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).

Canadian stocks at all-time highs

 

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

On Twitter [X] I was asked what the heck is going on. “I don’t get it” offered a follower and blog reader. The Canadian economy is entering a rough patch, things are supposed to get much worse, and Canadian stocks are surging higher. In fact, the TSX Composite just reached an all-time high. More proof that no one knows what is going to happen. We can’t time the market or sitting Presidents.

Around Tuesday April 8, President Trump began to walk away from his nonsensical tariff war blabbering, just as I had predicted on March 20th.

My take on the global tariff war concept was and is …

The bad news is a global tariff war spells economic destruction.

The good news is a global tariff war spells economic destruction. Essentially, it can’t happen, I think and hope. The markets will push back  …

The markets pushed back on Trump’s plans, Trump listened, and then stocks moved on to higher prices.

And remember, the stock market is not the economy. And nearly 50% of TSX companies’ revenues originate outside of Canada.

What sectors are driving the TSX Composite?

From April 8, the TSX Composite is up 19% [as of  May 16]. We know that financials and energy and resources drive Canadian stock markets so let’s have a look there first.

Sure enough, during that period the financials XFN-T are up 28%. The banks ZEB-T are up 16%. The insurers that are within the financials indexes have helped to drive returns well above that of the banking index. Diversifed financial Brookfield is up 36%. Fairfax Financial (Canada’s Berkshire Hathaway) is up over 44% over that last year and an incredible 540% over the last 5 years, not including the modest dividend.

So ya, the financials are humming. As I wrote in investing in Canadian banks, the banks are a proxy for the Canadian economy. But they are much more as well with considerable earnings in the U.S. and in other economies and regions. Same for the insurers who are very international.

I’m more than happy to hold this ETF in my personal RRSP. My wife holds most of the indivdual stocks in her RRSP.

Not including dividends

Canadian energy stocks

Let’s move on to energy and other resources. In October of 2020 I suggested that readers consider Canadian oil and gas stocks. The timing was fortunate as the sector went on an incredible run, up over 400% at the peak. The sector did some heavy lifting along the way.

But the sector has cooled and is down some 7.3% over the last year. The returns are also negative from April 8.

That said, the Canadian pipelines have been carrying the energy sector. Enbridge ENB-T and TC Energy TRP-T are leading constituents in the Canadian TSX Composite and they have greatly outperformed over the last year. They’ve made a minor contribution.

TC Energy is up about 35% over the last year while Enbridge is up in the area of 30%. Enbridge is the forth largest holding in the TSX while TC Energy is top 15.

The materials sector XMA-T helped to lift the TSX over the last year, up 26% at its peak a week ago. Gold stocks drove the index. Gold was and is the perfect hedge for Trump’s unpredictability and potential inflation-inducing tariff strategy. Materials did some lifting along the way.

Defensive equities rise to the occasion

Consumer staples XST-T have outperformed over the last year. They have been a wonderful defensive holding. They shone during the worst of the Trump fears. That said, they (unfortunately) have a very small weighting in the TSX.

Utilities XUT-T have kept pace with the markets over the last year and have offered recent support, as the sector is near all-time highs. More on this below when we discuss retirement and managing risk with defensive equities.

Canadian tech rocks

One of the main drivers to the new highs is the tech XIT-T sector. It’s up over 41% over the last year. Shopify is up 95% over the last year. Constellation Software is up 37.5% over one year. Shopify has the second largest weighting in the TSX. It will often trade places with RBC for top spot.

From April 8, XIT is up 26%, largely driven by Shopify.

Here’s the lift from Financials and Tech from 2023 … Continue Reading…

Review of Money for Couples

Amazon.ca

By Michael J. Wiener

Special to Financial Independence Hub

Having listened to a few episodes of Ramit Sethi’s podcast where he helps couples face and conquer their money issues, I looked forward to reading his book, Money for Couples.

In it, Sethi distills his experience helping hundreds of couples into strategies that cover a wide range of problems.

It’s clear that Sethi has the skills and experience necessary to help couples with their financial problems.

However, creating a book to help people solve these difficult issues on their own is a different challenge.  I’m optimistic that this book will be helpful for some couples with big money problems.

