Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

What the Olympics can tell us about managing Retirement portfolios

Adrian Mastracci, “fiduciary” portfolio manager at Lycos Asset Management touches on applying Olympian wisdom to your retirement portfolio.

Let’s reflect on the Olympians who recently competed at Tokyo. They deserve praise for braving years of preparation, training, commitments and pandemics.

Striving and competing to be best in their chosen pursuits. Regardless of outcomes.

I especially appreciate long distance events like cycling, running, swimming and rowing. They demand a wealth of endurance and perseverance, much like retirement portfolios.

Athletes often have to reach down deeper to muster more bursts of adrenalin. Just when it seems there is little, if anything, left in the tanks.

My top takeaways

Investors can draw some parallels from hard working Olympians. Wisdom from the Olympiad is relevant and applicable, particularly to long-term investing.

I summarize my top takeaways. Successful athletes require:

• Much dreaming and sketching out of personal goals.

• Setting specific, well thought out strategies.

• Disciplined game plans that realize on their dreams.

• Patience for the roller coaster of setbacks and achievements. Periodic tweaking of their action plans.

• Time horizons to learn and master their quests.

Olympians make wonderful ambassadors for the investing profession. I encourage investors to take a few moments and apply Olympian wisdom to the precious nest egg.

Athletes make choices and sacrifices along the way in their quest for Olympic goals. Investors balance choices between spending for the moment and saving for the long haul.

Risk is an inevitable part of the Olympics, as it is in long term investing. Athletes try different training plans, much like investors try a variety of strategies.

Investors can improve their long term portfolios with these four pearls of wisdom:

  •  Pay attention to issues that you can control:  risks, diversification, asset mix and investment quality.
  •  Ensure that no investment can cause serious portfolio damage: losses are typically your biggest destroyers of wealth.

Buy and sell methodically over time – timing the markets is a low percentage strategy.

Always expect the unexpected – a positive mindset is best for making portfolio decisions. Stick to simpler game plans. Skip the fancy moves.

All the very best to the athletes. May they treasure the accomplishments and cherish the memories.

 

Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA started in the advisory profession in 1972. He is portfolio manager with Vancouver-based Lycos Asset Management Inc.  

 

 

 

Information provided is intended for educational purposes only. Copyright ©2021, Adrian Mastracci. All rights reserved.

Sustainable Equity Strategies for a Global Recovery

Image iStock/Franklin Templeton

By Mel Bucher, Co-Head of Global Distribution, Martin Currie, Edinburgh, UK

(Sponsor Content)

The investment choices we make can have a profound effect on the world around us. Investing according to sustainable principles allows investors to align their environmental, social and governance (ESG) goals with their investing choices.

Also, we believe sustainability can be a driver of long-term portfolio performance. As global equity markets recover from the COVID-19 pandemic, more Canadians want to invest in opportunities available within a wider sustainable context.

One new option is the sustainability investment expertise that Martin Currie brings to Canada.

Martin Currie may be a new name for many Canadian retail investors. Our firm is a Specialty Investment Manager of Franklin Templeton, based in Edinburgh, UK, and we focus on actively managing portfolios of the listed public equities of companies that generate long-term value from sustainable ESG polices. Our ESG framework helps to identify any material ESG issues related to a company’s cash flow, balance sheet and profit/loss account over time and whether these ESG issues could affect value creation. Having ESG analysis fully embedded in the research process enables our investment teams to uncover material issues.

Martin Currie’s leadership in ESG was recognized with the UN’s Principles for Responsible Investment A+ rating for 2017, 2018, 2019 and 2020.

This article considers our sustainable investing strategies in global equities and emerging markets equities, both of which are now available to Canadians.

A global equity strategy in a global recovery

We expect the strong comeback of the global equity market to be sustained under fairly benign inflation conditions and with asset prices supported by monetary policy. Our global equity strategy is well positioned in this environment.

