All posts by Jonathan Chevreau

Canadians fret about meeting day-to-day expenses and inflation’s impact on Saving

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With rising inflation driving up the costs of goods and services, a Scotiabank survey released Monday reveals over half [53%] of Canadians are worried about their ability to pay for day-to-day expenses. The majority (78%)of expect to be spending more on basic necessities like groceries and food, or gas (71%), and 53% expect to spend more on utilities (53%). 47% say these issues are impacting their ability to save for longer-term financial goals and 37% feel it’s impacting their current standard of living. Scotia Economics expects inflation to peak later this summer before starting a slow descent to 3.6% in 2023 and back to target by 2024.

“Canadians are feeling heightened levels of anxiety as a result of inflation: especially younger people and women who were also hardest hit by the pandemic,” said D’Arcy McDonald, Senior Vice President of Retail Payments and Unsecured Lending at Scotiabank via a press release. “The cost of everything is on the rise and Canadians are worried about their ability to afford the essentials such as food and gas. At the same time, there have never been so many jobs in the Canadian economy, wages are picking up, and inflation will come down over time.”

Financial stress hits differently across the country

Where Canadians live dictates how much they believe rising costs will impact their finances and ability to pay their bills. 49% of residents in the Atlantic think inflation is having a major impact on their ability to set and stick to a budget, compared to 36% of residents of British Columbia and Quebec. 

When it comes to feeling financial anxiety, 57% of Quebecers are least likely to be concerned about their ability to pay for day-to-day expenses, compared to residents of Alberta (45%), Manitoba/Saskatchewan (44%), Ontario (43%), and the Atlantic (39%).

The young are most impacted and most concerned

Women, younger Canadians, and those with lower household incomes are significantly more concerned about their financial situation over the next few months. Women (44%) are more likely than men (35%) to say inflation and the rising costs of goods and services is having a major impact on their ability to set and stick to a budget.

Canadians between the ages of 18-34 (45%) and 35-54 (46%) say inflation and the rising costs of goods and services is having a major impact on their ability to set and stick to a budget, compared to Canadians 55+ (30%). Continue Reading…

Retired Money: Rising rates make annuities more tempting for Retirees

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My latest MoneySense Retired Money column looks at whether the multiple interest rate hikes of 2022 means its time for retirees to start adding annuities to their retirement-income product mix. You can find the full column by clicking on the highlighted headline here: Rising rates are good news for near-retirees seeking longevity insurance.

The Bank of Canada has now hiked rates twice by 50 basis points, most recently on June 1, 2022.  That’s good for GIC investors, as we covered in our recent column on the alleged death of bonds, but it’s also  welcome news for retirees seeking longevity insurance.

As retired actuary Fred Vettese recently wrote, retirees may start to be tempted to implement his suggested guideline of converting about 30% of investment portfolios into annuities. As for the timing, Vettese said it is “certainly not now: but it could be sooner than you think.” He guesses the optimal time to commit to them is around May 2023, just under a year from now.

After the June rate hikes, I asked CANNEX Financial Exchanges Ltd. to generate life annuity quotes for 65- and 70-year old males and females on $100,000 and $250,000 capital. The article provides the option of registered annuities and prescribed annuities for taxable portfolios. It also passes along the opinion of annuity expert Rona Birenbaum that she greatly prefers prescribed annuities because of the superior after-tax income. Of course, many retirees may only have registered assets to draw on: in RRSP/RRIFss and/or TFSAs.

For a 65-year old male investing $100,000 early in June 2022, with a 10-year guarantee period in a prescribed (non-registered) Single Life annuity, monthly income ranged from a high of $548  at Desjardins Financial Security with a cluster at major bank and life insurance companies between $538 and $542. (figure rounded). Comparable payouts on $250,000 ranged from $1299 to $1,390. Because of their greater longevity, 65-year old females received slightly less: ranging from around $500/month to a high of $518, and for the $250,000 version from $1238 to $1319.

