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How to navigate a market bubble

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Image: Pexels courtesy MyOwnAdvisor

 

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Inspiration for this headline this week came from a Globe and Mail article.

For those without the subscription like I have, here are the key ways to navigate any stock market bubble that might be forming.

Curious to get your thoughts on what you are thinking about and doing as we head into 2026 …

 

 

1.) Cut back on dividend reinvestment plans/DRIPs. In doing so, you are raising your cash/cash equivalents pile. (I have been doing that since 2024.) From the article: “Rather than purchase more shares at these possibly elevated prices, I will accumulate some cash and deploy as opportunities present themselves,” one reader said.”

2.) Trim individual stock holdings. While holding individual stocks can be amazing for income and growth, I know they also expose me to some concentration risks: company or sector risks. So, to avoid that, I can trim individual holdings and simply index invest: instead. From the article: “I have felt a U.S. equity bubble has been forming for over a year now. In January, I decided to sell all my individual U.S. stock holdings and move the funds into my S&P 500 ETF,” one reader said.” (Yup, see link below, what I have done.)

3.) Hold more cash. Aligned to #1, and have done this as well. We’re about 90% equities and 10% cash/cash equivalents entering retirement in spring 2026. I may even increase my cash allocation from here since almost all DRIPs are turned off for cashflow now…

What approaches are you taking? Other steps? Happy to read and learn more…

Surviving a Recession

These tips are not unlike surviving a recession, if one were to say, happen, in 2026.

Some sensible advice in this MoneySense article on moving your RRSP to a RRIF. I already used these basics years ago when establishing my parents RRIFs for them.

  1. Consider “bucketing” to manage withdrawals:  Set a portion of your RRIF aside in something with no or very little risk that can be used for withdrawals. That way, the advisor suggests “…if the overall market takes a downturn, clients aren’t forced to sell investments at a loss because they need the cash.”
  2. Consider funding the TFSA with unspent money:  “Just because you are taking the money out of a RRIF account doesn’t mean you have to spend it.”  Yes, correct. This is why I set up my parents’ RRIF withdrawals, annually, early in the year: so whatever they don’t need to spend from their RRIF each year can go directly to their TFSAs, where money can continue to grow tax-free for any longevity spending or other emergency needs down the line.

Simple concepts that can also apply to RRSP withdrawals too for any early retirees… Continue Reading…

Personal Financial Goals vs. Market Benchmarks: Why your Investment Strategy needs a Different Scorecard

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The only investment benchmark that truly matters is whether you’re on track to meet your financial goals

Canva Custom Creation: Lowrie Financial

By Steve Lowrie, CFA

Special to Financial Independence Hub

We all like to know how we’re doing. It’s human nature. Whether it’s checking your golf handicap, your step count, or your investment portfolio, we’re wired to compare.

When it comes to investing, though, comparing can quietly pull you off course.

A client once asked me, “How’s my portfolio doing compared to the market?” It’s a fair question. But the real question is: how do you define the market?

In my experience, that definition changes over time. When one area of the world is outperforming, that’s suddenly what everyone calls “the market.” Over the last decade or so, U.S. stocks have led the way, so many people now define the market as broad U.S. stock indices like the S&P 500, or even narrower ones such as the NASDAQ, which is largely a measure of technology stocks. But in the decade before that, Canadian stocks did significantly better than U.S. stocks, so back then “the market” meant the TSX Index.

So, the idea of “the market” shifts with whatever happens to be doing best lately. That’s a moving target, and it makes for a poor benchmark.

Here’s the truth: unless your goals, timeline, and tolerance for risk are the same as that shifting version of “the market,” the comparison doesn’t tell you very much. In fact, it can distract you from what truly matters.

The Problem with Traditional Investment Benchmarks

Every night, the financial news tells us how some financial market did that day. The TSX was up. The S&P 500 hit a record. Bonds bounced back.

It’s easy to wonder, “Am I keeping up?”

But those numbers have nothing to do with your life. They’re designed to measure markets, not people. They don’t know when you want to retire, how much income you will need, or how much you can save. The list goes on.

When you start judging your progress against those numbers, you’re borrowing someone else’s scoreboard. It might look objective, but it’s not built for your personal situation.

That’s what we call tracking-error regret: the uneasy feeling that your portfolio is “falling behind” when it isn’t mirroring a benchmark or your friend or neighbour’s latest success story. That feeling often leads investors to make changes that feel smart in the moment but work against their long-term goals.

Setting Personal Investment Benchmarks that actually matter

There’s nothing wrong with measuring performance. The key is to measure what matters.

