Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Bubble or No Bubble?

Posted By |
Image by Shutterstock, courtesy of Outcome

By Noah Solomon

Special to Financial Independence Hub

Should I stay, or should I go?
If I go, there will be trouble
And if I stay, it will be double
So come on and let me know
Should I stay or should I go?

— Should I Stay or Should I Go, by The Clash

 

 

Bubble or No Bubble?

During the latter part of 2025, one of the most common topics in both the media and in conversations with clients was whether markets are in a bubble, particularly with respect to AI-related companies. Given the spectacular multi-year ascent of many tech stocks and their sky-high valuations, it is unsurprising that many investors harbour serious concerns regarding a potential comeuppance.

Nobody can know for certain whether such a bubble exists, let alone how and when the proverbial story will end. However, analyzing the current environment from a risk-reward standpoint can provide investors with a useful framework to consider their current portfolio allocations and to determine whether changes are warranted.

Between a Rock & a Hard Place: Loss vs. Opportunity Cost

All bubbles, both perceived and actual, harbour the two key risks of loss and opportunity cost (i.e., missing the boat).

All bubbles eventually burst and leave a wake of losses when they do. However, in instances of false alarm where suspicions of a bubble prove unfounded, those who run for the hills suffer the opportunity cost of missing the proverbial party and leaving significant sums of money on the table.

Even in cases where the bubble moniker has proven to be accurate, things have not been straightforward. Given that irrationality and emotions are the root cause of excesses, bubbles tend to grow much bigger and to persist far longer than what may seem possible (one need look no further than Japanese stocks in the 1980s or tech stocks in the late 1990s to validate this statement). Unlike the false alarm scenario, significant losses do eventually materialize. However, this does not change the fact that investors who step aside before the comeuppance can nonetheless suffer significant opportunity costs as prices continue their often-parabolic extent long after alarm bells begin ringing.

That being said, opportunity cost is not merely comprised of the returns on the investments you forsake, but rather how those missed returns compare to those of the assets for which you forsake them. Even in instances where shunned assets deliver positive returns, if their returns are no greater or less than those of the holdings which replaced them, then the net opportunity cost is zero. Alternately stated, it’s not just about the returns you’re missing, but rather about the returns of what you’re missing vs. the returns you’re getting in their stead.

Not all Bubbles are Created Equal: A Trip down Bad Memory Lane

Historically, different bubbles have been accompanied by very different investment environments, which in turn have presented investors with vastly different prospective risks and returns. This fact is clearly evident across the three debacles of the new millennium, which include the dotcom bubble of the late 1990s/early 2000s, the global financial crisis of 2008-9, and the fixed-income duration bubble of 2021-22.

Whereas there is no such thing as a good bubble (by definition, they all eventually burst), some bubbles occur in environments that are far more ominous than others. In the worst cases, the prospective opportunity costs of avoiding them are acute. Conversely, there are bubbles during which the prospective opportunity costs of avoidance are far less pronounced. In essence, the greater the potential returns are for non-bubble assets, the lower the associated opportunity costs of avoiding the bubble.

The Dotcom Bubble (2000-3): Attractive Alternatives aplenty

The aftermath of the dotcom bubble resulted in significant losses for many investors. In early 2000, U.S. large-cap stocks stood at their highest valuations in modern history. Given the historically inverse relationship between valuations and future returns, it should have been no surprise that disappointment ensued.  Between the summer of 2000 and the spring of 2003, the S&P 500 Index declined by 45% in inflation-adjusted terms, while the tech-oriented Nasdaq Composite Index fell 79%.

However, these losses were largely avoidable while simultaneously achieving reasonable returns elsewhere. Emerging-market equities, emerging-market bonds, and REITs exhibited valuations that suggested decent returns over the medium term. While not particularly inspiring, even TIPS and cash were yielding 4% and 2% above inflation, respectively. In essence, investors who were willing to re-allocate based on relative valuations were not backed into a corner: they were not forced to endure meaningfully subpar returns by avoiding what appeared to be (and were subsequently proven to be) overvalued assets.

