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New Harvest Monthly Income ETF aims to beat inflation by combining 5 different “Best Ideas”

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Canadian retirees and would-be retirees who feel starved of high monthly income and are pressed by surging inflation may find relief in a unique new “Best Ideas” fund-of-funds Income ETF that began trading on Feb. 16th.

Harvest Portfolios Group Inc. announced on Wednesday the completion of the initial offering of Class A Units of the Harvest Diversified Monthly Income ETF, which is now trading under the ticker symbol HDIF [TSX.]

In a press release, Harvest president and CEO Michael Kovacs said the new ETF targets a high initial annual yield of 8.5% by accessing “five proven Harvest Equity Income ETFs efficiently in one single ETF.”  In a backgrounder  on its website, Harvest noted the inflation-busting 8.5% compares to a 4.5% Canadian inflation rate that ended 2021, and to the TSX’s 2.6% annual yield and S&P500’s 1.5%.

As outlined in a prospectus filed Feb. 4th with all provincial securities regulatory authorities in all Canadian provinces and territories, the innovative new ETF brings together five different Harvest “Best Ideas” in generating income, and is designed to provide Canadian investors access to a core diversified monthly income solution.

The portfolio is comprised of more than 90 large global companies diversified across these 5 equally weighted sectors: Healthcare, Technology, Global Brands, Utilities, and US Banks. The five underlying ETFs are illustrated below: There is no additional management fee apart from the MERs of the underlying Harvest ETFs. Because it’s a new fund and because of the leverage component, there is not yet an estimate of what the final MER might be. But it should be  in the ballpark of some blend of the MERs of the underlying funds: Referring to the tickers below, here are the Management Fees and MERs of the component Harvest ETFs, as of June 30, 2021:

HHL 0.85%/0.99%

HTA 0.85%/0.99%

HBF 0.75%/0.96%

HUBL 0.75%/0.99%

HUTL 0.50%/0.79%

 

The net result is a collection of global stocks that are allocated in the following sectors (a comparable geographical breakout is not yet available):


In addition to high monthly cash distributions the fund provides the opportunity for capital appreciation by investing, on a levered basis, in a portfolio of ETFs that engage in covered call strategies.  Harvest says the maximum aggregate exposure of the ETF to cash borrowing will not generally exceed approximately 33% of the ETF’s net asset value.

For additional information, visit www.harvestportfolios.com

What to do — or NOT do — during the next Bear Market

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Photo credit Lowrie Financial/Canva

By Steve Lowrie, CFA

Special to the Financial Independence Hub 

If you won a round-trip ticket on a backward-moving time machine, what period would you visit? One I’d probably skip would be April 2018. Why bother, since the market climate wasn’t all that different from today? Consider this commentary:

“U.S. stock markets ended in the red on Thursday with all three major indexes declined broadly. Thursday’s earnings results failed to live up to investor’s [sic] expectations despite remain[ing] strong. Moreover, a spike in the yield of 10-year Treasury Note also panicked investors. However, the markets shed some of its losses in the final hour of trading …” blah blah blah.
— Nasdaq Stock Market News for April 20, 2018

Sound familiar? While we now know no bear market materialized, some investors were questioning whether it was time to get out, while the gettin’ seemed good. To explain why market-timing is always a bad idea, I published a post then, to review the timeless tenets of evidence-based investing.

Returning to early February 2022, we are once again seeing some volatility in bond and stock markets. Not surprising, given the strong equity returns over the past 18 months and the fact that most central banks have indicated they will be raising interest rates to tackle inflation.

Will the bear awaken this time? Maybe yes, maybe no. Either way, my advice isn’t going to change, so let’s revisit what I wrote back then.

But first, let’s talk about you. What sort of investor are you?

I enjoyed a recent post from “The Psychology of Money” author Morgan Housel, who pointed out that it’s misleading to “lump everyone into one category called ‘investors’ and view them as playing on the same field called ‘markets’”.

Two people can have vastly differing time horizons, goals, and objectives. When you multiply this by millions of market participants, you see how inaccurate it is to paint everyone with the exact same “investor” brush.

So, let’s be clear: Are you investing to complete your long-term, multi-generational financial journey? If so, we write our posts for you. And for you, Housel hit the nail on the head with this observation, with which I fully agree:

“Bubbles do their damage when long-term investors playing one game start taking their cues from those short-term traders playing another.”