Ask yourself questions like:

  • Am I on track to retire when I plan to?
  • Can I fund the life experiences that matter most to me?
  • Do I have the financial flexibility to enjoy life without worrying about every headline?

If the answer is yes, you’re succeeding. That’s your true benchmark.

Remember, you can beat an index, or outperform a family member, friend, or colleague, but that doesn’t necessarily mean you’ll meet your financial goals.

It’s not about beating an index. It’s about building the life you want and staying on the path that gets you there.

A Road Trip worth taking: Planning your Financial Journey

Imagine you’ve always dreamed of doing a ski road trip through Western Canada. You plan a route from Calgary to Vancouver, hitting some of the best slopes along the way: Banff, Revelstoke, Big White, Whistler.

It’s not the fastest or cheapest way to get from point A to point B. You could fly to Vancouver in a couple of hours for a fraction of the cost.

But that’s not the point, is it?

The goal of your trip isn’t efficiency. It’s the experience itself: the mountain views, the fresh snow, the time with friends.

That’s exactly how a good investment plan works. It’s designed around your goals, not someone else’s shortcut (which, over time, may end up as a long cut). Your journey might look different from someone else’s, but if it takes you where you want to go, it’s the right route.

The Dangers of Portfolio Comparison and Tracking-Error Regret

When you compare your portfolio to an index or to what someone else is doing, you are like the skier who keeps checking flight prices mid-trip. You will always find a cheaper, faster, or flashier option. But constantly changing direction will make it impossible to finish the journey you started.

Comparison is powerful. It plays on our emotions, especially when markets are volatile or when others seem to be “winning.” But most of the time, those comparisons leave us feeling anxious rather than informed.

Any five- or six-year-old can look at two numbers and tell you which one is bigger. In fact, they will tell you that in a second. That is the easy part. The harder part, the adult part in an investing context, is not only spotting the bigger number, but understanding why one number is bigger than another. Continue Reading…

The Critical Element of Bonds  

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Image from Shutterstock, courtesy Outcome

Pleased to meet you
Hope you guess my name
But what’s puzzlin’ you
Is the nature of my game

  • Sympathy for the Devil, by The Rolling Stones

 

 

 

By Noah Solomon

Special to Financial Independence Hub

Historically, bonds have offered investors two main benefits. Firstly, their yields provided a reasonable, if unspectacular return. Secondly, they offered diversification value, muting overall portfolio losses during bear markets.

In my view, it is the second attribute that is the most important. In relative terms, bonds are not particularly useful for providing investors with strong long-term returns (that’s equities’ job!). So, by process of elimination it follows that the primary function of bonds is their diversification value.

When comparing equity strategies, one should compare their relative returns, volatilities, Sharpe ratios, drawdown characteristics, etc. However, given bonds’ primary purpose of providing diversification, an extra layer of diligence is required when evaluating bond strategies. Specifically, you should analyze their differing correlations to equities, and by extension their varying abilities to offset stock price declines during challenging environments.

There is no Free Lunch Part I

Economist and Nobel Prize recipient Milton Friedman famously stated, “There is no such thing as a free lunch,” which means that every choice has a cost, even if it’s not immediately obvious.

Traditional bond mandates each have their individual advantages and pitfalls with respect to returns, risks, and diversification properties. In terms of the tradeoff between risk and return, history strongly suggests that there is no clear free lunch to be had.

Risk vs. Return by Bond Type: 2000 – 2024

 

As the above table illustrates, there is a clear relationship between the returns of the various segments of the bond market and the maximum losses that they have sustained over the past 25 years. If you want extra return, you can reasonably expect to suffer larger losses in bad times. That being said, large losses in bond holdings are generally not what investors want or expect.

There is no Free Lunch Part II

Not only is there no free lunch with respect to the tradeoff between risk and return, but there is also none when it comes to diversification value. Higher returns are not only associated with larger losses but are also associated with higher correlations to equities.

Return vs. Correlation to Stocks by Bond Type: 2000 – 2024

Bonds that offer higher returns have a greater tendency to move in tandem with stocks, thereby providing less ability to mitigate stock losses during bear markets. In contrast, lower-return bonds possess greater diversification properties and thus are better equipped to offset stock-price declines during times of equity market turmoil.

None of the above: Sometimes there’s Nowhere to Hide

Notwithstanding the fact that higher-return bonds have on average suffered more severe losses and offered less diversification value than their lower return counterparts, these relationships have exhibited significant variations across different bear markets. Continue Reading…

CDRs vs. ADRs: What Canadian Investors need to know

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Learn the key differences between Canadian Depositary Receipts (CDRs) and American Depositary Receipts (ADRs), and how each structure helps Canadians access international stocks.

