Unless you were literally born yesterday, you’re probably already aware that 2022 was an extraordinary year for investing … extraordinarily bad, that is. It hardly mattered which asset mix you invested in. Both stock and bond markets experienced double-digit losses, so even conservative investors with bond-heavy holdings saw their portfolio values plummet.
That’s investing for you. We may not like it, but we actually expect some years to serve up heaping helpings of realized risk, sometimes across the board. It’s the price we pay to expect these same markets to deliver longer and stronger runs of future returns.
From this perspective, we hope you’ll keep your eyes and your asset allocations focused on the future as we review the 2022 performance for the Vanguard, iShares, BMO, and Mackenzie asset allocation ETFs.
Before we look at the 2022 returns for our asset allocation ETFs, let’s check out the year-end results for their underlying holdings, starting with the equity ETFs.
2022 Equity ETF Returns
Canadian equity ETF returns were similar across the board, with losses of around 6%.
Disappointing, for sure, but their performance was still better than that of global stock markets, which lost 12% in Canadian dollar terms. That’s in large part due to the Canadian stock market’s overweight to energy companies. The energy sector happened to have a stellar year, returning over 50% during 2022.
U.S. equity ETFs also ended 2022 on a low note, losing around 20% in U.S. dollar terms. During this time, the U.S. dollar appreciated by 6.8% against the Canadian dollar, reducing the loss for unhedged Canadian investors. Once we factor in the return bump from U.S. dollar exposure, our selection of U.S. equity ETFs lost around 12%-14%, in Canadian dollar terms, net of withholding taxes.
BMO’s trio of U.S. equity ETFs had noticeably higher returns than the others. This is largely due to the methodology used to construct the S&P indexes tracked by BMO’s ETFs. For these indexes, an S&P index committee selects which companies to include in each index. The indexes tracked by the Vanguard, iShares, and Mackenzie ETFs have a less subjective process. This means there is more active decision-making going on in the three S&P indexes tracked by BMO’s ETFs, which led to a wider short-term return difference between BMO and the rest of the more passive index-tracking providers in 2022.
International equity ETFs ended the year on a disappointing note as well, losing between 8%-10%.
Two components explain most of the performance differences among our international ETF providers: Continue Reading…
Many investors look forward to the annual letter from Warren Buffett. On Saturday, Berkshire Hathaway reported earnings and Mr. Buffett offered commentary and delivered his annual letter to shareholders. The company reported record operating profits and also beat the market handily in 2022. Fearing a recession in 2023, more investors put their trust (and money) in the hands of the world’s greatest investor. Berkshire Hathaway is the largest position in my wife’s accounts. We’re listening to Warren Buffett on the Sunday Reads.
Warren Buffett’s Berkshire Hathaway Inc on Saturday reported its highest-ever annual operating profit, even as foreign currency losses and lower gains from investments caused fourth-quarter profit to fall. Businesses generated $30.8 billion of profit despite rising inflation. Buffett and friends also increased their cash position to near $130 billion.
Sitting on a massive cash pile
The investment giant held ~$128.7B of cash and short-term securities at Dec. 31, 2022, vs. ~$109.0B at Sept. 30. That’s even with the company acquiring Alleghany Corp. in the last quarter of 2022. Owning or purchasing Berkshire delivers an immediate cash hedge, in “pretty good hands”. Should we get a recession, the Berkshire teams will go shopping in a meaningful way. Corrections are when they do their thing and create the conditions for outperformance.
Berkshire’s share price rose 4% in 2022, far outpacing the S&P 500 which fell 18%, reflecting Berkshire’s status as a defensive investment. I have long suggested that investors consider a position in Berkshire (BRK BRK.B). When the going gets tough, Berkshire often gets going.
In the COVID correction Warren Buffett did not get his chance to be greedy. Massive stimulus quickly ended the shallow recession and stock market correction. From the chart above, we can see that the market started to embrace Mr. Buffett and the stock. Will Mr. Buffett get the chance to spend a good chunk of his $130 billion in a recession? Who knows. But I like the idea of having that cash pile in good hands.
You’ll see just a little bit of outperformance from the time of my article, ha. 71% vs 28%. But to be honest, the S&P 500 gets a little boost for that Author’s Rating evaluation, they did not includes the dividends. But it’s still not a fair fight.
This is not advice, but you might consider Berkshire Hathaway as part of your portfolio defense. For Canadian dollar accounts you can purchase Berkshire Hathaway as a CDR listed on the Neo Exchange. Those are currency hedged.
Dale Roberts is the owner operator of the Cut The Crap Investing blog, and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on Feb. 26, 2023and is republished on the Hub with permission.
Yes, it’s March, also dubbed Fraud Prevention Month. To mark it, a TD survey has been released that finds fraudsters are getting more persistent as the cost of living keeps soaring.