If you are a short-term trader, I wish you all the best in your market activities. However, you probably won’t find my pointers all that helpful. You may prefer Reddit instead.

In that context (if you’re still here), let’s look back at my thoughts from April 2018 …

As we write this piece in April 2018, overall market temperatures have been relatively mild for quite a while. Many newer investors have yet to weather a perfect market storm, and even those who have may have forgotten how panic-inducing they can be. But a bear market could be on the horizon.

To help you prepare for the next market downturn, or respond if you’re reading this during one, here are 10 timely actions you can take when financial markets are tanking to get your through to market recovery. Frankly, these tips are valid during any stage of the financial markets.

  1. Don’t panic (or pretend not to). It’s easy to believe you’re immune from panic when the financial sun is shining, but it’s hard to avoid indulging in it during a bear market crisis. If you’re entertaining seemingly logical excuses to bail out during a steep or sustained market downturn, remember: it’s highly likely your behavioral biases are doing the talking. Even if you only pretend to be calm, that’s fine, as long as it prevents you from acting on your fears before you see the light at the end of the tunnel with market recovery.

Every time someone says, ‘There is a lot of cash on the sidelines,’ a tiny part of my soul dies. There are no sidelines.” – Cliff Asness, AQR Capital Management

  1. Redirect your energy. No matter how logical it may be to sit on your hands during market downturns, your “fight or flight” instincts can trick you into acting anyway. Fortunately, there are productive moves you can make during a bear market instead – such as all 10 actions here – to satisfy the itch to act without overhauling your investments at potentially the worst possible time.

My advice to a prospective active do-it-yourself investor is to learn to golf. You’ll get a little exercise, some fresh air and time with your friends. Sure, green fees can be steep, but not as steep as the hit your portfolio will take if you become an active do-it-yourself investor.” – Terrance Odean, behavioral finance professor

  1. Remember evidence based investing. One way to ignore your self-doubts during market crises is to follow what decades of practical and academic evidence have taught us about investing: capital markets’ long-term trajectories have been upward. Thus, if you sell when markets are down, you’re far more likely to lock in permanent losses than come out ahead. Trust evidence based investing principles.

Do the math. Expect catastrophes. Whatever happens, stay the course.” – William Bernstein, MD, PhD, financial theorist and neurologist

  1. Manage your exposure to breaking bear market news. There’s a difference between following current events versus fixating on them. In today’s multitasking, multimedia world, it’s easier than ever to be inundated by late-breaking news. When you become mired in the minutiae, it’s hard to retain your long-term perspective.

Choosing what to ignore – turning off constant market updates, tuning out pundits purveying the latest Armageddon – is critical to maintaining a long-term focus.” – Jason Zweig, The Wall Street Journal

  1. Revisit your carefully crafted investment plans (or make some). Even if you yearn to go by gut feel during a financial crisis, remember: You promised yourself you wouldn’t do that. When did you promise? When you planned your personalized investment portfolio, carefully allocated to various sources of expected returns, globally diversified to dampen the risks involved, and sensibly executed with low-cost funds managed in an evidence-based manner. What if you’ve not yet made these sorts of plans or established this kind of portfolio? Then these are actions we encourage you to take at your earliest convenience. Continue Reading…

Canadians worried about Inflation’s impact on their retirement savings, Questrade survey finds

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It’s here, it’s not going away anytime soon, and every time you open a business news article, the word leaps out at you: “inflation.”

And, according to a recent Leger survey commissioned by Questrade of 1,547 Canadians, it’s not only very much top of mind for us, but it’s keeping many of us awake at night: not just about the short-term scenario, but also when we contemplate our retirement future.

According to the survey, four in five (84%) Canadians say they are worried about inflation, with almost two in five (39%) saying they are very worried.

For the short term, most of the Canadians surveyed are concerned about the everyday costs associated with rising inflation. More than eight in ten (86%) who are apprehensive about rising inflation say what worries them most is the increasing cost of food, while nearly as many (82%) are concerned about the increasing cost of everyday items. And not far from mind is the impact of inflation on savings and investments: 45% of those surveyed expressed concern about how inflation would affect their savings and investments, with 51% of those who are investing for their retirement saying this.