The Everything Bubble (2007-8): Nowhere to Hide except Bonds

The “Everything Bubble” of 2007-8 and the global financial crisis that followed were entirely different animals. By the time the good times had peaked in 2007, practically all risky equity markets had become overpriced, foreshadowing negative returns over the next several years regardless of country or region.

Unlike the case with the dotcom bubble, only safe-harbour assets such as TIPS, government bonds, and cash offered positive albeit meagre returns. The only way to avoid significant losses was to liquidate all risk assets (as opposed to reallocating within them), hide in safe assets, and accept lackluster albeit positive returns. While doing so would not have been ideal, it nonetheless would have been the least bad alternative.

The Duration Bubble (2021): Nowhere to Hide

The duration bubble of 2021 bore a far greater resemblance to its 2007-8 predecessor than to the dotcom bubble, and in some respects was even more problematic. Investors were stuck between the “rock” of overvalued equities and the “hard place” of bond yields that were substantially below inflation levels. Only cash, which was the only asset that didn’t suffer losses, failed to keep pace with inflation. Continue Reading…

Top ETF trades for 2026: Conviction, context and a respect for unpredictability

Posted By |

By Bipan Rai, Managing Director, BMO Global Asset Management

(Sponsor Blog)

The end of the year is a special time. The slowing modulation of the markets gives many an analyst time to unplug, which inevitably leads to reflection about what the next year will bring. And as ideas begin to take shape, convictions start to form and a general sense of where the market is headed is reached.

It is almost always a humbling exercise.

For instance, just consider a subset of the important macro/market events from 2025:

  • The repeated rounds of tariffs and counter-tariffs between the U.S. and its largest trading partners (Canada/Mexico/China/EU).
  • A massive sell-off in the spring that took the S&P 500 into bear market territory.
  • The U.S. toying with the idea of raising taxes on foreign investors (Section 899).
  • Inflation remaining above target across many jurisdictions for most of the year.
  • Israel and Iran exchanging strikes: with the U.S. also getting involved by attacking Iranian nuclear sites.
  • Repeated attacks by the U.S. president on the sitting Fed chair, with the president openly admitting that he’d like to fire the chair and replace him with someone who is more aligned to his views.
  • The U.S. president attempting to remove a sitting Fed board member.
  • The longest U.S. government shutdown in history.
  • Market concentration remaining high with AI tiptoeing further into ‘bubble’ territory.

If, at the end of 2024, you had given us the above observations for 2025 there is little chance we would have expected U.S. equities to return 15-16% that year. We would have probably gotten the direction on gold right, but almost certainly whiffed on the magnitude of gains (at around 60%).

That is why we are going into this exercise clear-eyed and with a sense of trepidation (and maybe a bit of dread). What we can say is, given the current set-up the below trades are best positioned to serve our readers well as they look to calibrate for 2026. Please note, this is a very different exercise than our portfolio strategy (which will be out later in the new year). Instead of constructing a portfolio tailored for a particular investing approach, we are selecting ETF trades that we feel will outperform given the available information on the macro that we have on hand now.

First, some basic assumptions:

  • We expect the U.S. economy to grow at trend (1.8-2.0%1) in 2026 with inflation remaining above the 2% target for the year. Additionally, the labour sector should remain under some modest pressure, which leads the Federal Reserve to cut interest rates 1-2 more times in 25 basis-point (bps) increments.
  • For Canada, growth is likely to slow from this past year and settle at around 1.4-1.5%. That is still slightly below potential, which implies that inflationary pressures should remain contained. The Bank of Canada (BoC) is likely done easing for now and talks of rate hikes in late 2026 still feel premature.
  • We expect the S&P 500 to rally by about 8-10% in 2026.
  • We expect a consolidative environment for CAD and U.S. yields to start the year, which should give way to upside as the year progresses.
  • We see downside risks to USD/CAD2 over the next three months.

With that out of the way, let’s get started.

Theme #1: Late-cycle dynamics still favour Quality …

Into 2026, we’d characterize the backdrop for the U.S. economy as one that favours resilience over cyclicality. That is not least given that the current phase of economic expansion feels a bit long in the tooth and the combination of fiscal and monetary measures might lead to an economy that runs hot (i.e., higher prices, moderate growth). In such an environment, we expect investors to prioritize companies with strong balance sheets and stable earnings: important ‘Quality’ characteristics.

