All posts by Jonathan Chevreau

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…

Death of Bonds or time to buy short-term GICs?

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My latest MoneySense Retired Money column looks at a recent spate of media articles proclaiming the “Death of Bonds.” You can find the full column by clicking on the highlighted headline: Do bonds still make sense for retirement savings?

One of these articles was written by the veteran journalist and author, Gordon Pape, writing to the national audience of the Globe & Mail newspaper. So you have to figure a lot of retirees took note of the article when Pape — who is in his 80s — said he was personally “getting out of bonds.”

One of the other pieces, via a YouTube video, was by financial planner Ed Rempel, who similarly pronounced the death of bonds going forward the next 30 years or so and made the case for raising risk tolerance and embracing stocks. The column also passes on the views of respected financial advisors like TriDelta Financial’s Matthew Ardrey and PWL Capital’s Benjamin Felix.

However, there’s no need for those with risk tolerance, whether retired or not, to dump all their fixed-income holdings. While it’s true aggregate bond funds have been in a  de facto bear market, short-term bond ETFs have only negligible losses. And as Pape says, and I agree, new cash can be deployed into 1-year GICs, which are generally paying just a tad under 3% a year;  or at most 2-year GICs, which pay a bit more, often more than 3%.

One could also “park” in treasury bills or ultra short term money market ETFs (one suggested by MoneySense ETF panelist Yves Rebetez is HFR: the Horizons Ultra-Short Term Investment Grade Bond ETF.) It’s expected that the Fed and the Bank of Canada will again raise interest rates this summer, and possibly repeat this a few more times through the balance of 2022. If you stagger short-term funds every three months or so, you can gradually start deploying money into 1-year GICs. Then a year later, assuming most of the interest rate hikes have occurred, you can consider extending term to 3-year or even 5-year GICs, or returning to short-term bond ETFs or possibly aggregate bond ETFs. Watch for the next instalment of the MoneySense ETF All-stars, which addresses some of these issues.

Some 1-year GICs pay close to 3% now

Here’s some GIC ideas from the column: Continue Reading…

Budget 2022: as feared, an NDP-influenced Spendathon

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CTV News

Ottawa has just released its federal Budget 2022, which seems to validate the pre-release fears that a de facto Liberal NDP coalition would be a high-spending, high-taxing affair. You can find the full budget documents at the Department of Finance web site here. It is as expected “a typical NDP tax-and-spend budget,” as interim Conservative Leader Candice Bergen told the CBC.

Budget 2022 is unmemorably titled A Plan to Grow Our Economy and Make Life More Affordable, weighing in relatively slim by federal budget standards: just shy of 300 pages.  Of course, the NDP is all over this document, which is why I call the de facto coalition the LibDP.

Naturally, the NDP’s pet priority is included, with $5.3 billion over 5 years for national dental care. As CTV reported, the program will offer dental care to families with annual incomes below $90,000, with no co-pays for those under $70,000 annually in income. The first phase in 2022 will offer dental care to children under 12.

Big focus on affordable housing

Of the $56 billion in projected new spending over six years, $10 billion is going to housing over five years, with a one-time $500 payment to those struggling with housing affordability. And as expected,  foreign buyers will be shut out of the market for condos, apartments, and single residential units for the next two years.

They are also cracking down on home flippers, introducing new rules as of January 2023, such that if anyone sells a property held for less than 12 months it would be considered to a flip and be subject to full tax on their profits as business income (with some exceptions in certain special cases).

National Defence will get $8 billion over 5 years, There’s $500 million for military aid to Ukraine and $1 billion in loans.

Perhaps we should use CTV News’ phrase and describe the spending as “targeted”:

The budget proposes $9.5 billion in new spending for the 2022-23 fiscal year — with the biggest ticket items focused on housing supply, Indigenous reconciliation, addressing climate change, and national defence — while also set to take in more than $2 billion in revenue-generating efforts.

New “Minimum Tax Regime”

CTV reports that Budget 2022 “puts high earners on notice that the government thinks some high-income Canadians aren’t paying enough in personal income tax.”  The Liberals say they will be examining “a new minimum tax regime, which will go further towards ensuring that all wealthy Canadians pay their fair share.”

Here is the Globe & Mail’s initial overview (paywall.) Or click this headline:

Federal budget unveils plans for $56-billion in new spending, higher taxes, but short on growth plans

According to the Globe,  the planned bank tax is different from the initial proposal from the Liberal’s 2021 election platform: rather than a three percentage point surtax on earnings over $1-billion, the budget announces a 1.5 percentage point increase on taxable income over $100 million. That brings the tax rate on those earnings from 15% to 16.5%.

In addition to $4-billion for cities to build 100,000 new homes, Ottawa will provide tax-free home savings accounts of up to $40,000. Future first time homebuyers will get an RRSP-style tax rebate when they contribute and the money can grow tax free. First-time homebuyers will also get a tax credit of $1,500 and a home renovation tax credit of up to $7,500 to help families add second suites for family members. Continue Reading…