Image via MoneySense.ca: Chris Montgomery on Unsplash
My latest MoneySense Retired Money column looks at how retirees can use a hybrid “core and explore” approach to portfolios. Click on the highlighted headline for full column: How to master Core-and-Explore Investing.
For the average investor at or near Retirement age, I believe the “core” – the 80 to 90% of so-called “Serious Money” – can be held in balanced funds or low-fee indexed solutions like Asset Allocation ETFs from BMO, Horizons, iShares, and Vanguard: a single such fund holds thousands of stocks and bonds spread around the world.
If your risk tolerance is high enough, that leaves 10 to 20% for a more adventurous “Explore” allocation that could go into more speculative alternatives to the mostly stocks and bonds held in the core. This could include new tech IPOs or cryptocurrencies like Bitcoin or Ethereum, or investment funds that track them, as Dale Roberts and I surveyed in twoMoneySense articles recently. Sadly, volatile cryptos and crypto funds can also generate comparable losses just as quickly so keep these to no more than 1 or 2% of a total portfolio and be quick to take partial profits in registered accounts.
If booking gains without tax considerations, you could put the proceeds into less volatile speculations. One surprize from 2020 and so far in 2021 is the glut of new stock offerings, IPOs, including the mania over SPACs, which I only touch on in the column.
The one rule for speculative single issues is not to bet your whole speculative budget on a single name. Older folk may choose “baskets” of four or five stocks in several sectors.
I’m normally wary of IPOs: some joke IPO stands for It’s Probably Overpriced. However, for the first time I recently bought an IPO on its day of issue: online vacation rental firm Airbnb Inc. [ABNB/Nasdaq], recommended by more than one investment newsletter to which I subscribe. That was the first time I bought an IPO the day it started trading, though I regret NOT having jumped on Google’s IPO back in 2004.
Recent IPOs
I prefer to wait a few months for new issues to settle: that approach worked with Facebook after it fell within a few months of its initially botched IPO. And recently I’ve taken post-launch “starter” positions in plant-based meat substitute maker Beyond Meat [BYND/Nasdaq], cloud data warehousing firm Snowflake Inc./[SNOW/NYSE, and the now ubiquitous Zoom Video Communications [ZM/Nasdaq.] Continue Reading…
Veteran broadcaster Pat Bolland interviews me on his new podcast: The Just Word with Pat Bolland.
You can find the full interview — which dropped early Tuesday — here. The episode is titled “Findependence or Bust.” Scroll down a tad if you can’t see it immediately on your screen. It’s audio-only (at least this particular segment) and if it appears to pause on a mobile device, simply press the Play button again and it will resume where it left off.
You can find the podcast on the usual distribution outlets, including Spotify, Apple, Google and others.
I’ve followed Pat’s career in broadcasting and investing for decades and for a time we worked as editor (me) and columnist (Pat) during my stint at MoneySense magazine. Pat was my go-to-source for Fixed Income, although of course he’s extremely knowledgeable about all asset classes.
The interview is a wide-ranging one over Zoom, spanning about 25 minutes, with a particular focus on this website: The Financial Independence Hub. Pat probes me about why and how the site got started, about its demographics and audience and we discuss the difference between traditional Retirement and the concept of Financial Independence (aka Findependence) and the idea of the Financial Life Cycle.
As the title of the segment suggests, he fully fleshes out the word Findependence, including my self-appointed title of CFO, standing uniquely for Chief Findependence Officer.
We address the difference between Wealth Accumulation and so-called “Decumulation,” and discuss a few Canadian authors of books that focus on the topic, or Retirement in general.
Our respective forays into Cryptocurrencies
Of course, we also covered a lot of ground about investing in general, ranging from cryptocurrencies and Bitcoin and gold/precious metals to robo-advisors and investing in a post-Covid world where vaccines are becoming common enough that investors can start to think about so-called “Recovery” plays.
We chat about what seems to have been the shortest bear market in history (March 2020) and the subsequent volatile markets. I was surprised to discover Pat was an early adopter of Bitcoin, albeit a tiny amount several years ago, which he ultimately bought a set of golf clubs with.
We then moved on to zero-commission trading, young investors trading on Robinhood, and the recent phenomenon of the short squeeze on GameStop and other popular meme stocks promoted on Reddit’s WallStreetBets forum.
Housing, investment real estate and REITs
We also discuss interest rates and housing, debt and financial repression, life expectancy and longevity, and what aging baby boomers like ourselves can expect in Semi-Retirement and (one day!) Full Retirement. We walk about Toronto housing prices and my long-term philosophy that the foundation of Findependence is a paid-for home (articulated in my financial novel, Findependence Day.)
We also address investment real estate and — for those who don’t wish to be a landlord — REITs (Real Estate Investment Trusts) or REIT ETFs.
What I’d tell my 35-year old self
Watch near the end for Pat’s question to me about what I’d tell my 35-year-old self if I could go back in time and do it all over again.