Top trades for this theme:

Chart 1 – Average monthly returns for months when Core CPI is > 2%3

Source: BMO Global Asset Management / MSCI. For U.S. factors; observations go back by 14 years.

Theme #2:  … But with broader leadership …

Much of 2025 was characterized by a migration of flows out of the U.S. and into EAFE and EM markets.4 Given the strength and stability of earnings outside of North America, we expect this theme to continue into 2026.

Aside from valuation (see Chart 2), two other catalysts for this resiliency will be the widespread adoption of new technologies in non-U.S. markets, and fiscal expansion in many countries. Both should work together to improve productivity trends outside of the U.S.

In the emerging world, we see the alignment of different themes working together to attract additional capital to these regions. Indeed, commodity exporters in Latam5 should continue to benefit from rising prices, while an improving backdrop in China should boost activity in smaller Asian markets.

Top trades for this theme:

Chart 2 – Several international markets still look cheap relative to the U.S.

Source: BMO Global Asset Management / MSCI. A forward price-to-earnings ratio (Fwd P/E) is a stock valuation metric that compares a company or stock index’s current share value to estimated future earnings over the next 12 months.

Theme #3:  … And a rotation away from AI

The delicate rotation away from AI/Tech and into other sectors should continue and will likely engender further uncertainty. However, greater adoption of technology outside of Tech/Communications sectors will likely shift capital over to cheaper segments of the U.S. market.

Within the Tech/Communications sectors, we feel active strategies will be better placed to perform. That is largely because the market will become judicious about picking winners and losers in the AI race as increased reliance on debt financing will mean that existing capital structures are more heavily scrutinized. That should portend a more consolidative environment for broad tech: which supports a product like ZWT, given its generous yield.

Outside of tech, two sectors that we feel are best positioned are U.S. Health Care and Financials. In particular, Health Care has emerged as an effective hedge against AI-related concerns. The sector is still a bit ‘cheap’ as well, which has also worked to support its performance over the past months.

For Financials, we expect demand for loans in the U.S. economy to remain strong: not least as household balance sheets remain in good standing and as valuations remain cheap when compared to other sectors. An additional tailwind comes from regulatory changes that should free up more capital for deployment.

Top trades for this theme:

Theme #4: Elbows up!

In Canada, we remain constructive on Financials but also acknowledge that the market is likely to be one in which alpha6 can be generated through more active strategies.

Indeed, we continue to like Canadian banks. Strong capital positions and the ability to generate revenues outside of traditional retail-based lending means there are plenty of opportunities for capital deployment in 2026. However, valuation remains a bit of a headwind. As such, we favour a covered call strategy instead of a beta7 one. Continue Reading…

4 ETFs and Portfolio Strategies to Calm AI Bubble Concerns

Posted By |
Image by rihaij from Pixabay

Below we canvas four retirement experts and financial planners  about how they or their clients can select certain ETFs to calm concerns about an inflating A.I. Bubble.

These experts were gathered by Featured.com, which has been supplying Findependence Hub with quality content for several years. It recently changed its procedure so editors like myself can request input on particular topics we think will interest our readership. The sources are all on LinkedIn, as you can see by clicking on their profiles below.

Here’s what we asked for this instalment:

Concerns about an AI bubble have investors searching for ways to protect their portfolios without missing out on growth opportunities. We are looking for exchange-traded fund strategies that balance exposure to innovation with downside protection, drawing on analysis from seasoned market professionals. These approaches range from value-weighted diversification to defensive sector allocation, offering practical options for managing risk in today’s volatile market environment.

  • Buy Undervalued Dividend Stocks With Discipline
  • Blend Value Equal Weight and Payouts
  • Cap AI Exposure Favor Quality and Income
  • Diversify Broadly Across Defensive and Alternative Hedges

Buy Undervalued Dividend Stocks with Discipline

I don’t use low-volatility ETFs at all: I build concentrated portfolios of individual dividend-paying stocks that meet strict valuation criteria. Our G@RY system scans for companies trading cheap relative to historical P/E ratios and dividend yields; then I manually curate based on fundamentals. When the AI hype cooled this spring, we added JPM and WMT on April 3rd during panic selling: both quality names with real earnings power and dividends near historical highs.