While 62% of Canadians agree they are being targeted now more than ever, a whopping 46% haven’t taken any measures to educate themselves or take protective measures in the past year.
Among the findings:
47% believe the rising cost of living and other financial hardships will expose them to more scams
78% don’t have much confidence in their ability to identify fraud or scams
54% feel stressed or anxious about financial fraud
31% are too embarrassed to tell anyone if they were the victim of a fraud or scam
66% of Gen Z and 44% of Millennials admit they wouldn’t tell someone if they were swindled
“As Canadians report being targeted by a record number of financial fraud attempts, many can benefit from using the tools and resources available to protect themselves and their loved ones,” says Mohamed Manji, Vice President of Canadian Fraud Management at TD in the release, “It’s very important to exercise caution, especially at a time when fraudsters may take advantage of the economic challenges many Canadians are currently facing. In addition to the robust security measures TD has in place for its customers, the best defence against financial fraud is being aware and knowing how to spot it.”
Both TD and the Canadian Anti-Fraud Centre offer a comprehensive library of articles discussing the latest trends in scams and measures Canadians can take to enhance their awareness and avoid falling victim to fraudsters.
Targeting mostly via e-mail or telephone
The survey found 72% of Canadians reported being targeted by email/text message fraud, up 14 percentage points from last year, while 66% were targeted over the phone. Oddly, the poll finds Fraudsters seem to be pivoting away from social media, with only 26% targeted this way, 10 percentage points less than 2022.
Those polled were most concerned about identity theft (52%), title fraud (23%) and fake emergencies (20%).
Factors likely to increase vulnerability to fraud include age (43%), loneliness or isolation (35%), moving recently to Canada (34%) and financial hardship or job loss (32%).
“We’re seeing more fraudsters preying on customers through the ‘grandparent’ or ’emergency’ scam,” adds Manji. “This cruel crime is often successful because it exploits someone’s desire to care for their loved ones. If you get a call from somebody claiming to be a family member or friend in immediate need of funds, hang up the phone and call them back using a number you have for them.”
TD says that with 31% saying they’d be too embarrassed to tell anyone if they were a fraud or scam victim, it’s clear there’s some stigma in talking about this type of crime. If someone believes they’ve fallen victim to a scam, they should immediately report it to their financial institution, local police department, credit bureaus (Equifax and TransUnion) and the Canadian Anti-Fraud Centre.
There are obvious ways to generate retirement income but I suspect some might not appeal to you for a few reasons!
Option #1 – Save more. Sigh. I doubt most people will like this option, I don’t! However, more money saved will help combat inflationary pressure, rising healthcare costs and longevity risk.
Option #2 – Work longer. Double sigh. If you didn’t like option #1, you might not like this one! Working longer into your 60s or potentially to your 70s might be the reality for some with a low savings rate.
Option #3 – Spend less. Spending less than you make seems simple but not easy!
Meaning, the path to a well-funded retirement is usually (always?) spending less than you make, investing the difference, and growing that gap over time. This has largely been our plan – to let the power of compounding do its thing – but that does take discipline and time. Investing patience is a virtue.
Our semi-retirement income plan has us leveraging a mix of income streams in a few years:
Earn income from part-time work – to remain mentally engaged but also to fund some income needs and wants in our 50s.
Make strategic Registered Retirement Savings Plans (RRSPs) withdrawals in our 50s and 60s.
We’re not quite “there” yet in terms of having 1, 2 and 3 running smoothly to meet our semi-retirement income needs yet, but we are getting there and making some lifestyle choices accordingly…
We hope to semi-retire sometime in 2024.
We have been working hard to build up our taxable dividend income stream for about 15 years now.
We continue to max out our TFSAs as our first investing priority every January (and we’re saving for that again in early 2023).
We have been maxing out contributions to our RRSPs, and we’ll continue to do so for the next couple of years.
What are my retirement income needs?
In a nutshell, we figure once we can earn close to $30,000 per year from a few key accounts (for example, from our taxable account(s) and TFSAs x2), and then make those strategic RRSP withdrawals on top of that, we should have enough to start part-time work.
Here are some estimated very basic expenses in semi-retirement:
Key expenses
Monthly
Annually
Semi-retirement comments ~ end of 2024??
Mortgage
$2,240
$26,880
We anticipate the mortgage “dead” before the end of 2024.
Groceries/food
$800
$9,600
Although can vary month-to-month!
Dining/takeout
$100
$1,200
Home maintenance/expenses
$700
$8,400
Represents 1% home value per year, increasing by inflation.
Home property taxes
$500
$6,000
Ottawa is not cheap, increasing by inflation or more.
Home utilities + internet/TV/cell phones, subscriptions, etc.
