Vanguard Canada has released an interesting study on home country bias around the world, and makes the familiar case that most Canadian investors are woefully overweight Canadian equities and underweight the rest of the world. You can find the full report (PDF), by clicking here.
The report is written by Bilal Hasanjee, CFA®, MBA, MSc Finance, Senior Investment Strategist for Vanguard Investments Canada. He points out that Canadian stocks account for only 3.4% of the total global stock market as of June 30, 2022, but as the chart to the left shows, the average Canadian investor is more than 50% in domestic (Canadian) equities. That’s a whopping overweight position of 15 times!
“There are good reasons to have some overweight to Canada for domestic investors, including future return differentials, preference for the familiar, favourable tax considerations, the need to hedge domestic liabilities and currency risk,” writes Hasanjee, “However, Vanguard believes the optimal asset allocation for Canadian investors is 30% vs 70% allocation to Canadian versus international equities, based on our research …”
In other words, it’s okay to be overweight Canada by a factor of nine (30% versus 3.4) but most of us still need to boost our foreign content by roughly 50%: from 47.8% to 70%.
Home Country bias is hardly unique to Canada
Home country bias is hardly unique to Canada, the report says: it’s certainly the case in the United States and many developed countries, as Figure 2 demonstrates:
Americans are also overweight their home market — the United States — but they can get away with it, as more than half the global market capitalization is in American stocks, plus many of those are blue-chip corporations that have the world as their market. If anything, Interestingly you can see from the above that Australia, which is similar to the Canadian stock market in being focused mostly on energy/resources and financials, suffers even more than Canada from home country bias. Continue Reading…
It’s hard to pick up a financial publication or peruse most general-interest media outlets these days without being blitzed by stories about ChatGPT and the latest mania: A.I. or Artificial Intelligence.
Just last week the New York Times devoted an episode of its The Daily podcast to Silicon Valley’s rush to A.I., even as venture capitalists start shying away with the previous darling, Cryptocurrency.
It seems everyone wants a piece of what they hope will become the next Nvidia, a chip play that pundit Jim Cramer once named after his own dog. Give him credit: anyone who bought before Nvidia famously passed the US$1 trillion market cap level this year is probably sitting on a double or triple, including Yours Truly.
In a recent video interview I did with Allan Small, I mentioned in passing that while I do happen to own Nvidia going back some years, I also have my share of painful losers, and that my approach to A.I. and technology in general is that it should merely be part of a normal diversified portfolio. I told him that I’ve always had a reasonable exposure to technology, seeing as I was the Globe & Mail’s technology reporter going back to the early 1980s (perhaps one of the first to specialize in that beat.)
A.I.-themed ETFs
Speaking of the Globe, I see that its personal finance columnist Rob Carrick recently weighed in with his take on A.I. You can find it (under paywall) here. For those who can’t get past the paywall, Carrick lists some examples of A.I.-themed ETFs, adding the hedge “if you’re comfortable with the risk of a more direct approach to AI investing.”
One is an ETF I happened to take a flyer on myself a few years ago, so far under water: the Global X Robotics & Artificial Intelligence ETF (BOTZ-Q; the others include the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO-A) and the First Trust Nasdaq Artificial intelligence ETF (ROBT-Q.) Carrick also mentions a few other Canadian-listed ETFs with the most exposure to AI produced by TD Securities: I’ll just list the suppliers and ticker symbols here: two from Horizons ETFs (RBOT-T and MTAV-T), two from Evolve (TECH-T and DATA-T), and one from BMO: ZINT-T.
Personally, I doubt I’ll buy any of these theme ETFs. Investors typically get burned by the FOMO and elevated valuations inherent on jumping on a thematic bandwagon once the train has already left the station [to mix a metaphor] and embraced widely by the media. The most prominent example will be marijuana ETFs, which have generated little but painful losses for most investors, even those early to the party. More recently are cryptocurrencies, whether obscure individual holdings or packaged up in ETFs (led by Canada!) Continue Reading…
65% of Americans say their partner having too much debt is a dealbreaker in deciding to get married. Little wonder that the national marriage rate in the United States has declined 60% over the last 50 years.
Source: Clever Real Estate — Marriage Survey, May 2023
According to the Marriage Survey of 1,000 American adults conducted by Clever Real Estate in May (see graph above), financial stability is a primary purpose for marriage, as reported by 1 in 5 Americans (20%). In fact, 19% admit they would marry solely for money reasons (19%). Entering into the calculation are factors like high inflation, escalating living costs, and an expensive real estate market.
While marriage positively impacts finances for 66% of couples, only 54% of married couples discuss finances regularly, and 7% never broach the topic. 53% favor separate bank accounts. However, married women are 10% less likely to manage finances in their marriage than men. Money-related issues contribute to about 1 in 6 divorces (16%). Looking back at their lives, 10% of married respondents wish they chose a partner more financially responsible.
Canadians have lost confidence in their ability to retire on time and debt-free, according to a new report by the Canadian Public Pension Leadership Council (CPPLC). As a result, almost half of those polled by Pollara Strategic Insights are stressed about the prospect of running out of money in Retirement, as the graphic from the report illustrates below:
A press release issued Monday says the report comes from a Canada-wide survey conducted in 2022 similar to an earlier survey by the CPPLC on retirement perceptions prepared in 2016.