The “AI bubble” question assumes you need defensive positioning, but I see it differently after 25 years watching cycles. UnitedHealth dropped 40% last year on sentiment, not fundamentals: we bought it at sub-10 forward P/E with a 2.8% yield when everyone hated it. That’s value investing: buying durable businesses when they’re out of favor, not hedging with volatility products.

For clients worried about tech concentration risk, we simply avoid overvalued names and focus on companies with EBITDA margins, consistent cash flow, and dividend growth histories. Home Depot and PepsiCo replaced Darden after 40% gains:  that’s active management, not passive ETF layering. When fundamentals are solid and yields are attractive, volatility becomes opportunity rather than risk. — Frank Gristina, Managing Partner, Acadia Wealth Advisors

Blend Value, Equal-Weight and Payouts

One way to think about positioning for 2026 in light of AI valuation concerns is not to treat it as a binary choice between “all in” or “all out” on growth and AI-linked assets, but rather as a balanced exposure strategy that manages valuation risk while preserving participation in structurally important themes.

The low-volatility approach discussed in the Findependence Hub blog is one practical building block because it tempers portfolio swings, but I view it as part of a broader allocation framework. Three additional options I like are:

  1. Broad indices like the S&P 500 have become increasingly concentrated in a small group of high-growth, high-multiple technology stocks. Shifting part of the allocation toward value-oriented companies with solid cash flows and more reasonable valuations helps reduce reliance on continued multiple expansion (yes, value has underperformed recently, but that is what has driven today’s valuation gap). A practical implementation in the U.S. market is the iShares S&P 500 Value ETF (IVE), which tilts exposure toward businesses where returns are more closely tied to fundamentals.
  2. Using an equal-weight S&P 500 allocation. An equal-weight approach naturally reduces concentration in the largest mega-cap names and redistributes exposure across the broader market. The Invesco S&P 500 Equal Weight ETF (RSP) is a straightforward way to achieve this. It keeps investors invested in U.S. equities while limiting dependence on a handful of stocks that dominate index returns.
  3. Adding a dividend growth strategy for stability. A dividend growth ETF such as the iShares Core Dividend Growth ETF (DGRO) adds another layer of balance. Its historical performance has been strong and has only modestly lagged the benchmark, while offering a more stable return profile. Companies with a consistent ability to grow dividends tend to have resilient cash flows and disciplined capital allocation, which can help smooth returns during periods of elevated volatility or valuation compression. Continue Reading…

The TSX Surprise of 2025: I didn’t see this one Coming

Posted By |
AlainGuillot.com

By Alain Guillot

Special to Financial Independence Hub

If you had told me a year ago that the TSX would outperform the S&P 500, I would have not believed it.

With Donald Trump openly threatening to economically punish Canada, talking up 25% tariffs, and analysts warning of a Canadian recession by mid-year, this was not what I anticipated.

And yet: here we are.

As of late December, the TSX was up 29.97% year-to-date, absolutely crushing the S&P 500’s 17.92% return. Not only that, the index pushed past 32,000 on December 22, putting it within striking distance of a historic high.

I was wrong. Plain and simple.

Why this Rally makes no sense (but still happened)

Let’s rewind to the narrative that dominated markets after the 2024 U.S. election.

Trump’s tariff rhetoric escalated quickly. Canada was singled out — again — for trade imbalances, border issues, and political leverage. Analysts warned that 25% tariffs on Canadian imports could tip Canada into recession by mid-2025.

I believed that story.

I assumed:

  • The TSX would suffer
  • Capital would flee north to south
  • The S&P 500 would massively outperform

Instead, the opposite happened.

By late 2025, key Canadian sectors reportedly received tariff exemptions, and the worst-case scenario never materialized. Markets, as they often do, front-ran disaster: and then ripped higher when it didn’t arrive.

Commodities Carried the TSX on their Back

This rally wasn’t broad-based magic. It was old-fashioned Canadian muscle memory.

