General

Don’t be afraid to take profits

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

Hit that sell button. It’s not hard. It is likely a good portfolio move whether you are in the accumulation stage, nearing retirement or currently enjoying retirement. Of course, to rebalance your portfolio you have sell and you have to buy. Diversification is the only free lunch when it comes to investing. To remain sensibly diversified we usually have to rebalance to bring our portfolio weights back in line. That means we sell out performing assets and buy the laggards, or at least move those profits to safety. Buy low, sell high right? That is usually the event going on under the hood when we rebalance. Don’t be afraid to take profits, on the Sunday Reads.

Canadian stocks are hitting new all-time highs. Dividends are not included in the chart, below. Remember the dividends paid out will reduce the share price, equal to the value removed to create those dividends.

And it seems like every other week I’m writing about roaring U.S. stocks …

The best year-to-date for U.S. stocks, in decades.

Followed up by this two weeks ago …

U.S. stocks have the best week of the year.

Those who create individual stock portfolios are likely watching some of their stocks go on an incredible run, while others flounder. Seeking Alpha offers some wonderful portfolio trackers that you can customize. Here’s our top winners over the last year.

Rebalancing your stocks

I don’t believe in being too strict with stock weightings, I’ve mostly let my stocks run without rebalancing. But when a stock gets to a certain weight in the portfolio, I will look to trim. Royal Bank of Canada (RBC.TO) and Apple (AAPL) are each near 8% of my RRSP. Sell limit trades have been set for Apple at $240, $250, $260, $270 etc.

I will trim RBC if the stock keeps moving higher. A few shares will be sold next week and I will set a ladder of sell orders as well. Will Apple and RBC hit those targets over the next few months? I have no idea. But if they do, I’m happy to lock in some profits that will go to ultra short term bonds (cash like) or to underweight stocks. As I’m in semi-retirement, any profits held in the ultra short bonds are ready for spending. It’s easy and enjoyable to create retirement income from share sales.

Some will suggest that we should not let individual stocks get above a 5% portfolio weighting. It’s a personal choice and I will leave that up to you. In my wife’s spousal RRSP Berkshire Hathaway is over 35% of the portfolio. I have no plans to sell, quite the opposite, given that the stock is a conglomerate and more like ‘balanced’ fund compared to a typical individual stock. Plus, Berkshire holds about $325 billion in cash, it’s more like a balanced growth portfolio. There can be special situations, and you might have a very strong conviction for an individual stock. That said, understand the concentration risks.

More on – When should we rebalance our portfolio.

Who knew that Canada’s ‘safe’ telco sector would come under attack. I have been hurt by decent weights in Telus and Bell. I sold half of my Bell stock, and then I sold the rest.

Rebalancing your ETF Portfolio

If you hold a core ETF portfolio you might simply rebalance one a year. The need to rebalance could be that your stock to bond ratio (risk level) is out of whack. We’re then selling stocks and buying bonds. And given the meteoric rise of U.S. stocks over everything else, your portfolio geographic map is likely tilted towards one country. We’re selling U.S. and buying Canada or International.

You might choose to rebalance based on bands. For example, if the U.S. stock target is 40% and it has moved to 45%, find that sell button. You may choose 50% as a band target (or other) once again, that’s up to you, but have a plan and execute.

In the accumulation stage you have the opportunity to rebalance on the fly. New monies and portfolio income can be used to buy underperforming assets. Those ongoing investments might be able keep things in line, or at least reduce the portfolio drift.

Managing your capital gains and losses

Yes, for those with taxable accounts it’s time to ‘take advantage’ of your portfolio dogs – goodbye Bell Canada and Algonquin. Feel free to discuss your losers in the comment section of this post. Think of it as stock therapy 😉 It’s tax loss harvesting season. Continue Reading…

Voting vs. Weighing & The (not so) Simple Keys to Successful Investing

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Image courtesy Outcome/Shutterstock

By Noah Solomon

Special to Financial Independence Hub

Same old story, same old song
Goes all right till it goes all wrong
Now you`re going, then you`re gone
Same old story, same old song

— B. B. King

 

 

 

Voting Over the Short-Term vs. Weighing Over the Long-Term

Famed investor Benjamin Graham, widely known as the father of value investing and (Warren) Buffett’s mentor, said “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Graham’s statement captures the very essence of market behaviour since time immemorial.

