Inflation

Inflation

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…

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…

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…

Retired Money: Experts opine on various tweaks to Bengen’s famous 4% Rule

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William Bengen, creator of the famed “4% Rule.”

My latest MoneySense Retired Money column is titled The 4% rule, revisited: A more flexible approach to retirement income. Click on the hyperlink for full column.

It goes into more detail on William Bengen’s updated book about the 4% Rule, which was one of three recently published financial books we reviewed in the last Retired Money column.

For that column I had originally planned to focus exclusively on that book, A Richer Retirement, Supercharging the 4% Rule to Spend More and Enjoy More. However, I decided to review two other books at the same time; meanwhile I ended up on a related project on my own site, which involved asking more than a dozen financial advisors on both sides of the border what they think of the 4% Rule and the tweaks Bengen covers in his follow-up book. You can see all responses in this blog that appeared earlier this month on Findependence Hub, but at over 5,000 words  it was a tad long for the space normally assigned to the Retired Money column.

 For the MoneySense version, I focused on the most insightful comments and added a few thoughts of my own. The survey was conducted via Linked In and Featured.com, which has long supplied good content for my site.

Broader diversification spawns a 4.7% Rule

Trusts and estates expert Andrew Izrailo, Senior Corporate and Fiduciary Manager for Astra Trust, says Bengen’s original idea was to provide a sustainable income stream for at least 30 years without depleting your savings. In his new book, Bengen “revisits this concept using updated data and broader asset allocations,” summarizes Izrailo, “He now argues the safe withdrawal rate could rise to around 4.7%, supported by stronger market performance and portfolio diversification beyond the original stock-bond mix.”

For American investors, Izrailo still begins with 4% as a baseline because “it remains simple and conservative. Then I evaluate three major factors before adjusting: market volatility, portfolio performance, and expected longevity.” For Canadian retirees, “I tend to start lower, around 3.5%, due to differences in taxation, mandatory RRIF withdrawal rules, and the impact of currency and inflation differences compared to U.S. portfolios.”

Toronto-based wealth advisor Matthew Ardrey, of TriDelta Financial was not part of the original Featured roundup but agreed with the general view that while a helpful starting point, the 4 Rule is only a guideline. “When I meet with a client, I don’t rely on the 4% rule at all,” said Ardrey, who has worked with clients for more than 25 years “I’ve learned that rules of thumb — like the 4% rule — pale in comparison to the clarity and confidence that come from a well-crafted” and personalized financial plan.  Such a plan should reflect each person’s unique circumstances, priorities, and goals, allowing them to build the right decumulation strategy for their situation.

No one size fits all

Almost all the experts caution against taking a one-size-fits-all approach to the 4% Rule or its variants. Over 20 years with her own clients financial advisor and educator Winnie Sun, Executive Producer of ModernMom, starts with 4% as the baseline, then adjusts it based on actual client spending patterns and market conditions … The biggest mistake I see isn’t about the percentage itself: it’s that people forget about tax efficiency in withdrawal sequencing.”

Oakville, Ont.-based insurance broker James Inwood says the 4% rule is “a decent guideline, but it’s not some magic number you can set and forget. I’ve watched people get into trouble because they didn’t account for medical bills, which are a real wild card here in Canada. I always tell people to build in a cash buffer and check in on that withdrawal rate every couple of years instead of just locking it in permanently.” Continue Reading…

5 Key Wealth Management Factors that Influence Investment Decisions — Every Investor Should Know

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Understand the factors that affect investment decisions so you maximize your portfolio returns

TSInetwork.ca

It’s generally a waste of time to obsess about a short-term downward movement in the economy, stock market or both. These downward movements can occur for a wide variety of reasons, at any time: even outside the kind of significant downturn caused by COVID-19 or, more recently, higher inflation and the Russian invasion of Ukraine.

Still, for every “real” short-term downturn, you can spot a dozen fake-outs: situations where the market or economy looked like it was going into a tailspin but pulled out of the drop and began rising at the last minute.

On the other hand, it does pay to obsess about factors that affect investment decisions like portfolio diversification, investment quality, and the extent to which your portfolio suits your personal goals and temperament.

1. What is the appropriate asset allocation for my portfolio?

A diversified investment portfolio should be spread across multiple asset classes for risk management and potential growth. The main components typically include:

Stocks provide growth potential and can help protect against inflation over the long term. They tend to be more volatile but historically offer higher returns.

Bonds offer steady income and help reduce overall portfolio risk. They generally provide more stability than stocks but lower potential returns.

Cash equivalents, like money market funds or GICs, offer safety and liquidity but usually provide the lowest returns.

The specific percentage allocated to each depends on your personal circumstances, but maintaining this basic diversification helps balance risk and return potential.

Remember that regular rebalancing helps maintain your target allocation as market values change over time.

Spread your money out across most if not all of the five main economic sectors (Finance, Utilities, Manufacturing, Resources, and the Consumer sector). The proportions should depend on your objectives and the risk you can accept. The Finance and Utilities sectors generally involve below-average risk. Manufacturing and Resources tend to be riskier, and the Consumer sector is in the middle.

As well, balance aggressive and conservative investments in your portfolio, in line with your investment objective  and the market outlook. Above all, avoid the urge to become more aggressive as prices rise and more conservative as prices fall.

Discover more about properly diversifying your portfolio.

2. How do I find quality investments?

Quality investments can be identified by examining key financial metrics such as consistent revenue growth, stable profit margins, low debt levels, strong cash flows, and competitive advantages within their industry.

The best blue-chip stocks offer strong investment quality. When the market suffers a significant downturn like that prompted by the emergence of the coronavirus pandemic, these stocks generally keep paying their dividends, and they are among the first to recover when conditions improve.

In keeping with the Successful Investor philosophy, we feel stocks that have been paying dividends for five years or more are some of the safest investments you can have. Dividends are a sign of quality and a company’s financial health. Canadian banks and utilities are among the income-paying stocks that we consider to be safer investments.

Learn more about developing a long-term strategy focused on stocks with high investment quality.

3. Why is it important to have a disciplined savings plan?

A disciplined savings plan creates financial stability by building wealth consistently, protecting against emergencies, and helping achieve long-term goals through the power of compound growth.

If there is one piece of personal wealth management advice you should immediately implement, it’s to have a disciplined plan for saving during your working years. This, above all things, can set you up for optimal investment gains. We talk more about this in 9 Secrets of Successful Wealth Management, which is free for you to download. Continue Reading…