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).

Do you have enough tech in your portfolio?

Posted By Financial Independence Hub | August 18, 2020

By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

And perhaps that headline could read: do you have enough growth in your portfolio? Of course tech is where they keep much of the growth these days. And certainly those tech companies have been driving the returns of the S&P 500 and other US stock index funds. For investors who create their own stock portfolio, it’s a reasonable question to ask. Do you have enough tech in your portfolio?

For our accounts we use a mix of individual stocks and ETFs. But for the US allocation it’s all stocks. I had wondered if I was missing out. While I love my dividends and dividend growth, in the end it will all come down to total returns. The most optimal arrangement for retirement funding might be a nice mix of generous and growing dividends and that growth component. We can make our own home-made dividends.

Benchmarking our techs against the Nasdaq 100

I ran our tech basket of 4 companies against the Nasdaq 100. You can read about that exercise in my recent Seeking Alpha post. And yes, I’m going to give away the ending.

Here’s … My tech basket has more growth than the Nasdaq 100.

Apologies for the brag, but that’s how we do it on Seeking Alpha. 🙂

The 4 companies are Apple, Microsoft, Qualcomm and Texas Instruments. As you might expect the tech monsters of Apple and Microsoft are the main drivers of those returns. That said, the tech 4 does not keep up with the fabled FAANG stocks. The group includes Amazon, Netflix and Google (Alphabet) in addition to Apple and Microsoft.

That one ticket portfolio has you covered

If you hold a one ticket asset allocation portfolio, you’ve got tech. Those tech giants dominate the S&P 500 or US total market ETFs that are held by the one ticket ETFs. And in Canada Shopify holds the greatest weight in the TSX 60 or TSX composite ETFs. There are other Canadian tech companies contributing, but the US is certainly the land of tech giants and tech growth.

Tech is now 11.2% of the TSX 60 ETF.

Investing ― not Speculating ― in Growth

Posted By Financial Independence Hub | August 14, 2020

Image courtesy Franklin Templeton; iStock

By John P. Remmert, Franklin Global Growth Fund

(Sponsor Content)

Growth stocks attract a lot of attention, especially when momentum markets take share prices to heartpounding new heights. But as growth investors ourselves, we think many investors may be missing the point.

A single-minded focus on momentum is little more than speculation. If you want to invest in growth, rather than simply speculate, sustainable earnings are the key to unlocking value.

Stocks are the longest-duration assets in the capital markets. It may be several years until a stock’s value is fully realized, and as the COVID-19 pandemic has starkly reminded us, a lot can change in the meantime. We think it’s important to develop a mindset with a long time horizon and we seek to own the stocks of attractive companies that will benefit from the secular shifts that we think will shape the fortunes of businesses for many years to come.

Technology crosses all sectors

Technology is increasingly at the core of every business, not just those in the technology sector. If anything, the COVID-19 pandemic has simply sped up adoption of existing trends like ecommerce, machine learning and big data analytics. Health care, especially drug discovery, has surged forward with the rise of machine learning, like the biotech company we’ve owned for years that is now at the cutting edge of COVID-19 drug treatments with an antibody therapy that could help reduce symptoms in severely ill patients.

Within the information technology sector itself, we have invested in many US companies, as they tend to be global leaders with good corporate governance. But when we look at the pervasiveness of technology in other sectors, we find great opportunities in other countries and regions, like the South American stock we bought 10 years ago when ecommerce was non-existent; today the company is a market leader in ecommerce and has developed its own payment and shipping services to facilitate transactions. Or the education company in China that was able to quickly move their business online when the pandemic hit, because they had been methodically investing in their online offering for years.

Supply chain links surprisingly strong

Although the pandemic and global trade tensions have put supply chains in the spotlight, in the long run, globalization still produces the best products at the cheapest price for the consumer. Continue Reading…

Should investors “go defensive” in uncertain times?

Posted By Financial Independence Hub | August 12, 2020

Lowrie Financial: Richard Clark, Unsplash

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Lately, the wisdom of having adequate cash reserves has been painfully hitting home for many investors. Sometimes, it has spurred attempts to fix the issue as soon as possible by “going defensive.” During this year’s booms and busts, investors have been asking me:

“With all the bad news, stock markets seem overpriced.
Should I sell some of my stocks and use the proceeds to become more defensive?”

Market-timing by any other name

You probably don’t remember, but back in 2018, we used a modest market downturn to remind everyone how important it is to have enough liquid cash to ride out market storms. Today, let’s tackle how to create those comforting reserves to begin with.

There’s never a bad time to build more cash reserves or similar safe harbour holdings if your investment plan calls for it. However, I would not advise reducing your position in stocks and going to cash simply because markets seem too hot to handle. This is just another form of market-timing.

Whether the strategy is successful depends more on random luck than evidence-based reason.

Here’s a powerful new video from Dartmouth Professor Ken French (the “French” in the Fama/French 5-Factor Model) with several reasons why this sort of market-timing is so difficult. He concludes, “Most investors shouldn’t try to time the market. When they do, they’re simply spending resources to move away from a better portfolio.”

Deliberately defensive investing

So, how can you shore up your cash reserves? If you happen to receive a windfall of cash next week, congratulations! Problem solved. More realistically, you’ll need to extract the reserves out of your carefully structured portfolio, while keeping its overall asset allocation intact. Continue Reading…

Yes, you can retire up to 30% wealthier

Posted By Robb Engen | August 7, 2020

Questrade touched a nerve with financial advisors with a series of commercials highlighting how lower investment fees over time potentially means you can retire up to 30% wealthier.

