All posts by Financial Independence Hub

Index Investing and the S&P 500

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Image BMO ETFs/Getty Images

By Chris McHaney, CFA

(Sponsor Blog)

Index investing, a strategy adopted by cost-conscious investors and passive investing aficionados, is continuing to gain in popularity across individual investors, advisors and institutions alike.

The S&P 500 Index is widely regarded as a gauge of the overall large-cap U.S. equities market. The index, which dates back to the 1920s, includes 500 leading companies and covers approximately 80% of available market capitalization.1  Other popular indices for U.S. equities include the Dow Jones Industrial Average (covering a smaller number of companies: ~30), and the Nasdaq 100 Index (tracking the largest 100 companies listed on the Nasdaq Stock Market).

ETFs make index investing more efficient, helping investors save time and money relative to holding all the constituents of their favorite market index. Take the S&P 500, for example. Not only would you need to buy 500 companies, you would need to make sure they maintain the appropriate weight in the portfolio over time: requiring a lot of time, and money in trading those securities.

ETF units are primarily bought and sold between different investors. This means there are typically fewer realizations of capital gains and losses with ETFs than with other investment products. Similarly, as passive ETFs track the performance of a specific benchmark, they tend to have lower overall portfolio turnover. Fewer transactions within the ETF again means fewer realizations of capital gains and losses that may flow through to ETF holders.

Investing in the S&P 500 Index has been made simple with ZSP2 – BMO S&P 500 Index ETF.  Also available in hedged and USD (ZUE/ZSP.U)2, these ETFs give you exposure to this broad market index at a low cost of 0.09% 6(MER – Management Expense Ratio) and can be used as a core in your portfolio.  Index based ETFs like ZSP provide broad market exposure and diversification across various sectors and asset classes according to their underlying index. It’s not about timing the market with index-based ETFs, it’s about time in the market and these solutions provide a long-term strategy for investors.

What does the research show?

Another reason index-based investing is becoming a staple in investors’ portfolios is the increase in available research showing passive outperforming active over the long term. The best known of this research, the SPIVA report, which coming from S&P Dow Jones Indexes research division has been looking at this phenomenon for 20 years, measuring actively managed funds, against their index benchmarks worldwide.

Looking at the data as of Dec 31st 2023, and focusing on Canadian Equity Funds, 96.63% of active fund managers underperform the S&P/TSX Composite over 10 years.  Put another way just 3.37% of funds outperformed the S&P/TSX composite over that time period.3 This research holds across time periods and geographies, with the numbers changing year to year but the story remaining compellingly in favor of passive. While there are active managers that out-perform their benchmark, this can be challenging to do consistently over time, even for the professionals.

Innovation in Index Investing

“Losses loom larger than gains.” – Daniel Kahneman & Amos Tversk4

Famed researchers in behavioural finance, Daniel Kahneman and Amos Tversky, once hypothesized the psychological pain of loss is about twice as powerful as the pleasure of gaining. After strong performances from U.S. stocks over the past two quarters, some may find themselves dusting off the pair’s work and asking, is now the time to lock in gains and take some downside insurance?

We have seen a remarkable run from stocks such as Nvidia, lifting the S&P 500 Index to all-time highs. This may cause some valuation concerns among investors. The S&P 500 is currently trading at a price-to-earnings ratio9(P/E) of about 25 times, which from a historical perspective can be considered rich relative to the average of 17.5 Continue Reading…

How the FIRE Movement can help folks live out their Cruise Ship Retirement Dreams

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Image from Unsplash

By Evan Kaur

(Special to Financial Independence Hub)

Imagine waking up to new horizons each day, with the promise of adventure and luxury at your fingertips. For many, retiring and spending their golden years exploring the world from the comfort of a cruise ship is the ultimate dream, and some are turning it into a reality.

Citing data from the Cruise Lines International Association, MoneyDigest highlights that 50% of the 20.4 million people who took a cruise in 2022 were over the age of 50, while 32% were over 60. However, it’s also important to note that this lifestyle is not attainable for everybody.