Here’s what Cannex provides for comparable registered annuities (held in RRSPs):

For a 65-year old male (born in 1957), $100,000 in a Single Life annuity nets you between $551 and $571 per month, depending on supplier; $250,000 generates between $1,399 and $1,461 a month. For 70-year old males (born 1952), comparables are $625 to $640/month and $1,578 to $1,634 a month. Continue Reading…

Zoomer Magazine: my column on investing in Crypto

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Zoomer Magazine has just published a column by me on investing in cryptocurrencies. Contained in the June/July 2022 issue, the headline is The Crypto Conundrum.

There is an online version but it is not yet available: when it is, I will update with a clickable link. Alternatively, you can subscribe to the print edition and/or the digital edition, by clicking here.

As the adjacent artwork shows, “this notoriously volatile investment is not for the faint of heart” and I therefore “advise caution.”

As Murphy’s Law would have it, between the time the article was written and edited, crypto crashed, with Bitcoin plunging below US$30,000. In fact, this weekend was a brutal correction for crypto in general: see this Reuters report on Bitcoin touching an 18-month low of US$23,476 over the weekend.

The article does of course stress the volatility of this asset class and it goes without saying that if you’re a long-term believer in crypto — a so-called HODLer (for Hold On for Dear Life) — then you’re much better off investing in Bitcoin closer to $30,000 than the near $60,000 it reached late in 2021.

The article arose when a Zoomer editor was intrigued by a MoneySense column I wrote early in 2021 about my own personal experience with investing in Cryptos. You can find it by clicking on this highlighted headline: How to invest in Cryptocurrencies(without losing your shirt.

The gist of both articles is that I suggest investors restrict themselves initially to just Bitcoin and Ethereum, which I regard as the “Big 2” of crypto. I also suggest using ETFs in registered portfolios, and taking profits if and when they materialize: by selling half on any double, you can do what Mad Money’s Jim Cramer calls “playing with the house’s money.”

The other guideline I offer is to restrict total crypto investments to 1 or 2% of your total wealth: a range recommended by billionaires like Paul Tudor Jones or Stanley Druckenmiller. 

Start small and try to play with the house’s money as soon as you can

 If you find you lucked out and the 1% becomes 3% or the 2% becomes 5%, then sell about half so that you’re back to your original target.

The article notes that as reported here, as of January 2022, Fidelity has 2% in its balanced and 3% in its more aggressive asset allocation ETFs. FBAL has 59% stocks, 39% bonds, and 2% crypto while its growthier FGRO is 82% stocks, 15% bonds and 3% crypto. These seem to me prudent allocations for investors wanting a sliver of crypto. Continue Reading…

MoneySense Retired Money: Reboot Your Portfolio book review

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My latest MoneySense Retired Money column is a belated review of Dan Bortolotti’s recently published ETF book, Reboot Your Portfolio. You can read the full review by clicking on the highlighted text: The Canadian Book about ETFs that will have you saying eh-t-fs.

The book has already been well reviewed by prominent financial bloggers: for example, early in December the Hub ran this blog by Michael James on Money’s Michael J. Wiener: Do as I say, not as I do. 

As the column notes, MoneySense readers should find the book a nice complement to the MoneySense ETF All-stars feature that I used to write each spring, and which was initially a collaboration between myself and Dan back when we were both full-time MoneySense editorial staff. The 2022 edition ran last week and is now written by Bryan Borzykowski.

Dan’s book is an excellent primer for any aspiring do-it-yourself investor who wants to buy ETFs at a discount brokerage, or someone wanting to create an ETF portfolio with or without the help of a financial advisor like Dan or his employer, PWL Capital.

Since the dawn of Asset Allocation ETFs early in 2018 (starting with Vanguard, soon matched by iShares, BMO and Horizons), it’s now possible to have an entire portfolio consisting of a single ETF. Those who like the traditional pension fund allocation of 60% stocks to 40% bonds could choose VBAL, XBAL or ZBAL, or Horizon’s slightly more equity intensive, HBAL (with a slightly more aggressive 70/30 stocks/bonds mix).

One-decision funds and automatic rebalancing

Bortolotti is quite enthused with these Asset Allocation ETFs, as are most of the other ETF experts in MoneySense’s ETF All-stars feature. One thing he particularly likes about such funds is the automatic rebalancing between asset classes, or at least between the stocks and bonds that most of them hold in varying proportions. As he says in chapter 8 (Keep it in Balance), “There’s a lot of research suggesting that people do better when the rebalancing decision is taken out of their hands.”

