GICS)  

Source: MSCI, S&P Dow Jones, BMO GAM

The Core Concept

A sector rotation framework begins with the key observations: where leadership is forming, what forces are driving it, and how sustainable that leadership might be. In that sense, sector rotation is less about forecasting and more about interpreting what markets are already signaling.

The goal is to overweight sectors expected to outperform and underweight or avoid those likely to underperform. Capital tends to move toward areas where expectations are improving and away from areas where optimism has already peaked.

Sector rotation involves shifting your portfolio allocations among different market sectors based on where we are in the economic cycle. This matters because the performance gap between the best and worst sectors in any given year can exceed 15-20 percentage points (Chart 2). Being positioned in the right sectors can meaningfully improve your returns, while being stuck in lagging sectors can significantly hurt performance.

Chart 2: Sector Performance in the US in 2024 and 2025 

Data as of year-end 2024 and 2025
Source: Bloomberg, BMO GAM

Divergence is a Feature, not a Bug

Sectors are influenced by different economic and structural forces. Interest rates, inflation, regulation, innovation, labour costs and commodity prices do not affect all businesses in the same way. Because these drivers rarely move in sync, sector performance naturally diverges.

That divergence is not a flaw. It is a defining feature of equity markets. It creates periods of concentration, periods of diversification, and conditions that allow leadership to rotate rather than remain fixed.

Market structure adds another layer. Sector composition varies significantly across regions. As Chart 3 shows, U.S. equity markets are heavily weighted toward Technology, while Canadian equity markets are dominated by Financials and resource-linked sectors. The same global environment can therefore produce very different outcomes depending on which market an investor is exposed to.

Continue Reading…

Planning major Purchases during Retirement

Planning major purchases during retirement requires aligning income timing, market conditions, and long-term financial stability to support lasting flexibility.

Image courtesy Adobe Stock/peopleimages.com

By Dan Coconate

Special to Financial Independence Hub

Retirement changes how income flows, which means planning major purchases during retirement requires a more deliberate approach than it did during peak earning years. Instead of relying on a steady salary, retirees draw from savings and structured income sources, so each major expense must fit within a longer financial horizon.

Careful planning allows individuals to move forward with confidence while preserving the stability that supports future years, particularly when financial decisions must stretch across an extended retirement timeline.

Understanding how Cash Flow Evolves

Income arrives differently after retirement, and each source carries its own implications when funding a large purchase. Withdrawals from registered accounts may affect taxes, while selling investments can alter long-term growth potential, which makes timing a central consideration.

When retirees map out funding strategies before committing, they gain a clearer sense of how the purchase will influence future income. That preparation reduces the risk of decisions that feel manageable in the moment, but creates pressure later, especially when income must stretch across decades and support both planned and unplanned expenses.

Weighing Lifestyle Value with Financial Reality

Major purchases reflect personal priorities, whether that involves extended travel or a second property that supports time with family. These decisions carry meaning, yet they still require a disciplined evaluation of ongoing costs and expected use.

In the case of recreational real estate, retirees may notice that waterfront properties appeal to vacation home buyers because of their setting and long-term desirability. That perspective fits within a broader assessment, since ownership involves upkeep and financial commitments that must align with retirement goals and long-term affordability, particularly when property ownership extends beyond seasonal use.

Considering Market Conditions before Committing

Financial markets influence both the cost of large purchases and the resources used to fund them, which makes timing an important part of the decision. Selling assets during a strong market period may reduce pressure on a portfolio, while moving forward during a downturn can create a strain that lingers.

A disciplined timing strategy allows retirees to act when conditions support the purchase. Maintaining that discipline supports a more stable financial path, even as markets fluctuate, and reinforces the value of patience when making high-impact financial decisions that cannot be easily reversed or adjusted once completed.