Image courtesy BMO/Getty Images.

 

By Erin Allen, CIM, BMO ETFs

(Sponsor Blog)

Investing outside of Canada sounds simple. Just buy shares of Apple, right? But if you’ve ever tried, you know it’s not that straightforward. You’ll need U.S. dollars, your brokerage will likely charge a steep currency conversion fee, and you’ll be exposed to foreign exchange (FX) risk the entire time you hold the stock.

That’s where depositary receipts come in. Canadian Depositary Receipts (CDRs) and American Depositary Receipts (ADRs) are two ways to buy foreign stocks without directly trading on an international exchange. They’re designed to make global investing easier: but they work differently.

In this article, we’ll break down the differences between CDRs and ADRs, which could help you determine which one makes more sense for your portfolio.

Canadian Depositary Receipts (CDRs)

CDRs are a homegrown solution designed to make global stocks more accessible to Canadian investors. Listed on a Canadian exchange and priced in Canadian dollars, CDRs give you exposure to foreign companies: without needing to exchange currency or worry about FX fluctuations.

What makes CDRs unique?

CDRs come with a built-in notional currency hedge. That means the value of the receipt adjusts for movements in the Canadian–U.S. dollar exchange rate (or other foreign exchange rate depending on the stock), helping reduce the impact of currency swings on your return. It’s a structural feature that’s automatically factored into the pricing of each CDR, so you don’t need to manage it yourself.

Another feature is fractional share access. Most CDRs are initially priced around CAD $10 per unit, making them more accessible than buying full shares of blue-chip companies like Tesla or Berkshire Hathaway in U.S. dollars. This structure makes it easier to build diversified portfolios: even with modest amounts of capital, which makes them particularly beginner-friendly.

Why consider CDRs?

Because CDRs trade on a Canadian exchange and in Canadian dollars, there’s no need for currency conversion, which means no currency conversion fees and the impact of currency movements is managed through a built-in notional hedge.

They also streamline global access: the current lineup includes U.S. giants, international developed-market companies.

And you can buy them at any major Canadian brokerage, just like any other Canadian-listed ETF or stock.

Notable examples in BMO’s CDR directory include ex-Canada companies like:

  1. ASML Canadian Depositary Receipt (CAD Hedged) (Ticker: ASMH)
  2. LVMH Canadian Depositary Receipts (CAD Hedged) (LV)
  3. Nintendo Canadian Depositary Receipts (CAD Hedged) (NTDO)
  4. Honda Canadian Depositary Receipts (CAD Hedged) (HNDA)
  5. Tesla (TSLA) BMO Canadian Depositary Receipts (CAD Hedged) (ZTSL)
  6. Berkshire Hathaway (BRK/B) BMO Canadian Depositary Receipt (CAD Hedged) (ZBRK)

With lower dollar-per-share amounts and built-in currency hedging, CDRs are designed to simplify international single-stock investing for Canadian portfolios.

American Depositary Receipts (ADRs)

ADRs are the original gateway to international investing for North American investors. Introduced nearly a century ago, ADRs were designed to make it easier for U.S. investors to buy foreign stocks: without dealing with foreign exchanges, unfamiliar regulations, or foreign currencies.

How ADRs work

ADRs trade in U.S. dollars on major U.S. exchanges like the NYSE and Nasdaq. Each ADR represents shares of a non-U.S. company, held by a U.S. depositary bank. These banks issue the ADRs and handle the underlying foreign shares.

There are two types of ADRs:

  1. Sponsored ADRs are backed by the foreign company itself and often come with better disclosure, liquidity, and alignment with investor interests.
  2. Unsponsored ADRs are issued by banks without the direct involvement of the company. These tend to be less liquid and may not offer the same level of investor information. They trade exclusively on Over-The-Counter (OTC) markets making them very hard to retail investors to access.

Unlike CDRs, most ADRs do not include currency hedging. Your returns will reflect not just the performance of the stock, but also any gains or losses from exchange rate movements between the foreign currency and the U.S. dollar.

Why investors use ADRs

ADRs are widely accepted and highly liquid, with a long track record. They provide convenient access to hundreds of international companies, particularly from developed and emerging markets in Europe, Asia, and Latin America.

But for Canadian investors, there are some added frictions. Because ADRs are priced in U.S. dollars, you’ll need to convert Canadian dollars to buy and sell them. That introduces currency conversion costs and FX risk, which can eat into returns.

For Canadian investors, ADRs still remain a viable route to global diversification. But they come with a few more moving parts compared to Canadian-listed alternatives that need to be accounted for.