A seemingly contradictory finding about RRSP trends was uncovered by BMO Financial Group’s latest (its 11th) annual RRSP survey, released Wednesday. While the average RRSP balance rose to $112,295 — up 3.3% over $111,929 in 2019 and 41% more than $79,492 in 2015 — at the same time Canadians’ knowledge of the benefits and features of RRSPs has fallen since 2015. And women are 18% less likely to know how much they’ll need to retire.
This comes after a pandemic year in which 12% did not contribute at all, resulting in a a 15.5% decrease in overall contribution amounts since 2019; even so contribution amounts for this year are 15.8% higher than the survey found in 2018.
The BMO RRSP Survey was conducted by Pollara Strategic Insights via an online survey of 1,500 adult Canadians between Nov. 17th and 23rd, 2020.
Robert Armstrong
In a press release, BMO Global Asset Management Director Robert Armstrong said investors need to consider long-term factors like increasing cost of living and longer average life expectancies when planning for retirement: “With these challenges in mind, it’s encouraging to see a national increase in RRSP holding amounts.”
What’s discouraging is that while most regard RRSPs as effective retirement planning vehicles, knowledge about them has steadily declined over the last five years:
71% know how to contribute to an RRSP, an 8% decrease from 2015
61% know the RRSP contribution limit, but the percentage who know this has fallen 12% since 2015. (The RRSP contribution limit for 2020 is $27,230, or 18% of investors’ annual income: whichever is less. Any unused contribution room from previous years is also carried forward.)
Only half are aware of what investments are eligible to be held in RRSPs, a 10% decrease from 2015 and only 44% are aware that RRSPs can hold ETFs, while 79% know that RRSPs can hold mutual fund. (Holdings can include: mutual funds, cash, GICs, stocks, bonds and ETFs.)
Because of the inherent complexities of RRSPs, Armstrong suggests professional advice is valuable to help investors meet their long-term financial goals.
Gender gap
The study also found a gender gap in retirement planning and RRSP knowledge:
Among those surveyed, women are 9% less likely to know how to contribute to an RRSP and 10% less likely to know the difference between RRSPs and TFSAs compared to men
Only 62% of women know the RRSP contribution deadline (the deadline for this year is March 1, 2021) and 55% know how much they can contribute to the account, compared to 70% and 67% of men, respectively
Only 41% of women know which investments can be held within an RRSP
Women are 18% less confident than men in their retirement plans, and 18% less likely to know how much money they will need for retirement
Women were more likely than men not to be contributing to their RRSPs this year because of pandemic-related reasons (15% versus 9%)
Women are less likely to have withdrawn funds from their RRSPs before the age of 71, with 25% having done so compared to 31% of men
BMO has several programs aimed at helping women build their investing confidence:
BMOforWomen.com is regularly updated with content to help inspire financial confidence
The podcast Bold(h)er podcast features inspiring stories of women making bold moves in their careers and businesses
BMO investment professionals provided access to online training to promote and engage women investors and business owners in tailored, goals-based conversations
For personalized advice on meeting financial goals in general, see www.bmo.com/myplan. For RRSP information in particular, visit www.bmo.com/rrsp/.
The other is from regular Hub contributor Dale Roberts of Cutthecrapinvesting. His MoneySense piece can be found here: Should you invest in Cryptocurrency?
My piece is the first time I’ve publicly written about crypto, although the Hub has long covered it, both positively and not so positively. Try, for example, this primer published here way back in July 2017.
The MoneySense piece recaps my personal experiments with Bitcoin and Bitcoin funds, as well as Ethereum and Ethereum Funds, going back to the fall of 2020. I sat out the original 2017 boom.
It seems to me that investors should regard this as a new asset class that should probably not exceed a few per cent of a diversified portfolio. Certainly, institutional acceptance of crypto and attention from hedge fund billionaires like Paul Tudor Jones seems to have ignited the new euphoria, buoyed in part over the frustration of minuscule interest rates and inflationary forces unleashed by endless money printing by central banks in the US and the rest of the world.
Based on the recommendation of Profit Unlimited’s Paul Mampilly, my first try was to put several thousand dollars into each of the Grayscale Bitcoin Trust [GBTC/OTC] and Grayscale Ethereum Trust [ETHE/OTC], which I currently hold in a non-registered account.
I soon realized I wanted to hold these experimental positions in registered portfolios (RRSPs and TFSAs) so that the next time I got a double or triple — if indeed they materialized rather than comparable losses — I could book the gains with no immediate tax consequences. I soon discovered the closed-end funds of Toronto-based 3iQ Digital Asset Management: first I tried The Bitcoin Fund [QBTC/TSX] andThe Ether Fund [QETH.U/TSX], can be held in registered accounts like RRSPs and TFSAs.