Over the course of any month, quarter, year, or several years, there are any number of factors that can influence the returns of any single stock, sector, or asset class. Whereas these factors are numerous, the main “culprits” are usually behavioural in nature. Greed and fear, panic and euphoria, herd mentalities, and other emotional biases have historically been the key drivers of short- to medium-term movements in security prices.

Importantly, these forces can become sufficiently extreme as to cause prices to become largely disassociated from fundamentally justifiable levels. Looking at past bubbles (and subsequent collapses), the stories are remarkably similar. The Dutch Tulip Mania of the mid 1600s, the South Sea Bubble of the early 1700s, the roaring 1920s, and the dotcom bubble of the late 1990s were all spurred by euphoria, herding, fear of missing out (FOMO) and “it can only go up” mentality which ended in tears and losses. On the flipside, the subsequent loss of confidence and despondency eventually set the stage for above-average gains over the ensuing several years.

The (not so) Simple Keys to Successful Investing

Fundamental valuations, which lie at the heart of Graham’s long-term weighing machine, are the “anchor” of equilibrium prices that foreshadow neither higher- nor lower-than-average returns (or losses). Historically, whenever valuations have stood well above their long-term averages, returns over the next several years have tended to fall in the range of disappointing to outright painful. Conversely, when valuations have stood well below their historical averages, performance over the ensuing several years has tended to range from higher than average to stupendous.

So, in theory, the keys to successful investing are simple:

  1. Have low exposure to securities or asset classes whose valuations are well above their historical averages.
  2. Have high exposure to securities or asset classes whose valuations are well below their historical averages.
  3. Have average exposure to securities or asset classes whose valuations are neither well above nor well below their historical averages.

If only Life were so Simple

Before you thank me for handing you the golden key to achieving better than average returns with relatively low risk, you should know that this approach comes with baggage that can make it difficult if not impossible for many to follow.

Although valuations have proven to be a very good predictor of longer-term, average returns, the same cannot be said over the short to medium term, for the simple reason that they tend to overshoot. One should never underestimate the ability of ridiculously valued assets to become even more so. Continue Reading…

9 top Personal Tips for Long-Term Index Fund Investments

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Photo by Yan Krukau on Pexels

Long-term investments in index funds can secure your financial future, but what strategies do the experts use? In this article, insights from business leaders and Financial Officers shed light on successful investment tactics.

Learn why diversifying across sectors and regions is crucial, and discover the benefits of adopting a set-it-and-forget-it approach.

This post compiles nine valuable tips to help you navigate your investment journey.

 

 

  • Diversify Across Sectors and Regions
  • Start Early and Invest Consistently
  • Maintain Consistency Through Market Fluctuations
  • Stay the Course During Market Downturns
  • Diversify Across Global Markets
  • Avoid Over-Diversifying with Index Funds
  • Automate and Regularly Invest
  • Stick with a Single Index Fund
  • Adopt a Set-It-and-Forget-It Approach

Diversify across Sectors and Regions

When I invest in index funds for the long-run, I like to spread my money across different sectors and regions. This way, I’m not putting all my eggs in one basket, and can buffer against any market downturn. I also regularly rebalance my portfolio to keep everything in the right proportions as the markets move. By consistently adding to my investments, and avoiding the urge to time the market, I’ve found a reliable way to achieve steady growth over time. — Shane McEvoy, MD, Flycast Media

Start Early and Invest Consistently

The approach is simple: Start early and invest consistently, regardless of market conditions. This method, known as dollar-cost averaging, has proven effective based on my analysis of market trends and investment patterns.

Here’s the gist: Choose a broad, low-cost index fund (like one tracking the S&P 500) and invest in it regularly: monthly or quarterly. The key is maintaining this routine even during market turbulence.

This strategy works by removing the stress of timing the market and allowing you to buy more shares when prices dip. Over time, this can lead to significant returns. — Markus Kraus, Founder, Trading Verstehen

Maintain Consistency through Market Fluctuations

One key tip for long-term investments in index funds is consistency. Regularly invest through dollar-cost averaging, regardless of market fluctuations. This strategy reduces the impact of market volatility and allows you to benefit from compounding returns over time. Additionally, stay focused on your long-term goals and avoid reacting to short-term market noise. Patience and discipline are essential when investing in index funds, as they provide steady growth over extended periods. — Jocarl Zaide, Chief Financial Officer, SAFC

Stay the Course during Market Downturns

One personal tip for making long-term investments in index funds is to stay the course and avoid timing the market. Index funds are designed to mirror the performance of entire markets, and over the long term, markets tend to grow despite short-term volatility. Based on my experience, consistently investing — even during market downturns — through a strategy like dollar-cost averaging can help smooth out the effects of market fluctuations and take advantage of buying opportunities when prices are lower.