The book takes a holistic approach to financial planning and ETF portfolio creation. In fact, he makes a point of not even addressing ETFs until chapter 5, after first covering the need to cease trying to beat the market, set financial goals, determine the right asset allocation and then fine-tuning.

Like most indexing enthusiasts, Bortolotti takes a dim view of such investing sins as market timing and stock picking.   In his chapters on Asset Allocation, Bortolotti does not restrict his readers to strictly ETFs: there may be a place for GICs and high-interest savings accounts. He says many could put half their fixed-income allocation in GICs and use bond ETFs for the other half.

But he does believe that even very conservative and very aggressive investors should have at least some exposure to stocks and bonds; conservative retirees should still have at least 20% in stocks and aggressive stock investors should have at least 20% in bonds. For those between, he is comfortable with their holding the traditional 60/40 portfolio, which has returned between 6 and 7% a year since 1990.
Beyond stocks and bonds, however, Bortolotti is less enthused. He doesn’t recommend commodities like gold and other precious metals, collectibles like rare coins, fine wine and artwork, or even REITs, preferred shares or Real Return Bonds: whether held directly or via ETFs.

When it comes to ETF portfolios, Bortolotti is primarily focused on broadly diversified low-cost ETFs that use traditional market-cap weighting, although he also sees the case for equal-weighted ETFs. But he does not recommend what he calls “narrowly focused” sector or “theme” ETFs. He covers the pros and cons of “smart beta” ETFs, which usually cost more than plain-vanilla ETFs but will at least be cheaper than actively managed mutual funds.

All in all, any MoneySense reader will probably find the combination of Reboot Your Portfolio and the ETF All-Stars as a nice one-two punch for their portfolio.

MoneySense ETF All-Stars 2022

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MoneySense has just published its annual feature, the ETF All-Stars 2022. For the first time in several years, I was not the lead writer on this package although I was involved in my role as Investing Editor at Large. We passed the writing reins to veteran financial freelance writer Bryan Borzykowski, who has previously written MoneySense’s annual Robo-advisor feature and is currently writing a new book to be titled ETFs for Canadians for Dummies.

As I point out in another MoneySense column, there is another ETF book published in 2021 that makes a good complement to the All-Stars package.  Reboot Your Portfolio is written by Dan Bortolotti of PWL Capital. Dan was the lead writer of the first edition of the ETF All-stars and served as a panelist for several subsequent years, along with his PWL colleague Justin Bender. In recent years, PWL advisors Ben Felix and Cameron Passmore have served as some of the panelists responsible for selecting the All-stars. The team of 8 panelists is unchanged from last year.

You can find the new edition of the All-stars by clicking here: Best ETFs in Canada for 2022.

As Bryan points out in his overview, by design, the panel didn’t make that many changes from previous years. The idea all along has been to provide a bunch of core low-cost, broadly diversified ETFs that don’t need to be changed every year. Certainly, the panel has never felt obliged to recommend brand new “theme” ETFs just for the sake of change.

Here’s my summary of the main changes:

Canadian Equities

No changes to last year’s lineup.

US Equities

The panel dropped the list of US equity ETFs from ten last year to seven this year.

International Equities

Last year’s picks return, plus the panel added three Emerging Markets ETFs: XEC, ZEM and EMXC.

Fixed Income

While Fixed Income has been a languishing asset class in recent months, the panel didn’t view this as alarming. Its previous lineup of Bond ETFs returns largely intact, with just one casualty: the panel decided to remove the Vanguard Global Bond ETF (VGAB.) For those who are nervous about more losses from rising interest rates, it continues to emphasize short-term bond ETFs like VSB and XSB

Note that in my recent MoneySense Retired Money column on the alleged Death of Bonds, I quote panelist Ben Felix, who still sees a role for fixed income in diversified portfolios. My column suggests those worried by rising rates can either park in treasury bills and wait for further interest rate hikes later this year, or ladder 1- and 2-year GICs every few months. Several 1-year GICs now pay close to 3%. That may be below the rate of inflation of late but at least  its beats losses of near 10% sustained by aggregate bond ETFs. Continue Reading…