My third experiment was when Mampilly started to recommend his readers move from the Ethereum tracking ETHE to actual native ethereal or ETH (which some call Shitcoin, or poor man’s Bitcoin). He suggested buying actual “native” crypto from places like Coinbase and RobinHood, convenient for his mostly American subscribers but less so for Canadians. Continue Reading…
Mark Seed’s MyOwnAdvisor website has just published a Q&A with Yours Truly. The Hub often republishes Mark’s blogs here (with his permission of course) and this Q&A covers topics like dividend investing, asset allocation ETFs, hybrid strategies using both and even crypocurrencies.
You can find the original blog by clicking here, or you can read the republished version below:
MyOwnAdvisor’s Mark Seed
Mark Seed: “Fun money” is an apt term for monies you can afford to lose. I mean, nobody wants to lose money on purpose of course but there is always an undeniable trade-off when it comes to investing.
Risk and return and related.
Higher risks can signal a higher potential return. Higher risks taken can also signal flat-out failure.
I was curious to hear about how some retirees or semi-retirees invest and keep speculation in their portfolio.
So, I reached out to author, blogger and columnist Jon Chevreau for his thoughts including how much he speculates in his own portfolio, at age 67.
Jon has already contributed to My Own Advisor a few times.
Jon, welcome back to the site to discuss this interesting topic!
Jon Chevreau: Glad to be back Mark.
Mark: In our last post Jon, we talked about low-cost ETF investing, investing in stocks and more in your Victory Lap Retirement book.
Jon: No, DIY investing is probably not for everyone: some need good advice and like most things in life, you get what you pay for.
If you need a full-service advisor or a fee-based advisor that can add value not just on investments but on tax strategies, estate planning, retirement income, insurance and the like, then paying on the order of 1% a year of assets is not unreasonable. On the other hand, with interest rates so low, the more you can save on the fixed-income portion of a portfolio the better. That applies doubly to retirees, who should have a good percentage of their investments in fixed-income (say 40 to 60% depending on objectives and risk tolerance.) I often tell retired readers that if all they use is a discount brokerage in order to hold a Vanguard or iShares asset allocation ETF, that can be a good compromise: you get the equivalent of near professional stock-picking prowess via indexing, asset allocation and rebalancing all for a very good price; and you could then hire a fee-only financial planner for specific guidance outside that pure investing realm.
So, given some aspiring retirees might not want to invest entirely alone, what good options might be available to help them out (beyond blogs like yours and mine of course)!? Ha!
Jon: I often direct new or aspiring retirees who are worried about the shift from wealth accumulation to generating regular retirement income to the books by good Canadian authors like Moshe Milevsky, Daryl Diamond and Fred Vettese. Sites like yours and mine probably have reviewed these. There are also several retirement planning software packages that are worth considering; ViviPlan, Cascades and Retirement Navigator, to name three I once reviewed in a Globe & Mail article.
(Mark: you can find many references to those authors and their books below.)
As someone who is in their semi-retirement years, is that being overly cautious? What are your personal thoughts/approaches on trying to mitigate poor sequence of returns risks?
Jon: Market timing is always fraught with uncertainty so I tend to suggest sticking to your asset allocation plan and adhering to a relatively cautious variant of the 4% Rule. I’m cautious so personally start with a 3% rule: that is, whatever amount you have invested I try to withdraw only about 3% of the value per year. Hopefully, some combination of interest, dividends and capital gains will generate most of that 3% and if sometimes it means breaking a bit into capital, then accept that. We don’t live forever and the occasional down year from a stocks bear market will soon enough be followed by some very good years, like 2020 largely turned out to be. In bad years, be frugal and eschew travel if necessary; in good years, live a little but at least keep investing in your TFSAs. Diversification and asset allocation are our friends but keep in mind the Asset Allocation ETFs are mostly focused on the big three asset classes of stocks, bonds and a bit of cash.
With all this money printing by central banks to cope with COVID-19, I like to include some inflation hedges and so keep maybe 10% in precious metals/gold/silver/platinum and real estate is a good asset class for 5 to 10%, through REIT ETFs that can currently be acquired at bargain prices.
Mark: I own a few REITs for that hedge myself: some REITs do seem very cheap now. Jon, I’ve long since argued that any path to financial wealth should be largely boring – save, invest, stay the course, focus on equities, diversify, minimize fees – and you should end up more than OK after a few decades of this simple path to wealth-building.
Yet the rise of cryptocurrencies, the recent tech boom, and other investing alternatives has me thinking there is absolutely some room for some/a small bit of speculative plays in a portfolio. So, I have a few questions for you.
First, what is your stance on that? I mean, how much should retirees speculate in their portfolio if at all?
Jon: Some believe retirees shouldn’t speculate at all but any retiree counting on current GIC rates will need a much bigger portfolio for that than when interest rates provided a reasonable return. Personally, even as I near age 68, I still invest a lot in technology stocks and lately I have even dipped my toes into cryptocurrencies. Continue Reading…
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