  • Gold was one of the standout performers in 2025, hitting multiple all-time highs above $4,300/oz and finishing the year up over 70%
  • Oil rebounded, supporting energy heavyweights
  • Materials and resources surged, exactly where the TSX has leverage

Canada is a resource market pretending to be something else. When commodities move, the TSX moves. In 2025, they moved: hard.

That’s how you get a nearly 30% YTD gain, even while everyone is bracing for economic pain.

Meanwhile, the U.S. did Fine: Just not Amazing

To be clear: the S&P 500 didn’t disappoint. A near-18% return is nothing to complain about.

But compared to the TSX? It lost the headline.

That said, context matters.

The U.S. market closed December near 6,930, while the TSX finished around 32,039. Both are at or near record highs. The difference is what’s driving them: and what comes next.

Why I think the Tables turn in 2026

Here’s the part where I stop looking backward and start placing bets.

Based on current market levels and analyst forecasts as of late December 2025, I believe the S&P 500 is more likely to outperform the TSX in 2026.

Why?

1. Earnings Growth favors the U.S.

U.S. earnings growth is projected around 14–15%, driven by:

  • Massive AI investment
  • Fiscal stimulus (including the One Big Beautiful Bill Act)
  • Broader participation beyond a handful of megacap stocks

Canada, by contrast, is looking at 1–1.5% GDP growth, with earnings still heavily tied to commodity cycles.

2. AI is a U.S. Monopoly (for now)

Canada produces resources. The U.S. monetizes intelligence.

The AI boom — software, chips, cloud infrastructure — overwhelmingly benefits American companies. That’s where capital will keep flowing.

3. Trade Risk  never really Disappears

Tariff risk may have eased, but it didn’t vanish. Canada remains structurally exposed to U.S. political whims in a way the U.S. market simply isn’t.

My Investment View (No Hedging here)

I don’t believe in half-measures, and I don’t dress opinions up as “balanced takes.”

If you’re investing in the U.S., I recommend putting 100% of your capital into the S&P 500. Continue Reading…

How should you Plan for your Spending to Change throughout Retirement?

Posted By |

Special to Financial Independence Hub

 

It’s challenging enough to figure out how much you’ll want to spend at the start of retirement.  Even more challenging is deciding how your spending will change as you age.  These choices make a big difference in how much money you’ll need to retire.  They also shape the spending options you’ll have available throughout retirement.  Here I explore the good and bad parts of common wisdom on retirement spending to arrive at my own spending plan for retirement.

Spoiler alert: the “go-go, slow-go, no-go” narrative is good marketing, but it has cracks.

Two extremes

Some people focus on the early part of their retirement.  They want as much money as possible available early on while they’re still young enough to enjoy it.  They seem to think of their older selves as a different person who they care less about than their current selves.

Others focus on their older selves and worry about running out of money at some point.  These people usually spend far less than their portfolios allow, and they tend to be resistant to spreadsheet evidence that they’d be fine spending more.  Some make frugality part of their value system, and others are genuinely fearful.

A rational retirement spending plan is somewhere between these two extremes.  But where?

The default

Before retirement spending research over the past decade or so, the default was to assume that retiree spending would rise with inflation each year.  In real (inflation-adjusted) terms, we assumed that retiree consumption would be flat over time.

This doesn’t mean that consumption would be flat in the transition from working to retirement, though.  Many expenses go away in the typical retirement.  Average retirees pay less income tax, have paid off their mortgages, spend less on children, and no longer have many work-related expenses like commuting and clothing.  On the other hand, retirees often spend more on hobbies.  Some retirees are exceptions, but retirement experts say typical retirees need 45-70% of their working income to have the same standard of living.  But after retirement starts, we used to assume flat consumption over the years.

It’s tempting to think that having retirees’ spending rising with inflation would have them matching the spending increases of their younger neighbours.  However, this isn’t true.  Human progress causes our consumption to rise faster than inflation over the long term.  Compared to a century ago, workers are far more efficient today, and they have a wide array of products and services available that people in the 1920s never dreamed of.  Progress will continue, and with each passing decade, more amazing products will become available.