A poll conducted by the National Institute on Retirement Security finds that more than half of Americans (55%) are concerned that they cannot achieve financial security in retirement, much less afford to live on a cruise ship. That’s where the FIRE (Financial Independence, Retire Early) movement comes into play. In this article, we’ll explore why so many are drawn to retiring at sea and how the FIRE strategy can help folks achieve enough financial security to live out their cruise ship retirement dreams.

The Appeal of Cruise Ship Retirement

Image by Pexels

Retiring on a cruise ship is an attractive option for those who seek adventure, comfort, and a unique globetrotting lifestyle, but its biggest draw is that it can be more affordable than retired life on land.

According to an article from CNBC, the average annual cost to retire comfortably in the U.S. can be anywhere between US$55,074 and $121,228, depending on which state you choose to live in. These numbers factor in living costs, including groceries, healthcare, housing, utilities, and transportation.

Meanwhile, the 2021 national average for a private room in a nursing home was estimated to cost $108,405 per year. By contrast, Business Insider reports that cruise ship companies looking to capitalize on the retirees-at-sea trend now offer fully furnished homes aboard their ships for roughly US$43 a day or less. Continue Reading…

Healthcare (HHL): Spring 2024 Checkup

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Image courtesy Harvest ETFs

By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog)

The healthcare space entered 2024 with new growth drivers and the COVID-19 pandemic firmly in the rear-view mirror.

Today, we want to explore how the healthcare sector has progressed in the opening quarter of 2024. Moreover, we’ll look at valuations in this sector, drivers for innovation, and the largest healthcare exchange-traded fund (ETF) currently operating in Canada.

How has the healthcare sector performed in the first quarter of 2024?

Healthcare continues to be a vital sector that is in constant demand in the developed and developing world. The permanent and non-cyclical drivers of aging populations, spending in developing nations, and technological innovations, remain constant in the short term and drive the long-term positive outlook for the broader sector. While healthcare has been a consistent sector for growth, just behind high-performing sectors like technology, it has lagged the broader market since the start of 2023.

In the short term, from a macroeconomic perspective, the U.S. economy has shifted from certain interest rate cuts to relatively sticky inflation. That has prompted concerns that interest rates will stay high or even move higher. That has spurred volatility across markets and asset classes since the beginning of March 2024. Ultimately, it serves investors to look more at sector-level drivers in the near term.

How healthcare valuations measure up right now

Healthcare has held out relatively well in the midst of a broad market sell-off that started in early April. Within the sub-sectors there is a wide bifurcation in the very short term.

For example, in the healthcare sector there are big differences in sub-sectors that are working and those that aren’t. The managed care segment – companies that provide insurance and administer healthcare for individual plans and government programs, like UnitedHealth and Humana – is down mid-double digits in 2024. Meanwhile, Tools and Diagnostics is up double digits: Tools and Diagnostics are companies that make the lab and biologic drug equipment and various testing consumables, like Abbott Laboratories.

The bifurcation within healthcare sub-sectors illustrates why diversification is so important within this space.

On the valuations front, positive results are being rewarded. Tools and Diagnostics and Medical Devices have both seen better healthcare utilization. This, in turn, has led to strong corporate results. For example, Bristol Myers unveiled its first quarter (Q1) fiscal 2024 earnings on April 25. Revenues rose 5% year-over-year to US$11.9 billion. Meanwhile, its growth portfolios rose 11% on an adjusted basis to $4.8 billion. Merck bolstered its full-year guidance after posting revenues of US$15.78 billion in Q1 2024 and adjusted earnings per share (EPS) of US$2.07 – both beating expectations.

Drivers for innovation in the healthcare space

There are still many reasons to be excited about growth and innovation in the healthcare sector.

The GLP-1 drug class, frequently referred to as “weight-loss drugs.” continues to be an exciting growth driver as we look ahead. Indeed, this space has expanded from diabetes and weight loss through to sleep apnea trial results that have validated the optimism for this class of drugs. According to Goldman Sachs, the broader market for anti-obesity medications could grow by more than 16 times from $6 billion in early 2024 to $100 billion by 2030.

