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).

Thinking Big on Small Caps

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By Steve Lipper, Senior Investment Strategist, Managing Director, Royce Investment Partners

(Sponsor Content)

Companies with small market capitalization make up one of the more overlooked parts of the global equity markets. This could be attributed to a lack of coverage of their stocks by analysts, but whatever the reasoning, being overlooked creates opportunities for those investors who know where to look among small-cap equities.

Royce Investment Partners has more than 45 years of experience in the small-cap space. Such longevity brings with it a high level of expertise, allowing the firm to build assets under management (AUM) of US$17.6 billion.1

This has been achieved through a combination of specialization in small-cap investments and a commitment to ownership among the firm’s portfolio managers. With an average tenure of 22 years, Royce’s seasoned group of PMs have substantial ownership in the strategies they manage; in fact, 89% of the firm’s assets are in funds where the portfolio manager has invested at least US$1 million themselves.2 In this respect, Royce stands apart from its competitors: 37 asset managers in the U.S. have more than US$5 billion in small-cap assets, but only Royce has more than 95% of its total AUM invested in the space.3

While developing expertise in small-cap investing is complex, the reasoning for specializing in this area is quite simple: quality small-cap companies have been proven to deliver for investors.

In fact, small-cap stocks have consistently provided meaningful outperformance compared to their large-cap counterparts over the long term. Using the MSCI ACWI Small Cap and MSCI ACWI Large Cap indices as proxies, it shows that small caps have delivered higher annual returns over most multi-year time periods (see chart below). In addition, small caps not only provide a much larger set of companies to invest in (approximately four times the amount in large caps), but with valuations that often understate their true worth. This is an important point to consider, especially given some of the pretty elevated valuations in equity markets right now.

 

The opportunities that small-cap stocks present for investors were a key factor in introducing our new strategy for the Canadian retail market, Franklin Royce Global Small Cap Premier Fund.4 Continue Reading…

My virtual MoneyShow talk on MoneySense ETF All-Stars and Financial Independence

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As this link published at MoneySense.ca on Sept 3rd indicates, I will be giving a half-hour virtual presentation on September 21st on how the annual MoneySense ETF All-stars package can help retirees and near-retirees build their nest eggs and then draw income from them. (i.e. Accumulation and Decumulation).

The World of ETF Investing Canada Virtual Expo talk is on Sept. 21. Registration is free.

Here’s how MoneySense describes it:

Jonathan Chevreau, a longtime personal finance journalist, former Editor-in-Chief of MoneySense and the creator of our perennially popular Best ETFs in Canada package has said there’s only one free lunch for investors—and that’s the kind of broad diversification you can get from a low-cost, broadly diversified portfolio “core” based on exchange-traded funds (ETFs).

ETFs have become so popular that there are now roughly 1,000 listed on Canadian exchanges alone, with thousands more on US and international stock exchanges. Now in its 9th annual edition, I write up the feature each spring after conferring with an all-star panel of eight investing professionals and specialists. Together, we narrow the field to the very best options across five categories: Canadian, U.S., International, fixed-income and all-in-one asset-allocation funds.

In addition individual panelists provides their unique “Desert-Island Picks” that they are particularly passionate about and that may merit consideration, but don’t achieve the full-consensus vote otherwise required to make the cut. Continue Reading…

Rethinking Retirement (RIP) and FIRE

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

Today’s post will weave together retirement as seen in a more traditional sense and those who practice F.I.R.E. – an acronym for financial independence and retire early. In the Globe and Mail Brenda Bouw offered that the COVID pandemic is giving early retirees second thoughts, they’re going back to work. On FiPhysician, Dr. David Graham offers that traditional retirement is dead – RIP. The old approach will fall on its face. We might run out of money before we run out of time. We will also see how Justwealth has crushed mutual funds over the last five years. Enjoy. We’re rethinking retirement on the Sunday Reads.

We’ll start with rest in peace RIP retirement on FiPhysician. Or, is retirement an acronym? Of course on this site Dr. Graham inspired – how does the pandemic end?

Well, with the common cold.

We no longer work til we drop dead

That retirement piece shows how retirement risks have changed. We are no longer working until we drop dead Dr. Graham offers. We are living longer (generally are much more healthy) than past decades and centuries and we will spend decades in retirement. The traditional retirement funding approach used by our parents and grandparents will not get the job done. Traditionally, social security (CPP in Canada) a pension and home value would do the trick. That requires a re-think offers Dr. Graham.

For starters those government pension won’t keep up with ‘real inflation’ compared to what the government reports. Lots of fudging of ‘official’ numbers on that front.

So, with the three-legged stool of traditional retirement, you cannot keep up with inflation over longer periods of time. Retirement is an anachronism because you cannot fund it.

On the future of retirement and how we might best prepare …

Consider that which is currently changing the world of employment: smart phones and the gig economy.