For many couples, talking about money is painful and ends in a fight.  A common theme throughout this book is that couples need to find a way to have money discussions that feel good.  To this end, Sethi provides many strategies as well as actual scripts of what to say.  These strategies go a long way to help draw in a spouse who avoids all talk about money.

Money personalities

Although many people think they’re just bad with money, “there’s no question you can get good at managing money, just like you became good at driving and speaking English.”  The way forward depends on your money personality.  Sethi sees four common money types: avoiders, optimizers, worriers, and dreamers (who think some big score will come soon to solve all their money problems).

The book gives specific advice for each money personality.  For example, “Worriers change when they have skin in the game (for example, they manage part of the family finances), when they’re educated about money, and when their finances are extremely simple so they can understand them.”  In the case of dreamers, “I have no advice, because you’re not reading this book.”  Instead, Sethi offers advice to spouses of dreamers.

I saw myself a little bit in the optimizer personality description, but not much in the other personalities.  Even the optimizer personality doesn’t fit well, though: I’ve never tried to maintain a budget and have only tracked spending a few times.  I don’t seem to fit into any of these personalities.  Perhaps, these are the money personalities of people who have money issues, and there are other money personalities for people who don’t have money issues.  I’m not sure.

Moving toward a rich life

Sethi is known for saying people should stop focusing on $3 questions and start focusing on $30,000 questions.  This is the difference between deciding whether to buy $3 coffee vs. big-ticket items like “automating investments,” “minimizing investment fees,” and “creating a debt -payoff plan.”

Some take this to mean that it’s always okay to spend small amounts.  I’m not sure this is what Sethi means.  In any case, as I see it, it’s a mistake to agonize over small amounts every day.  Analyze how you spend money in small amounts, add up a full year’s worth of small amount spending in each category, and then decide if each category of spending fits in your financial plan.  You now have a quick yes or no answer to every type of small amount for the next year.  This frees up some mental bandwidth for thinking about bigger questions.

This shift to thinking about big money questions is an important part of what Sethi calls “designing your rich life vision.”  When a couple agree on what really matters to them and how they want to live in the future, they can take steps to make their vision a reality.  Otherwise, they might just continue wasting money on things they don’t care much about and never get where they’d really like to be.

As I read this book, I decided to do some of the exercises myself, and I squirmed a little as I got to the big questions about what kind of life I really want.  These questions can be daunting, but they’re important.  Even for a retiree like me who has already found the life I want for now, thinking about what I want my future to look like isn’t easy.  Facing these questions and coming to agreement with a spouse matters.

Couples dynamics or … how to stop fighting over money

The book describes three common problematic couples dynamics: sitcom (where couples take jabs at each other to entertain others rather than really communicating), chaser/avoider, and innocent doe/enabler.  For each dynamic, Sethi describes specific ways to break dysfunctional patterns, create meaningful communication, and handle money better.  He also provides scripts of what healthy conversations about money look like.

After solving some of these emotional issues, couples are ready to move into some of the more numerical pursuits, like creating what Sethi calls a Conscious Spending Plan (CSP) and setting up an automated system of bank accounts and credit card accounts.  A CSP lays out what percentage of income should go toward fixed costs, short-term savings, long-term investments, and guilt-free spending.  Putting an end to feeling guilty every time you buy something is a dream for many people!

I’ve seen enough young couples mess up their finances to see the value in Sethi’s methods, but I wonder how many couples out there are like my wife and me.  We kept all our accounts separate, which Sethi doesn’t recommend.  We never automated our savings and just saved what was left over.  This turned out to be a lot of money most of the time, despite the warnings from the Wealthy Barber, Sethi, and others that you must pay yourself first.

Although we’ve made good strides in spending meaningfully, my wife and I tend more toward underspending.  Many joke about how they wish they (or their spouses) were underspenders, but it can be a real problem.  The book mainly focuses on the more common problems relating to overspending, but it does have a subsection specifically about underspending.

Calling out businesses

One thing Sethi does that I find useful and amusing is calling out businesses to avoid.  In one example, a couple closes their Wells Fargo account “because they are one of the worst predatory banks in the world.”

For many people, “their parents never talked about money, so when they reached adulthood, they were defenseless, left to make sense of the world against companies like Wells Fargo and Ameriprise as well as whole-life insurance scammers.”