If you want to fully participate in our progressing economy, you would need to plan for annual retirement spending increases of about inflation+1%.  It may be rational to decide you won’t need the latest iPhone or whatever amazing new product that will come along, but it’s important to realize that planning for flat consumption is already a compromise.  If you were keeping up with your neighbours at the start of retirement, you would be falling behind a decade or so later.

Go-go, slow-go, no-go

Amazon.com

The idea that we should plan to spend less each year through most of retirement has some of the best marketing around.  In his book, The Prosperous Retirement, Michael Stein referred to three general phases of retirement:

  • Go-go years: From 60-65 to 70-75.  High activity and spending.
  • Slow-go years: From 70-75 to 80-85.  Activity and spending decline.
  • No-go years: From 80-85 on.  Minimal activity with healthcare and long-term care costs.

This framework is easy to embrace for anyone who is still a long way from the slow-go age.  We’ve all seen old-timers who seem unable to do much, and more importantly, they seem very different from us.  However, if you ask someone in their early 70s if they’re into their slow-go years, don’t expect a polite response.

Already, most descriptions of the three phases have the go-go years ending at 75 instead of 70-75.  With so many baby boomers now in their 70s, it’s not surprising that they don’t like to see themselves as slow-go.

Setting these self-image issues aside, are these older boomers spending less than they did in their 60s?  If they are spending less, some will be doing so by choice and some by necessity because they have limited savings.  How significant is this group who overspent early?  Do you really want to model your own retirement in part on this overspending group?

In the end this vivid narrative paints a compelling picture of someone (but not you!) slowing down and eventually stopping altogether, but it doesn’t prove anything about how you should plan your retirement.

The research

One of the early papers researching retirement spending patterns is David Blanchett’s 2014 paper Exploring the Retirement Consumption Puzzle.  This paper along with many subsequent papers have established without a doubt that the average retiree’s inflation-adjusted spending declines in early retirement and increases late in retirement as health care and long-term care costs rise.

That seems to settle it, right?  We should follow the research and plan for declining consumption through early retirement, and possibly plan for health spending and long-term care costs late in retirement.  But there’s a disconnect.  We know what average retirees do, but is this what they should have done?

The average Canadian smokes about two cigarettes per day.  Does this mean we should all plan to smoke two cigarettes each day?  Of course not.  This average is brought up by the minority of Canadians who smoke.  If we take the smokers, whose behaviour we don’t want to emulate, out of the data, the average drops to zero.  In reality, the best plan is to not smoke at all.

Carrying this thinking over to retirement spending, we need to know how many retirees overspent early in retirement and now regret it.  You don’t want to emulate these people.  If we could remove these people from the data, the average spending from the remaining retirees might give a better picture of what you should do.  In addition, we might want to remove retirees from the data if they badly underspent.

The retirement spending smile

The Blanchett paper refers to a “retirement spending smile” that is widely misunderstood.  If we draw a chart of average retiree spending over time, it starts high, falls for a decade or two, and then rises again at the end of life.  People refer to this chart shape as a smile.  However, in Blanchett’s 2014 paper, the smile actually referred to a chart of changes in retiree spending.

So, Blanchett observed that retiree spending changes little in early retirement, then starts to decline and this decline grows in mid-retirement, then the decline slows or even reverses to spending increases late in life.

Here is a chart of Blanchett’s annual spending change data:

Notice that the points don’t really look much like a smile.  The measure of how well a curve fits some data is called R-squared.  Blanchett reports that his spending smile curve has about a 33% R-squared match with the data.  This is a rather weak match, and is a sign that he didn’t have enough data.  Another sign of too little data is the big changes over a short time.  There is no obvious reason why the spending drop should be so much more at 80 than it was at 78.

What is important but unclear is how much of this data comes from overspenders and underspenders who you don’t want to emulate.  Blanchett considers the question of whether retirees spend less “by choice or by need,” and admits that “it is impossible to entirely disentangle this effect.”  To explore this question he divides the retiree spending data into four groups based on whether their spending is high or low and whether their net worth is high or low.  He then studied each group separately. Continue Reading…