You won’t retire in the future; you will monetize your hobby and have gigs from your smart phone. After all, we must move from a knowledge-based society to a wisdom-based one. Everyone has knowledge at the tip of their fingers all the time. Who has all the wisdom?

So funny, as I am personally living that now, and by design. I am living proof as are many in today’s new normal for “retirement”. I have the portfolio, I monetize any knowledge or wisdom that might have value. Any gov pension will be a bonus that will not be counted on in any meaningful way. We have real estate.

Protect the portfolio from inflation

I am also of the school that we can protect our portfolio income assets from inflation. And research shows that we need the true inflation fighters such as gold and other commodities and real assets. Continue Reading…

How the Asset Allocation in your ETF can help drive Returns  

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By Kevin Prins, BMO ETFs

(Sponsor Content)

“Diversification” is a word that gets thrown around a lot these days: and for good reason. A diverse and balanced portfolio can help provide more consistent returns versus individual securities. The asset allocation of your exchange traded funds (ETFs) is of paramount importance to help provide more consistent returns and targeting an appropriate portfolio risk level.

The good news is that ETF providers have provided choice in a range of all-in-one portfolios that are delivered as an ETF on the exchange. Now you can choose from a diverse mix of both domestic and foreign equities and fixed income.

Coupled with your specific investment goals and tolerance for risk, you can rather easily determine which ETF is a good fit for you by considering its strategic asset allocation relative to your needs.

Strategic Asset Allocation vs. Chasing the Asset Class with the highest return

Predicting the top performing asset class year to year is extremely difficult and, when poorly executed, can lead to disappointing results for your portfolio.

But with a diversified Asset Allocation ETF, you can take all the guesswork out of investing.

In other words, your portfolio’s fortunes aren’t tied to a single asset class, making it far more resilient, while simultaneously increasing your chance of having exposure to markets when they have bull runs.

Many investors who try to do it themselves will rely on friends, market research, or maybe even an investment blog to help them pick the securities that will comprise their portfolio.

But this can be time-consuming and risky. Not to mention that these portfolios tend to be under diversified.

You’ll gain exposure to both fixed income and equities with a balanced asset allocation ETF. What’s more, you can avoid one of the common pratfalls of overweighing your portfolio with Canadian securities and instead take a global approach, again helping improve your portfolio’s balance.1

You’ll also be exposed to both cyclical and defensive sectors, ensuring that your portfolio is designed to perform well in a variety of economic conditions.

The fixed income/equity balance is of importance, as this has the potential to bolster your portfolio with both security and reliable income, while also adding growth potential and inflation protection.

 

It’s worth stating that a portfolio’s strategic asset allocation will more than likely have a higher impact on its performance than even the individual stock selection, as the graphic above indicates. 2

That’s because opting for a conservative, balanced, and or growth portfolio and investing in asset classes based on your preferences will play the determining role in how to allocate your investment.

Whatever your investment goals, an approach predicated on strategic asset allocation can help you reach them.

8 Reasons to look at Asset Allocation ETFs 

  1. Simplified Investing: An all-in-one investment solution that provides instant market exposure
  2. Broad Diversification: Holds a basket of ETFs that in themselves hold many securities
  3. Professionally Constructed: Leverage the asset allocation experience of industry professionals
  4. Automatic Rebalancing: This keeps one’s investment portfolio on track to risk and return objectives Continue Reading…

Flying the Findependence Flag: My appearance on Patrick Francey’s The Everyday Millionaire podcast

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The Everyday Millionaire podcast starring REIN’s Patrick Francey has just released its one-hour-plus interview with me. You can find it (audio) on the regular podcast channels by clicking this title: Flying the Findependence Flag.

The podcast has been going since 2017, and sports the slogan “Ordinary people doing extraordinary things.”

It was a wide-ranging and surprisingly personal interview. Most of Francey’s guests are real estate millionaires: given the bull market in Canadian residential real estate it’s not surprising that most of Francey’s guests are technically millionaires: even starter homes in Toronto are going for a million dollars.

REIN’s Patrick Francey

Patrick Francey is the CEO of REIN, the Real Estate Investment Network, with which I have long been familiar: my daughter Helen once worked there. Sadly, as you will discover on the podcast, I confess that our family never made the plunge into investment real estate beyond owning a principal residence in Toronto. We discuss the fact that while real estate is an excellent way to achieve Financial Independence, some of us are more comfortable with investing in financial assets like stocks and bonds: in so-called “clicks” rather than “bricks.”

The foundation of Financial Independence

As I say in the interview as well as the recently updated US edition of my financial novel, Findependence Day, job one is to purchase a principal residence and pay down the mortgage as soon as possible; hence the saying “The Foundation of Financial Independence is a paid-for home.” Continue Reading…