Eli Lilly has benefited with the weight-loss drug Zepbound gaining considerable momentum in the opening quarter of 2024. Zepbound blew past sales expectations in the March quarter, brining in US$517 million in revenues. That spurred Eli Lilly to bolster its sales outlook for the full year by US$2 billion. Continue Reading…

Mastering the Art of Podcast Production: A Director’s Guide

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Image courtesy Canada’s Podcast/unsplash royalty free

By Philip Bliss

Special to Financial Independence Hub

As a podcast Director, your role is pivotal in ensuring the seamless production of engaging and high-quality content.

With more than 750+ Podcasts Canada’s Podcast delivers Digital Multi-Channel Marketing the new influencer medium.

From planning and recording to editing and promotion, the success of your podcast hinges on a well-executed strategy.

In this comprehensive guide, we break down the essential tasks, timelines, and guest information you need to produce a podcast that captivates your audience.

 

Pre-production Planning

a) Define Your Podcast’s Concept (2 Weeks Before Recording):

Before diving into production, spend time refining your podcast’s concept. Define your target audience, choose a niche, and outline the overall theme of your show. This clarity will guide your content creation and resonate with your audience.

b) Identify Potential Guests (4 Weeks Before Recording):

If your podcast includes guest interviews, start identifying potential guests early. Research individuals who align with your podcast’s theme and have insights to share. Reach out to them, presenting your podcast concept and gauging their interest.

c) Develop Episode Outlines (3 Weeks Before Recording):

Work on detailed episode outlines for the first few episodes. This includes segment breakdowns, key talking points, and potential questions for guests. Share these outlines with your team to ensure everyone is on the same page.

Guest Information and Coordination

a) Guest Invitations and Confirmations (3-4 Weeks Before Recording):

Reach out to potential guests with a formal invitation, explaining your podcast’s concept and the value their participation brings. Once confirmed, share detailed information about the recording process, timeline, and any technical requirements.

b) Coordinate Recording Schedule (2-3 Weeks Before Recording):

Work with guests to coordinate recording dates and times that align with everyone’s schedules. Use scheduling tools like Calendly or Doodle to streamline the process. Ensure guests are aware of any pre-recording preparations, such as technical checks.

c) Provide Information Package (1 Week Before Recording):

Send guests an information package a week before recording. Include details about the podcast, the recording platform you’ll use, technical requirements, and any specific guidelines or expectations. This ensures a smooth recording experience for both you and your guests.

Recording Process

a) Technical Checks (On Recording Day):

Conduct technical checks before each recording session to avoid last-minute hiccups. Ensure microphones, headphones, and recording software are functioning correctly. Confirm that your internet connection is stable, minimizing the risk of disruptions.

b) Set Up Recording Environment (On Recording Day):

Create a comfortable and quiet recording environment. Remind guests to choose a quiet space with minimal background noise. Encourage the use of headphones to enhance audio quality.

c) Conduct Interviews (During Recording):

During the recording, focus on creating a relaxed and conversational atmosphere. Stick to the episode outline but allow for spontaneity. Make guests feel comfortable, prompting them to share insightful and engaging stories.

Post-production Editing

a) Initial Editing Pass (1-2 Days After Recording):

Immediately after recording, perform an initial edit to address any major issues or glitches. This can include removing background noise, adjusting audio levels, and trimming unnecessary segments.

b) Final Editing and Enhancements (3-5 Days After Recording):

Take the time for a thorough final edit. Enhance audio quality, add music or sound effects if desired, and make any necessary adjustments. Ensure the episode flows smoothly and meets your podcast’s standards. Continue Reading…

Pros and cons of investing only in Canada

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

Image courtesy of MyOwnAdvisor/Pexels

There are certainly pros and a few cons when investing in just Canada…

Given it’s “tax season” and tax refund season for some, I shared my ideas related to managing your tax refund this year.

Thanks to Rob Carrick The Globe and Mail,  who mentioned my post in his column: Look what’s happened to the cities with average $1-million home prices (subscription).

“Housing has definitely come down in cost since 2022. The average price of a resale home in February 2024 was $685,809, 16 per cent below the peak average of $816,720 in February 2022. Still, prices in several of the million-dollar cities have held up well.”