The Franklin Martin Currie Global Equity strategy invests in companies with exposure to three established growth megatrends:

1.      Demographic change (e.g., aging population, urbanization, healthcare)

2.      Resource scarcity (e.g., electric vehicles, alternative energy, infrastructure)

3.      The future of technology (e.g., outsourcing, cloud computing, security).

We believe these themes will drive long-term structural growth in the global economy. The portfolio seeks diversified holdings with exposures to the megatrends to capture growth.

Global equities for growth, at the right price

The portfolio holds 20-40 stocks of sustainable, well-managed growth companies that dominate their respective industries and have high barriers to entry. They hold pricing power and face a low risk of disruption. These firms have potential for long-term structural growth and value creation. Companies undergo a systematic assessment of their industry, company, portfolio and governance/sustainability risks.

These equities may not be cheap, so the portfolio managers are highly selective about acquiring companies at the right valuations. The goal is to find equities that combine strong industry, financial and governance attributes at the right price.

This global equity strategy is now available to Canadians through the Franklin Martin Currie Global Equity Fund and Franklin Martin Currie Sustainable Global Equity Active ETF (FGSG). The mutual fund’s U.S. equivalent is a 4-star Morningstar-rated fund* in the International Unconstrained Equity category.  

Unique Approach to Portfolio Analysis and Construction

Martin Currie’s sustainable emerging markets strategy Continue Reading…

What the new Higher Stress Test means for Homebuyers

Image courtesy of Loans Canada

By Sean Cooper

Special to the Financial Independence Hub

Ever since the start of COVID, the real estate market has been on fire. To help deal with the record level of activity in the real estate market and also keep things balanced, a new mortgage stress test was introduced June 1st. In this article we’ll look at the new mortgage stress test and how it affects you.

What’s the Stress Test?

The stress test is a measure that anyone buying a home, refinancing their mortgage or switching mortgage lenders must pass. Pretty much the only time you don’t have to pass the stress test is when you’re renewing your mortgage with your existing lender. Whether you’re buying a home with less or more than 20 per cent, it doesn’t matter. You’re affected by the stress test.

The stress test was introduced several years back to help protect homebuyers from becoming overleveraged and taking on too much mortgage debt. Prior to the stress test, you only had to prove that you could afford mortgage payments based on the mortgage rate when you first sign up for your mortgage. However, with Canadians spending more and more on homes and the threat of higher interest rates looming, the Canadian government decided to introduce the stress test in early 2018 out of precaution.

To pass the stress test, you need to show that you can qualify at the greater of your mortgage rate plus two per cent and the stress test rate (currently at 5.25 per cent). With mortgage rates currently somewhere in between the mid one percent’s and the mid two per cent’s for both fixed and variable rate mortgages, you’ll almost always have to qualify at 5.25 per cent as things stand today.

How has the Stress Test changed?

The new stress test rules came into effect June 1st. Prior to the introduction of the new stress test rules, the mortgage stress test rate was 4.79 per cent. That’s because it was based on the average of the big banks’ posted mortgage rates. However, the government decided to change how the stress test was calculated. Continue Reading…

RBC finds young Canadians flocking to online DIY investing since pandemic

By Lori Darlington, President & CEO, RBC Direct Investing 

(Sponsor Content)

I was asked a question recently that made me look at what we’ve been experiencing during the pandemic in a new way.

A colleague asked if we would look back someday and see this as a time when people took more direct control of their finances – driven in part by so much else that feels outside of our control.  Considering the surge in Canadians becoming self-directed investors over the past 18 months, there may be some truth there, but I think there’s more to it than that.

We’re seeing a new age group emerging within this wave of new online investors: increasing numbers of younger Canadians are becoming DIY investors. More than half of the new clients who’ve joined us at RBC Direct Investing over the past 12 months are under the age of 35.

I don’t think this is simply a pandemic spike. I believe this is a generational shift. These younger investors are comfortable with digital platforms and they enjoy doing their own research – two key aspects of being a successful self-directed investor.