An introduction recaps the three major pillars of the Canadian retirement income system: government-sponsored CPP/OAS/GIS; Workplace Retirement Plans and Personal Savings (primarily RRSPs/TFSAs/non-registered savings).
However, a minority of Canadians currently have access to the workplace pension plans of Pillar 2: only 39.7% as of 2021, according to Statistics Canada. Worse, Pillar 3 savings are not making up for that gap: the report cites a Bank of Montreal finding that the average RRSP account balance is $144,613. That is not enough to fund an average yearly spending level of $64,000 (2019 average) over a retirement that may last 20 or 30 years. It also finds that not everyone is using TFSAs: those who do tend to older and married, with higher incomes and education.
As you can see from the graphic on the right, those with Employer Pensions (especially classic Defined Benefit plans) experience somewhat less stress than those who do not. (Actually, I’m surprised the gap isn’t wider!).
As you might expect, given that they tend to live longer, women are more stressed than men about running out of money: a majority (53%) are stressed about running out of money once retired, compared to 41% of men.
Women also report more uncertainty about managing retirement savings themselves. And they rate the importance of maintaining standard of living higher than men, as shown in the graphic below:
Four key Observations
1.) Canadians consistently show preferences for predictable, inflation-adjusted, and lifetime
guaranteed retirement income
2.) Canadians continue to place importance on maintaining their standard of living in retirement
3.) Fewer Canadians are confident about managing their savings or that they will reach their
objectives and retire when they want
4.) Canadians are less confident they will be debt free in retirement and continue to report low
knowledge of retirement income sources
Three major recommendations
1.) Increase access to collective plans: leverage homegrown expertise to increase participation in
workplace pension plans by encouraging the growth of sector- and broader-based public sector
plans. Continue Reading…
Billy & Akaisha in Mesa, Arizona; courtesy Kiplinger
Earlier this spring, I was interviewed by Billy and Akaisha Kaderli, the globe-trotting early retirees who run the RetireEarlyLifestyle.com website and authors of several books on Early Retirement.
And here is the same interview at RetireEarlyLifestyle.com.
Turnabout is fair play so today, I play interviewer and Billy and Akaisha are on the hot seat to answer.
Jon Chevreau: What do you think of the term FIRE [Financial Independence/Retire Early)? You made it there in your early 30s but can Millennials, Gen X and GenZ expect to replicate your success, given the high cost of housing and everything else?
Billy & Akaisha: FIRE is a great marketing acronym filled with energy and intrigue. There was no such term when we left the working world in 1991, 33 years ago. There really wasn’t even the mental concept of being “financially independent” except for perhaps well-paid athletes, actors and trust fund babies.
We called ourselves Early Retirees, but we never retired from life, just from the conventional idea of working until age 65 or when Social Security kicks in. We had other plans for ourselves like travel, volunteer work, creative projects and continuous learning. We’ve always been productive and we like that feeling of pursuing our passions.
As for whether or not Millennials, Gen X and Gen Z can expect to become financially independent, we would say yes.
It’s a matter of discipline, focus, being aware of one’s financial choices, and most definitely finding a partner who is on the same financial page.
We have explained many times in our books and on our website that the four categories of highest spending in any household are Housing, Transportation, Taxes and Food/Dining/Entertainment. Pare down your personal infrastructure or modify your cash outlay in those categories and you will find money to invest towards your future life of freedom.
So yes, we say it can still be done.
JC: How many countries have you now visited around the world and how long do you tend to stay in any one location? Related question: do you maintain a home base in the United States and how long (and which seasons?) do you stay there each year?
Billy & Akaisha Karderli in Sorrento, Italy, with Mount Vesuvius in background
Billy & Akaisha: For some reason we have never cared to count the number of countries we have visited or lived in. We travel for ourselves, not to tick off boxes or to compete with other travelers.
We have visited all throughout Europe, lived in many Asian and Pacific Rim countries, visited and lived in Canada, most of the United States, all throughout Mexico, Central America and Northern South America, and have sailed throughout the Caribbean Islands.
In the early decades of our vagabonding, we’d be gone years at a time. We made trips back to the U.S. yearly to see family for a few months at a time, but then we’d get our backpacks and world maps out again and hit the road.
We utilized Geo-arbitrage long before there was a name for that hack and found it to be one of the best financial moves we have ever made.
We do still own a manufactured home in a resort in Arizona. But while on this topic, we’d like to say that living in an Active Adult Resort Community in the U.S. has been one of the most affordable and socially satisfying options for housing we have implemented.
That being said, we have many Readers and Friends who prefer to house sit all over the world and that is their gold standard of housing choice to keep costs down.
These are two examples of modifying the category of Housing to positively affect your budget.
JC: I believe you took Social Security early. How much do you think average would-be retirees will be depending on that source of income?
Billy & Akaisha: In our case we planned our retirement as if we would not receive Social Security. We structured our portfolio to produce our needed income on its own. Now that we receive it, between dividends and SS we do not need to touch our portfolio, thus letting it grow. Continue Reading…
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Vanguard Canada has released an interesting study on home country bias around the world, and makes the familiar case that most Canadian investors are woefully overweight Canadian equities and underweight the rest of the world. You can find the full report (PDF), by clicking here.