Financial advisor extraordinaire Jason Pereira acknowledged that Questrade was right to go after do-nothing advisors who collect fat commissions, but he claimed the 30% wealthier promise was unrealistic and borderline illegal.

Mr. Pereira’s argument is a good one. Advisors like him (and others who put a client’s best interests ahead of their own) can add tremendous value for clients, but not in the way you might think.

The old school notion of a financial advisor is of someone who adds value through their stock-picking prowess. But that argument falls flat when you see the evidence that the vast majority of actively managed funds fail to beat their benchmarks.

Indeed, investors are better off buying the entire market as cheaply as possible using index funds or ETFs.

PWL Capital’s Ben Felix once told me, “investing has been solved … The way for advisors to add value is on planning, behaviour, and transformation.”

With that in mind, I can get behind the idea that financial advisors with this mindset do have a net positive impact for their clients, even after fees.

Which brings me to the point of this article. Canadians have $1.6 trillion invested in mutual funds, most of which are of the expensive, actively managed variety. Those actively managed funds aren’t adding value: the vast majority will underperform their benchmark. Furthermore, most bank-advised clients aren’t getting value in other ways: financial planning, goal setting and prioritization, behavioural coaching, etc.

Traditional advisors are still selling (and charging for) investment expertise, but failing miserably at delivering excess returns while offering little-to-no value for things that would truly make a difference for their clients.

The easy answer is to pair a fee-only advisor with a low-cost investment solution (either a self-directed portfolio of globally diversified ETFs, or through an automated portfolio with a robo advisor). This way, you get the planning, coaching, and behavioural nudges you need to succeed financially, plus the benefit of lowering your investment fees. Win-win.

But the sad reality is that financial inertia is powerful and it’s easier to keep your investments at your bank, along with your chequing, savings, and mortgage. I get it.

Retire up to 30% wealthier without moving your investments

What if I told you that you can still retire up to 30% wealthier without moving your investments to a robo advisor or a DIY investment solution? The answer is sitting right there on the product shelf at your bank: yet rarely if ever talked about by your financial advisor.

I’m talking about index funds. That’s right. Every big bank has a suite of index mutual funds available to investors. These funds charge between one-sixth to one-half the cost of the actively managed mutual funds that are typically sold to Canadian investors.

I’ve monitored and tracked the performance of big bank index funds and their actively managed mutual fund cousins for more than 10 years, and in every single case (when comparing to identical benchmarks), the lower cost index funds outperform the active funds.

So, all you need to do is walk into your bank branch, sit down with your advisor, and ask (no, demand) to move your portfolio from actively managed mutual funds to their index fund equivalents.

Below, I’ll show you the exact index funds to buy to build a 60/40 balanced, globally diversified portfolio of index funds at each of Canada’s five big banks. I’ll compare those index funds to the commonly sold actively managed “balanced” mutual fund.

RBC Index Funds

If you’re an RBC client, chances are you have the RBC Balanced Fund (RBF272) in your investment portfolio. The fund has nearly $5 billion in assets under management and comes with a fee (MER) of 2.16%. Returns have been decent, with a 10-year average annual return of 5.3%. Continue Reading…

What’s in the Big Bear portfolio?

Posted By Financial Independence Hub | August 6, 2020

By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

Canadian economist David Rosenberg is known as a perpetual bear. That framing is a little unkind. Let’s just say Mr. Rosenberg is always cautious and is more than aware of the many risks. But certainly he will dwell or concentrate on those risks. We might think that it is the job of the economist to ‘beware the negatives’. In a recent interview Mr. Rosenberg revealed what was in the big bear portfolio.

Here’s the link to the Financial Post interview that was posted on their YouTube page. It’s an engaging video I would encourage you to watch it.

But I will certainly outline the key points and takeaways for you. And yes, we’ll get to the big bear portfolio.

Mr. Rosenberg sees a dreadfully slow economic recovery. He uses the word ‘sclerotic’. And it’s all about the consumer and consumer demand.

Maudlin Economics reinforces that on the consumer front, unemployment is the driver. Here is a must read and a must follow.

Stumble-Through Jobs Market.

That post references the following Tweet, and follows up with some shocking charts.

Based on the consumer and more, Mr. Rosenberg sees a fishhook shaped or L-shaped economic recovery. And here’s more bear piling on. From a recent Globe and Mail article –

Economists at the UCLA Anderson School of Management stated in a report that the pandemic had “morphed into a Depression-like crisis.” They estimate that the economy declined at a 42% annual rate in the second quarter and predict that the lost ground will not be made up until 2023.

The stock market is not the economy.

Of course don’t tell that to the stock markets. They’ll do whatever they want. As we continue to learn, the stock market is not the economy. Those Robinhooders still love their stocks.

And on the simplicity front, the more traditional Balanced Portfolio barely felt a thing.

The more bearish economists will suggest that the stock markets may learn to count again, one day. And many economists and investment gurus feel that the traditional balanced portfolio might not get the job done. Mr. Rosenberg is shaping his portfolio for a period of stagflation. He feels that could arrive in 2-3 years. Continue Reading…