Preserving Flexibility for Future Needs

Large purchases should not restrict the ability to respond to unexpected developments, since retirement still brings changes that require financial attention. Healthcare needs and property repairs can emerge without warning, making flexibility a key part of any plan. Continue Reading…

First-time Home Buyers: 7 essential Tips for Buying your First Home

AlainGuillot.com with Grok

By Alain Guillot

Special to Financial Independence Hub

Buying your first home is one of the biggest financial decisions you’ll ever make. For first-time home buyers, the process can feel overwhelming, but with the right preparation, it can also be one of the most rewarding investments you’ll ever make. Think about the benefits of choosing the right property and the satisfaction you will feel of having a place of your own while building wealth.

The right home doesn’t just provide shelter: it supports your lifestyle, builds long-term wealth, and gives you a place to create lasting memories. Here are seven essential tips to help you navigate today’s real estate market with confidence.

Here’s our buyers guide for first time home buyers:

1.) Understand the True Cost of Homeownership

Unsplash – CC0 License

Many first-time buyers focus only on the purchase price or monthly mortgage payment. Unfortunately, that’s only part of the picture.

Your monthly housing costs typically include:

  • Mortgage principal
  • Interest
  • Property taxes
  • Homeowners insurance
  • Utilities
  • Maintenance and repairs
  • HOA or condominium fees (if applicable)

A useful rule of thumb is to budget 1–3% of your home’s value each year for maintenance, although actual costs vary depending on the property’s age and condition.

Remember the acronym PITI:

  • Principal
  • Interest
  • Taxes
  • Insurance

Calculating each component individually will give you a much more accurate budget than relying on a simple percentage estimate.

2.) Research the Neighborhood as carefully as the House

A beautiful house in the wrong neighborhood can quickly become a disappointment.

Before making an offer, consider:

  • Commute times during rush hour
  • Crime rates
  • School quality (even if you don’t have children)
  • Access to parks, shopping, and healthcare
  • Noise levels
  • Future development plans

Visit the neighborhood during weekdays, evenings, and weekends. You’ll often notice differences that aren’t obvious during a scheduled showing.

I once bought what seemed like the perfect condo. It was within my budget, and the property itself was beautiful. The problem wasn’t the condo: it was the neighborhood. Although it was clean, safe, and well maintained, it was incredibly boring. It felt like the kind of place people moved to simply to wait out retirement. By 5:00 p.m., everything was closed, the streets were empty, and there was little sense of life or energy. Needless to say, I sold the condo in less than a year.

3.) Interview multiple Real Estate Agents

Not all real estate agents offer the same level of service.

A great buyer’s agent acts as:

  • Your advisor
  • Your negotiator
  • Your advocate
  • Your local market expert

Interview at least two or three agents before choosing one. Ask about:

  • Experience with first-time buyers
  • Knowledge of your preferred neighborhoods
  • Negotiation strategy
  • Recent sales history

The right agent can save you thousands of dollars while helping you avoid costly mistakes.

Don’t hire the first agent you see. Meet them at an open house. Instead, do your homework and think about who’s going to generate the best outcome for you. It’s a good idea to interview two or three agents before picking one. Good agents will always submit to this process because they’ll have confidence in their ability to serve you.

The first real estate agent I hired was a good friend from college. Everything went smoothly. I was one of his first clients, and I was happy with his service. At the same time, because we were friends, I would have felt uncomfortable hiring someone else.

A few years later, when I purchased another property, I hired a different friend as my agent. Unfortunately, that experience was very different. She failed to disclose some important defects in the property, and when I realized she wasn’t being completely honest with me, I walked away from the deal. Sadly, our friendship didn’t survive the experience.

The lesson I learned is simple: even if your real estate agent is a friend, you should still do your own due diligence. Ask questions, verify the information you receive, and never assume that friendship is a substitute for careful judgment.

4.) Never skip the Home Inspection

A professional home inspection is one of the smartest investments you can make.

An inspector examines major systems such as:

  • Roofing
  • Foundation
  • Plumbing
  • Electrical
  • Heating and cooling
  • Structural issues

The inspection may uncover problems that allow you to renegotiate the purchase price: or walk away from a costly mistake.

Remember that a home inspection is different from an appraisal.

A home inspection evaluates the property’s condition, while an appraisal estimates its market value for the lender. Continue Reading…