Specific advice

Sethi advises couples to set a “worry-free spending number.”  The idea is that anything under some threshold, like $20, is automatically not subject to criticism by a spouse.  I find this lacks a time component.  My wife and I have a number like this, but the threshold is very different depending on whether it is a one-off or if it’s daily.  I can buy $1,000 worth of sports equipment a few times a year without a family discussion, but I can’t spend $200 on lunch a few times a week. Continue Reading…

BMO ETFs experts and finfluencers’ reveal best personal picks at DIY Investor Day

Courtesy BMO ETFs/TSX

On Wednesday, BMO ETFs conducted its second annual ETF Investor day. Conducted at the Toronto Stock Exchange, Do-it-yourself investors and finfluencers [Financial Influencers] were on hand for the ceremonial opening of the exchange, shown in the photo on the left (including myself).

Hard to believe, but this marks BMO’s 16th year as a Canadian ETF provider.

Before we get to the individual expert picks from BMO’s large ETF stable, the morning began with the obligatory analysis of the current Trump-inspired global trade war, and its implications for the Canadian economy and stock market.

Economic Update

In an Economic update Amber Kanwar, Host of the In the Money Podcast interviewed Bipan Rai, Head of ETF & Structured Solutions Strategy at BMO ETFs. Rai said the protectionist measures being imposed by the Trump administration have “not been seen since the Great Depression.” In the U.S. tariffs are now north of 20%, or ten times the 2% average tariffs that were previously in place.

Asked what will happen next, Rai said probably one of three things: Trump might rescind the Tariffs, or there will be a massive expansion of U.S. fiscal policy to fund its Tax Cuts, or the Federal Reserve will cut rates. But he doesn’t think a U.S. recession will show up this year, as its economy is “too dynamic.”

BMO ETFs Bipan Rai

However, Rai was less confident that Canada won’t face a Recession: “I’m very concerned about the Canadian economy in coming quarters.” The two most recent scenarios from the Bank of Canada are mixed: one is “far more benign,” the second “more malignant.” He thinks the former is more likely, with a few negative quarters of GDP growth but not likely exhibiting Stagflation risk. 70% of Canada’s GDP is generated from trade, “most of it with the U.S. As much as [Prime Minister Mark] Carney talks about diversifying away from the U.S., that’s not going to happen. The U.S. is way too big and is right next door. We may do more with the United Kingdom but it and the European Union won’t replace the U.S. Jobs may be lost, especially in the auto sector.”

Asked if he expects more rate cuts from central banks around the world, Rai said he thinks the BOC is likely closer to the end, with one or two more rate cuts, after which fiscal stimulus will kick in. England or the ECB may cut a few more times, then Japan and a few “others divorced from the rest.”

How retail investors can play Defence

Kanwar also probed the views of two experts in a session titled Playing Defense: Positioning Your Portfolio in today’s environment. Now that the U.S. market has rebounded 18% from the lows around early April’s Liberation Day, Kanwar asked how Do-it-yourself [DIY] investors can deal with volatility. Jimmy Xu, Head of Liquid Alternatives & Non-linear solutions, BMO ETFs, said it depends on investor goals. Those with a long-term 20- or 30-year time horizon before Retirement would be “best to sit tight,” Xu said, “Overtrading is the enemy of growing assets and market timing is hard.”

Freelance writer Tony Dong, founder of ETF Portfolio Blueprint, said volatility is the price of admission to create investment returns that are superior to risk-free treasury bills. Betting on certain sectors may expose DIY investors to uncompensated risk, Dong said. Even equal-weight products provide imperfect exposure to the size premium commanded by small- and mid-cap stocks. But investors can overweight less volatile stocks concentrated in structurally defensive sectors like health care, utilities and consumer staples. Jimmy Xu said sector-agnostic low-volatility strategies can help investors get around this problem. BMO’s low-volatility ETFs own low-volatility stocks that have a low beta relative to the broad market, which amounts to “a better tool than picking top sectors.” Continue Reading…

Nobody can consistently make accurate Stock Predictions today — or any other time

Relying on stock predictions today to forecast future market trends is likely to cost you money. Follow this advice instead: Focus on share value and using our three-part investing philosophy to profit

TSInetwork.ca

We think it’s a mistake to let stock predictions today guide your investments, but especially so at times like now, when new ideas and differences of opinion are continually streaming into the markets. They make more choices available to you if you are trying to create or update a prediction. This is hard on investors who focus on predictions. When more predictions are floating around, predictions fans have more ways to guess wrong.