$400
$4,800
Transportation – x1 car (gas, maintenance, licensing)
$150
$1,800
May or may not own a car long-term!
Insurance, including term life
$250
$3,000
Term life ends in 2030, will self-insure after that without life insurance.
Totals with Mortgage
$5,140
$61,680
Totals without Mortgage
$2,900
$34,800
As you can see, once the debt is gone, we’ll be in a much better place for financial independence!
Add in other spending/miscellaneous spending to the tune of $1,000 per month on top of that, and our semi-retirement budget is likely at the basic-level about $4,000-$4,500 per month.
What are your retirement income needs?
Until the end of time, I suspect one of the most popular retirement planning questions will be: how can I generate retirement income?
That’s a HUGE quesiton to answer. I mean, we have rising inflation, higher interest rates, and the need to make your money last to fight any longevity risk, higher taxation and the need to cover essential healthcare costs as you age. This also makes how you can generate retirement income a VERY important question to answer.
Passionate readers of this site will know I’m a big fan of investments that generate meaningful income. Sure, you can invest in real estate, private equity, run a business into your 60s and 70s but for many people: the stock market is a common vehicle for average people/average investors to be long-term business owners.
This makes the hope of capital gains or getting paid today via dividends an interesting paradox.
As I get older, while the best total returns are always the goal, I’m more concerned about the tangible income my portfolio can (and will) generate moreso than hoping for stock market prices to work in my favour.
Full stop: I like investments that generate income. I like individual stocks as investments that pay ever growing income!
While I believe in (and own) low-cost, passive Exchange Traded Funds (ETFs) for total portfolio growth, a major portion of my portfolio rewards me to be a shareholder. I am attracted to investments that pay dividends or distributions. You may wish to consider the same for your meaningful retirement income needs.
Should you use ETFs to generate your retirement income needs?
I believe so, at least a consideration if you’re not going to be an owner of some individual dividend-paying stocks!
Both look at the widely publicized BMO poll that found Canadians now need $1.7 million to retire on average. The figure used to be $1.4 million but inflation has made it a bit tougher. Here’s the CNW newswire release from Feb. 7th.
As I mention in the MoneySense column, the Hub version was written off the top of my head and published as part of the initial news cycle. With an extra week to go to expert sources, the updated column is more nuanced and has more accurate returns projections and calculations where the first version consisted of guesstimates.
Of course, generalizations are always dangerous and that goes double for retirement planning, especially over the kind of 40-hour time horizon involved. It’s one thing to be a Millennial investor just starting out on the retirement journey and quite another to be a boomer like myself, looking back at portfolios begun three or four decades earlier. As the original Hub version commented, $1 million isn’t what it used to be. Even so, even maxing out your RRSP contributions each year will take some doing: as I wrote after my quick guesstimate, if you divide $1.7 million by 40 you get $42,400 a year that needs to be contributed each and every year, or almost twice the maximum RRSP contribution permitted even if you’re a top earner.
If you’re fortunate enough to be one half of a couple, $850,000 per spouse seems a lot more achievable. And if you have a Defined Benefit pension plan, you may not need anything else, whether from an RRSP, TFSA or non-registered savings. If you hang in to a gold-plated DB pension plan for 40 long years, odds are it alone will be the equivalent of $1 million, and possibly backstopped by taxpayers and indexed to inflation to boot.
But if you begin investing early, you won’t need to save anywhere close to $1.7 million because of investment returns that are tax-deferred inside an RRSP. Because of the time value of money, even the modest 4% compounded annual investment returns will over the course of 40 years get you to the promised land.
The Hub blog assumed investment returns of 4% per annum either from fixed income (4- or 5-year GICs) or from high-yielding dividend-paying stocks, like Canada’s bank stocks, utilities or telecom majors. In the MoneySense column, wealth advisor Matthew Ardrey of TriDelta Financial assumes a more hopeful 5% return across those asset classes.
Using the retirement calculator Calculator.net, used by BMO (www.calculator.net), if you can earn a conservative 4% a year, you’d need to contribute only $17,202 (rounded) at the end of each year to reach $1.7 million after 40 years. That breaks down to $688,074 in total contributions and another $1,011,926 in interest payments.
And if you can do better than 4%, you could contribute even less and make up the difference in investment returns: at 5% a year, you’d need to contribute only $13,403 (rounded) at the end of each year to reach $1.7 million after 40 years. That breaks down to $536,110 in contributions and $1,163,891 in interest.
P.S. MyOwnAdvisor doesn’t think most need to save $1.7 million
As a postscript, I note that on his Weekend Reads feature, MyOwnAdvisor also tackled this question of $1.7 million, which ran after I had already submitted my MoneySense column on the same topic. You can find Mark’s take here, but here’s his bottom line:
Posted By 
Posted By 