What this means for us is that we need to ensure we’re providing comprehensive support for these younger DIY investors, to help them make informed online investing decisions.

Years ago, we realized we needed to connect with younger Canadians who might be interested in investing. We created our own editorial team to produce a digital magazine, Inspired Investor, which features quick reads that show how our everyday lives intersect with investing and to offer ideas and tips for both newer and more experienced investors. We also have a Getting Started Guide and how-to videos in our Investing Academy.

And you don’t need to be a Direct Investing client to access our Inspired Investor or Investing Academy resources. We want to help investors across Canada build their knowledge and ensure that they are making decisions that match their own risk appetite, so they can trade with confidence.

No-risk Practice Accounts

We also understand that each person has a different comfort level with trading online, so we provide a ‘no risk’ Practice Account. Just as it sounds, this account doesn’t use real money; we provide $100,000 in ‘pretend money’ so investors can test out making trades. You don’t need to be an RBC Direct Investing client to do this, but you do need to have an RBC Online Banking account. Continue Reading…

No one saw it coming in 1929 either

The Roaring 20s

By John De Goey, CIM, CFP

Special to the Financial Independence Hub

Stock market bubbles are not as rare as many people think. They occurred throughout history, with multiple generations seeing large swaths of accumulated wealth evaporate in short order.  With very few exceptions, the shellshocked investors are left to survey the carnage while trying to discern what happened and why they didn’t see it coming.

There are behavioural explanations for this. They include herding (following the herd), optimism bias (my industry always says the markets will rise), recency bias (where people put too much emphasis on things that are top of mind and current), and confirmation bias (where people simply look for information that supports their own pre-existing views). There are others. It’s as if large swaths of people want to be collectively deluded into thinking the warning signs are not to be believed or – worse still – they simply refuse to acknowledge the signs at all.

Investing in a go-go market feels good until it doesn’t

If one were to choose a catch phrase for these people, it might be this – “if it feels good, do it.”  Investing in a go-go market certainly feels good. Until the day when it doesn’t. Warning people to take shelter before the pending storm is a bit of a fool’s errand, however. When times are good, people like to believe things will stay that way indefinitely.

Irving Fisher was unquestionably one of the greatest American economists of all time, but in the summer of 1929, he opined that markets had reached a state of permanently high elevation. In other words, he recognized the warning signs, but chose to dismiss and/or ignore them. The hallmarks of people getting overly optimistic about future returns were all around him and stories of shoeshine boys providing stock tips were just the tip of the iceberg for irrational investor exuberance.  Over ninety years later, little seems to have changed in how people can be duped into what amounts to a form of mass psychosis.

Jeremy Grantham is a Wall Street maven who manages billions of dollars for a firm he co-founded, GMO Capital. When asked where we are now in the market cycle, he suggested we are near a top. Grantham recently said: “Bubbles are unbelievably easy to see; it’s knowing when the bust will come that is trickier. You see it when the markets are on the front pages instead of the financial pages, when the news is full of stories of people getting cheated, when new coins are being created every month. The scale of these things is so much bigger than in 1929 or in 2000.”

Bitcoin, real estate and meme stocks

I’m just wondering, but has anyone noticed stories about bitcoin or real estate prices or the crazy trading activity in Gamestop?  Are those stories consistent with what’s been in the financial press – or do you think they seem a bit disconnected from reality?

The American stock market is in the stratosphere these days and pretty much all the rosy narratives noted about it are based in the United States. There are several metrics that demonstrate this. Warren Buffett’s favourite test is to compare total market capitalization to national GDP. The so-called “Buffett Indicator” now stands at over 200%, which is one of the highest readings of all time. In 1929, it took 22 years for stocks to recover to record highs, so the current reading certainly ought to provide pause, as another massive global downturn seems possible, if not likely. The stakes are enormous. Continue Reading…