Investors are less worried about inflation than non investors

However, while many Canadians are experiencing inflation angst to varying degrees, those taking steps to invest for their retirement appear to be in a better overall frame of mind than those who aren’t. In the Questrade survey, of the 39% who say they are very worried about inflation-related costs, the worry is less with those investing for retirement (36%), compared to those not investing (49%). In particular, those holding an investment vehicle such as a mutual fund, RRSP, or TFSA appear to be consistently less worried about rising inflation than those not holding these products.

For those who are concerned about the longer-term impact of inflation on their investments and retirement, 39% are worried about the cost of living when they retire, followed closely by 38% who are concerned about lower purchasing power.

What’s interesting is that, despite their inflation anxieties, only one quarter of Canadians (23%) have made a change to their investments to safeguard themselves from possible inflationary effects. The remaining 77% either don’t know or haven’t made any change.

Of those who are making changes to their investments due to inflation, 24% are planning on contributing less while 22% are going to contribute more this year. The survey revealed that among those with an RRSP, 39% say they plan on contributing more to it this year, especially those aged 18–34 (57% vs. 36% for those aged 35+), with an average of about $5,409 extra. The reasons for contributing more to their RRSP vary, but for nearly half, it’s because retirement is a priority for them. Continue Reading…

Fidelity adds Bitcoin to Balanced ETF Portfolios

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By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

Bitcoin continues on the path to greater mainstream acceptance as a core portfolio asset. Last week, Fidelity added modest bitcoin exposure to their all-in-one asset allocation ETFs. The bitcoin weighting is at 1%, 2% or 3% depending on the portfolio risk level. These ETFs might be a way to dip your toe into some bitcoin exposure. You will see the effect over time. Historically it did not take much for bitcoin to have a very positive effect on balanced portfolios. And of course, bitcoin is highly volatile and rebalancing is key. Fidelity is adding bitcoin to balanced portfolios on the Sunday Reads.

Here’s a post that outlines the bitcoin exposure.

Chris Pepper, vice-president of corporate affairs at Fidelity, said that, subject to regulatory approval, the all-in-one balanced fund will have an allocation of approximately 2% to the Bitcoin fund, while the growth fund’s Bitcoin allocation will be around 3%. Fidelity is filing prospectus amendments in the next 10 days, he said.

And here is the link to the Fidelity ETFs.

Readers will know that I am investing in bitcoin at a 5% portfolio weighting.

Here’s a post that demonstrates the historical effect of bitcoin on a balanced portfolio.

Of course, this is not advice. Do your own research and decide if you want an allocation to bitcoin. I’m in for the long haul. That said, on Twitter I suggested …

My MoneySense weekly column

In Making Sense of the Markets for the past week we have the earnings season halftime report, inflation is up, up and away, and we’re also building a more recession-resistant portfolio.

On this site, this week, I had a simple solution if stock markets have you spooked.

 

Dale Roberts is the Chief Disruptor at cutthecrapinvesting.com. A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on Feb. 13, 2022 and is republished on the Hub with his permission.

Balance: How to Invest and Spend for Happiness, Health, and Wealth

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AndrewHallam.com

By Michael J. Wiener

Special to the Financial Independence Hub

Andrew Hallam’s new personal finance book Balance is unlike any other financial book I’ve read.  He uses research to show us how to spend and invest in ways that create a happy and fulfilling life.

He uses vivid stories to illustrate his points that make the book a pleasure to read.  There’s a lot more to life satisfaction than just amassing personal wealth and owning fancy toys.

The book opens with the “four quadrants to a successful life”: “Having enough money,” “Maintaining strong relationships,” “Maximizing your physical and mental health,” and “Living with a sense of purpose.”

“I’ve met plenty of conventionally successful people (measured by money and career) who appeared less satisfied than, say, a family of Argentinians traveling through Mexico in a motorhome.”

I’ve had a similar experience seeing many executives with highly successful careers who are divorced and work so much that they do little at home other than eat, slump in front of a television, and sleep.

Stuff vs. Experiences

“What do you value more, your stuff or your life?”  This question has meaning for me having grown up with a parent who was a hoarder.  However, even non-hoarders often prioritize buying stuff over relationships and avoiding debt.  “If we want to live the best lives we can, we shouldn’t normalize credit card debts or auto loans.”  “Cars are the greatest personal wealth destroyer.”  Research shows that rich people often don’t drive fancy cars; when you see an expensive car, there’s a good chance its owner is in debt.