The best way around this problem is to quit making predictions. Forget about trying to pinpoint future events or developments. Everybody who tries often enough will wind up making some good guesses. However, no one can foresee the future.

Instead, take a close look at what we know about the current investment situation. Then, try to spot investments that seem to offer attractive opportunities under a variety of future conditions.

No one can consistently make stock predictions today — or any other time

In investing, it pays to avoid relying on stock market predictions. Successful predictions can pay off enormously, of course. But nobody can consistently or even frequently predict the future in individual stocks or the market. The more your investment success depends on predictions, the greater the risk you face.

On the other hand, it’s possible to assess investment conditions in a general sense. That way you may recognize when it’s a good time to buy stocks, if you can afford to hold them for the next couple of years or longer. If you do most of your buying in times like that, you’ll wind up making a lot of money over the course of your investing career.

Keep a long-term view in mind when considering stock predictions today and “a good time to buy”

Mind you, “a good time to buy” is an opinion on a long-term probability. It doesn’t mean the market will go up right away. For that matter, you may buy just prior to one of the market’s occasional downturns. You have to accept this risk if you want to profit from the stock market’s ability to turn middle-income people into well-off retirees over the course of a few decades.

The funny thing is that many people hurt their prospects by going at it backwards. Instead of looking for good times to buy, which are relatively plentiful, they fixate on avoiding the market’s relatively rare downturns. They try to do that by hunting for reasons to stay out of the market. Continue Reading…

How often should you rebalance your portfolio?

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

How often should you rebalance your portfolio? There’s good news on that front as less is more. We’ll take a look at a very telling chart from Frederick Vettese. And I take another look at the very telling perfomance table for the core Tangerine Portfolios. In this post I will also take you through my top observations of the week – by way of my Twitter / X Tweets. That includes – bonds vs GICs, big dividends under attack, my U.S stock portfolio returns, and what’s in store for the Canadian banks.

Courtesy of Fred Vettese in the Globe and Mail, a look at rebalancing a core ETF portfolio.

Here’s the link for those who have a Globe subscription.

On April 1, 2013, $1,000 was invested in each of four exchange-traded funds: a U.S. stock ETF, denominated in Canadian dollars (stock symbol XUS), a Canadian stock ETF (XIC), an international stock ETF (XEF) and a Canadian bond ETF (XBB). The initial asset mix is therefore 75-per-cent equities and 25-per-cent bonds.

Fred’s test showed almost identical results for rebalancing every quarter and once a year. That suggests that you can save yourself some time and effort (and perhaps trading costs) by rebalancing just once a year.

We can also see that when the unbalanced portfolio performed better during a period of robust stock returns. That said, the portfolio risk level has increased.

I have been evaluating portfolios for many years (decades) and more often find that rebalancing once a year often leads to greater returns. It allows a successful asset to go on a greater run before the money is moved to the under performing asset.

You might also consider rebalancing based on thresholds – perhaps when an asset is 5% or more about your target allocation.

The lessons of the Tangerine Portfolios

I had another look at the index-based Tangerine Portfolios. As you may know I was an advisor and trainer with Tangerine for several years. Those are a wonderful solution for those who want lower-fee managed portfolios and investment advice.

You can also have a look at the Tangerine Global ETF Portfolios.

There are many lessons that can be learned or observed from the returns of the portfolio models. I offered some ideas in this Twitter thread.

While you can check out that thread, and yes you should follow me on Twitter / X I will strip out the main lessons (shown below).

Lesson 1: Risk and returns

Investors were rewarded for taking on more risk. The risk/reward proposition.

An all-equity portfolio might earn in the area of 9% annual, while a balanced growth model is more 7%’ish and a balanced model more 6%’ish. Keep in mind that the start dates for the balanced portfolios was terrible – just before the financial crisis in 2008. Continue Reading…