Patience is key. By keeping a long-term perspective and regularly contributing to your index fund, you allow compound growth to work in your favor. Resist the urge to react to market drops by selling or trying to predict market highs, as this often results in missed gains. The power of index funds lies in their diversification and ability to grow with the broader market over time, making them a reliable choice for long-term wealth-building. — Rose Jimenez, Chief Finance Officer, Culture.org

Diversify across Global Markets

My top recommendation for long-term index-fund investing is to diversify across global markets. While many investors focus solely on domestic indices, incorporating international exposure can significantly enhance your portfolio’s resilience and growth potential. Consider allocating a portion of your investments to index funds tracking developed and emerging markets worldwide. This approach helps spread risk across different economic cycles and currencies, potentially smoothing out returns over time.

On top of that, as the global economy becomes increasingly interconnected, you’ll be better positioned to capture growth opportunities wherever they arise. Remember, diversification doesn’t guarantee profits or protect against losses, but it’s a powerful tool for managing risk. Regularly review and adjust your global allocation based on changing market conditions and your risk tolerance, always keeping your long-term objectives in sight. — Brandon Aversano, CEO, The Alloy Market Continue Reading…

Self care isn’t a bubble bath and a yoga class, it’s multiple streams of income

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By Alain Guillot

Special to Financial Independence Hub

Self care is having multiple streams of income

I see it all over social media, people promoting self care while taking a bubble bath, or attending a yoga class. The problem is that most who need self care, can’t afford it. And those who can afford it, don’t need it.

You’ll see Elon musk, Warren Buffett, Bill Gates, Jeff Bezos, or Mark Zuckerberg promoting the idea of going to the spa and getting a massage and a bubble bath. They don’t need it. They have multiple streams of income and don’t feel the stress of someone who’s struggling to pay the rent.

Traditionally, self-care has been associated with activities that promote mental, emotional, and physical well-being, such as taking a bubble bath or practicing yoga.

Do you know what’s the major cause of stress, anxiety and depression? Lack of money.

Most of the problems we have are money related: housing, car payments, retirement, etc. If we have several streams of income, most of our problems would dissolve.

A bubble bath is nice but several streams of income is nicer

Here is a list of how having several streams of income can be the most important form of self-care: Continue Reading…

A Password Dividend: Living your Dreams on $4,000 a month (US)

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Image courtesy RetireEarlyLifestyle.com

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

Once someone learns that we retired at the age of 38 in 1991 and have been traveling the world ever since, they ask, “How could you afford such a lifestyle? It must cost a fortune for airfare, to live in guesthouses, hotels, apartments and eating out!”

When we tell them that this lifestyle hasn’t cost us anything — in fact, we made money — they’re floored. Remember, it’s a lifestyle, not a vacation.

When we left the conventional working world in January, 1991, the S&P 500 Index was 312.49. Today it is over 5300. That’s an average of roughly a 10% per year return including dividends. See the calculator below.

The S&P 500 Dividends Reinvested Price Calculator

Sure, we had expenses, but our net worth has outpaced both spending and inflation because we created a money machine.

The cost of not retiring

Whenever we’re considering a trip, we ask ourselves, “Can we afford it?” Our answer shocks some: “We can’t afford not to go.”

We’re no spring chickens at 72. We’ve experienced enough in life to know that we will be more disappointed if we don’t try new things than if we make mistakes at the ones we attempt. We’re only getting one shot at this life, and find that our travel list is getting longer, not shorter.

Over the years many of our friends have passed on: some who never got a chance to retire from their jobs, and they had plenty of money. For the last 3 decades we have been spending about $30,000 per year. We have mentioned a few times about loosening the purse strings and this is what we have done.

We have seen dozens of countries, stayed in resort hotels, purchased new computer equipment and digital toys, refreshed our wardrobes countless times, drank fine wine, had maids, gardeners, and ate at some of the most fashionable restaurants in the world. We have hiked, biked, and scuba’d, lived on tropical islands and in million dollar homes, lived with the Maya, met musicians and magicians and generally enlarged our perspective about the world.

After all this traveling, spending and inflation, our net worth is still higher than when we retired.

So how much did this lifestyle really cost us? Continue Reading…