“Material things rarely boost life satisfaction.”  “Spend less money on stuff and more on memorable experiences.”  Experiences remain memorable for decades, but the stuff we buy is often quickly forgotten.   Some of the worst purchases are the ones we make solely to impress others.  “Before purchasing something, … Ask yourself, ‘Would I still buy this if nobody else could see it?’”

The things that affect happiness

Research shows that “we tend to be happier when we earn more than our neighbors.”  This leads to the advice to move to a neighbourhood where you have above-average income.  Unfortunately, that makes your new neighbours less happy.  It would be better if we could all be above such comparisons, but that’s easier said than done.

“Close relationships — far more than money — are the single greatest influence on a happy life.”  This resonates with me.  When I plan to travel somewhere warm for the winter months, my biggest concern is who I’m traveling with and what social activities we can get involved in.  For short trips, it’s good to go somewhere interesting, but for long trips, company trumps location.

“Research suggests we also narrow our social circles as we age.”  Focusing on those “we’ve formed deep connections with” works well for a time, but I think it’s a problem when these people start to pass away.  I wonder if this is part of the reason why we see so many desperately lonely older people living alone in a big house.

Hallam’s command of research on happiness and life satisfaction and his ability to use it to steer a good path in life are impressive.  The broad strokes of his lessons appear solid, but I wonder if some of the specific studies will fall to the widespread reproducibility crisis.  For example, there are “several large studies confirming that caring for others helps us live longer.”  Isn’t it necessarily the case that healthy people care for the weak?  It seems plausible that the causation is in the other direction: healthier people live longer and are more able to care for others.  Perhaps the studies’ authors found some way to prove that causation goes both ways to some degree.

Big purchases and budgeting

On the subject of stretching to buy a home, Hallam makes an excellent suggestion: “Ask yourself if you could still afford the mortgage if the interest rate doubled or you were out of work for six months.”  I’d change the “or” to an “and.” Too many people sign up for a decade or more of stress when they stretch to buy a house.  Renting is not synonymous with failure.  It’s possible to rent a nice place and get on with your life’s plans.

“To me, budgets are like diets.  Sometimes they work … but they usually don’t.”  Hallam advocates tracking your spending with a handy app, but he finds trying to set limits in advance on spending in various categories ineffective.  Just knowing how much you spend in each category will drive any needed change.

Investing

“Contrary to what many talking heads on YouTube, On TV, or in financial magazines may lead you to believe, you don’t need to follow the economy or know how to choose the best stocks to buy.”  “Banks, insurance companies, and investment firms … are filled with legally sanctioned crooks (and sometimes kind, naïve people).”

Hallam tells an interesting story to illustrate how savings accounts fail over the long- term because of inflation.  Many people pine for the days when savings accounts paid higher interest, but the story shows that the same inflation problem existed back in 1980.  One illuminating table shows how often U.S. savings accounts beat inflation over 5-year rolling periods from 1972-2020.  The answer: none!  The best place for long-term savings is stocks and bonds.

“Index funds are part of financial literacy.”  “If you learn to invest effectively, you could enjoy your chosen career instead of selling your soul for a higher-paying position you hate.”

Advisors and their Anti-Index Battle Plan

One of my favourite sections is “Financial Advisors and Their Anti-Index Battle Plan.”  It shreds the many practiced arguments the pushers of expensive mutual funds use to persuade people to avoid indexing.  The funny thing is that financial advisors seem to believe the things they are trained to say by their organizations.  In their own portfolios, “researchers found that they performed almost as badly as their clients.  When comparing their performances to an equal-risk-adjusted portfolio of index funds or ETFs, the advisors underperformed by about 3 per cent per year.”

The best plan is to choose some index funds or ETFs, and set some automatic contributions.  “The less you think about your investments, the more money you’ll likely make.”

Hallam lays out three choices for index investing: financial advisor, robo-advisor, or do-it-yourself (DIY).  Which you choose depends on your skills and interests.  He goes on to explain in detail how investors in different countries can succeed with index investing using each of the three approaches.

I enjoyed a story that began with “Do you believe in ghosts?” It explained why new investors should probably choose a slightly more conservative asset allocation than they think they can handle.  While I think it’s possible to learn to take market volatility in stride, if you haven’t had a chance to develop this equanimity, Hallam’s advice makes sense.

Social Responsibility

“Buy less of everything.  This should improve your happiness, your financial bottom line, and your children’s and grandchildren’s future.”  Buying less stuff isn’t just about saving the world; you’ll likely be happier as well. Continue Reading…