CDR vs. ADR: Side-by-side comparison

Feature CDR ADR
Currency CAD USD
Exchange Cboe Canada / TSX NYSE / NASDAQ
Currency Hedge Yes (notional hedge) Typically, no
Fractional Access Yes Varies
Accessibility for Canadians High Limited

Investor considerations: a checklist

When deciding between a CDR and an ADR, the best choice often depends on your specific needs as a Canadian investor. Here’s a checklist of key factors to think about:

  1. ✓ Portfolio diversification with local convenience
    Both CDRs and ADRs give you access to global stocks, but only CDRs let you do it without leaving the Canadian market. You can trade them in Canadian dollars, through your regular Canadian brokerage account, during local market hours.
  2. ✓ Currency risk management
    CDRs include a built-in notional hedge that helps offset the effects of exchange rate fluctuations. ADRs, on the other hand, generally leave you fully exposed to currency movements. If FX risk is something you’d rather not manage, CDRs offer a more hands-off approach. Continue Reading…

Franklin Templeton likes prospects for US and global stocks in 2026

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Franklin Templeton’s Investment Outlook for 2026 and beyond was largely positive, judging by the three speakers who presented to advisors and the media at Toronto’s Ritz Carleton Hotel on Tuesday (Nov. 25). In fact, UK-based Global Investment Strategist Michael Browne declared the year now closing, 2025, to be “the Year that the Bear cried Wolf.”

Browne, who is with the Franklin Templeton Institute, released the following preliminary results of Franklin Templeton’s Global Investment Management Survey 2026, shown below:

Browne expects three Fed rate cuts next year and foresees U.S. equities as measured by the S&P500 to end as high as 7400 by the end of 2026.

Like other Templeton executives, Browne expects to see rises in stocks outside the United States. This year, the story has been about growth in the U.S. market and Value in the rest of the world, he said. But even though there are no “Magnificent 7” stocks in Europe or the Emerging Markets — the Mag 7 and their innovation mindset seem unique to the U.S. — he expects a widening and broadening of global markets, with “opportunities in all asset classes.” He expects earnings growth of 5 to 10%, somewhat below the 13.5% Factset consensus.

Corporate margins keep rising, housing markets are weak, and the High-Yield Default Rate is near historically low levels, Browne said, with slides illustrating each point: “Stress indicators do not
point to a severe default cycle in the near term.”

However, Tariff revenue for the U.S. is “unfortunately” high, he said.

Even so, as the chart below demonstrates, real GDP (Gross Domestic Product) is forecast to rise over 2026 and inflation is expected to be flat to down next year.


Meanwhile, there is more than US$7 trillion in cash still sitting on the sidelines and capex growth for the big hyperscalers is expected to remain strong, Browne said. They will spend US$3 trillion by the end of the decade and may generate significant returns for the four hyperscalers investing from Cash: Meta, Microsoft, Amazon and Google.

How to spot a Bubble … and a Crash

Browne provided past examples of historic bubbles, ranging from Dutch Tulipmania of 1637 to the American railway mania of the early 1850s, which crashed in 1873, and severe stock market declines in 1907, 1929, 1987, 2001 and 2008.

Bubbles usually end after 7 developments: Debt, Rate rises, a “First Failure,” Confidence fails Reverse Velocity, Margin Calls, Forced or Panic Selling and finally Fraud.

Comparing the 2020s to the 1990s, one of Browne’s slides said “The dot-com bubble burst in 2000: more than five years after the release of Netscape.”

Historically, Global Equities have delivered double-digit gains following Rate cuts and have supported P/E expansions, Browne said. All markets except China are more correlated to the U.S. than in the past. In Emerging Markets, Browne likes India and China: “When the Fed cuts, Emerging Markets fly.”

The last scheduled speaker was Jeff Schulze, CFA, Managing Director and Head of Economic and Market Strategy for ClearBridge Investments, who reassured attendees they don’t need to fear the All-Time Highs the U.S. has been experiencing throughout much of 2025:

Schulze says that with possible Tariff Refunds, “we think the economy next year will outperform consensus expectations … We’re buyers of Dips.” While valuations are “full” right now, with the Fed cutting we don’t see multiples going down  … for the first time in a long time, diversification will be more additive as we see a broadening out.” The previous laggards will become leaders, including small- and mid- caps and the S&P493 (all but the Mag 7).

One slide on the Tariffs said this: “The Supreme Court may decide that the administration’s IEEPA tariffs need to be refunded, which would be a windfall to corporate America next year. Secretary of the Treasury Scott Bessent has noted that approximately half of the incremental tariff revenue, which is on pace to near $200 billion by year-end, has come from IEEPA tariffs.”

Continue Reading…