Rob mentioned this post: where to put your cash right now.

For the most part, if you’re not earning at least 4% on most of your cash these days you’re falling behind…

Weekend Reading – Pros and cons of investing in just Canada

As a follow-up to this Weekend Reading edition, highlighting where I personally believe our TSX and some key stocks that drive it could rebound in 2024…I stumbled upon this article this week from 5i Research – partners of my site and work:

Pros and cons of investing in the Canadian vs. U.S. stock market.

I’ll let you read that 5i post for more insights but the punchline from Chris White’s article is something that resonated with me (and always has):

“The US stock market is home to an extensive array of publicly listed companies, and with thousands of stocks available, navigating this vast landscape can be overwhelming. Investors must decide which companies to research, analyze, and potentially invest in. The sheer volume of options can lead to decision paralysis. It is vital that investors understand a company’s financials, growth prospects, and management quality.”

The U.S. market is a challenging space to pick stocks, if your goal is to beat the market.

Conversely, Canada tends to run on oligopolies — a few moaty stocks in some key sectors more than not.

  • You have our big-6 banks.
  • You have a few major telcos. You know the names.
  • You have a few major utility companies. You can count them on two hands.

The list goes on.

Beating the TSX (BTSX) can happen but it’s certainly not guaranteed nor consistent owning higher-yielding stocks.

Investing in our oligopolies, in theory, is the concept behind the 6-Pack (or 12-Pack) Canadian Portfolio which can work well at times:

  1. Own a few Canadian large-cap stocks from key sectors for growth and income.
  2. Own such companies for a long period of time because they enjoy a competitive advantage in Canada: since all things being equal, a moaty firm should offer shareholders a higher, sustainable, competitive advantage than companies with smaller moats or no moats at all; scrambling for market share.

In recent years, for the latter, I’m eating more of my own cooking.

Thank goodness, since many Canadian blue-chip stocks are suffering while the U.S. market has been thriving.

via GIPHY

When it comes to the U.S. selections, I’ve sold off many U.S. dividend kings in my portfolio like JNJ and instead used the proceeds to buy other U.S. stocks or low-cost ETFs that I believed (at the time) could deliver more value.

So far, I’ve been right…including with BRK.B and QQQ but the financial future is always very cloudy.

I mean, it’s only been a year or so since I’ve sold all JNJ stock and added to those existing names I’ve held for a few years….that’s hardly a successful career change.

Every stock or ETF seems like a great idea until it’s not. 

And not all ETFs are created equal…far from it.

I read in October 2023, in just that month alone, the Canadian market experienced a notable surge in new ETFs: 37 of them coming to market.

37??

Here are some examples:

  • Should you invest in the Dynamic Active Global Equity Income ETF (DXGE-T)?
  • What about owning some Purpose Active Conservative Fund (PACF-T)?
  • There is also the Hamilton Technology Yield Maximizer ETF (QMAX-T)…and let’s not forget,
  • The BMO US Equity Accelerator Hedged to CAD (ZUEA-NE) that uses 2x leverage on an equally weighted bank strategy and hedged S&P 500, respectively.

Oh boy. 

Long gone are the days (??) from March 1990, when the Toronto Stock Exchange listed the Toronto 35 Index Participation Fund. The fund tracked the TSX 35 index under the ticker symbol “TIPs.”

You might know this ETF better today as: iShares S&P/TSX 60 Index ETF (XIU).

Thankfully, XIU is still around and doing well overall as long as you have a long-term time horizon. 

Since the launch of TIPs, the Canadian ETF market has seen remarkable growth with over 1,000 ETF available to retail investors today. Source: my friends at https://cetfa.ca/. @cetfassn

While some niche ETFs can offer (and have delivered) great returns, the majority of them are not worth owning IMO. Investing risk taken doesn’t always translate to rate of return rewards.

Pros and cons of investing in just Canada

Give or take, Canada’s economy makes up just 3-4% of the world’s investing markets – so putting all your investing eggs into just Canada immediately eliminates most of the investing world on purpose. In doing so, you are shrinking your investing universe. Especially on the growth side. Continue Reading…