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).

9 MoneySense ETF All-Star experts unveil their new Desert Island Picks

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A new feature this year is Desert Island picks: the 9 MoneySense panelists each pick the one ETF they’d be happy to buy and hold while stranded on a desert island.

By Dale Roberts, CutTheCrapInvesting

Special to the Financial Independence Hub

I was a panelist for the Best ETFs in Canada. That was an incredible experience and I thank Jonathan Chevreau and MoneySense for the opportunity. When you land on that page you can have a look at the full panelist list, and the bios. It’s an incredible list of ETF experts and of course I am humbled to be included.

From that main landing page simply hit those buttons to have a look at the ‘Best’ Canadian, US, International and Fixed Income offerings. The all-in-one ETFs page includes those popular asset allocation ETFs that deliver ‘complete’ and well diversified and re-balanced portfolios with annual fees in the range of .20%. As Robb Engen of Boomer and Echo offered ‘those ETFs are a game changer’.

Do you really even need to get into the minutia of each individual assets for each region and each fixed income offering? We know that our basic asset allocation; the overall mix of Canadian to US to International stocks plus the ratio of stocks to fixed income will take care of the bulk of our returns and risk characteristics. Many investors are embracing these one ticket solutions, they’ve pulled in considerable assets in quick order. Here’s a little help on how to select the ‘right one’. Please have a read of Which Vanguard All-In-One, One-Ticket Portfolio Should You Invest In?

Vanguard got the nod from the MoneySense panel. That said, the offerings from iShares and BMO are all great. They have some slight differences with respect to asset allocation. Here’s BMO Keeps It Simple With Their One-Ticket Solutions.

But of course the self-directed investor will often want to shape their own portfolio. They may be able to order and arrange assets for greater tax efficiency. We can select ETFs that allow us to avoid US withholding taxes. We can create portfolios with greater growth potential. Many self-directed investors want control.

Not a lot of change, but change is a coming

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As Jonathan Chevreau notes in the overview “Despite some major changes in our panel of experts, this year’s ranking has in the main affirmed most of our “All-star” picks from previous years and in particular 2018.” This is plain vanilla, couch potato investing for the most part. It’s supposed to be boring. The lists include broad-based market indices and many core bond offerings. There is nothing ‘too exotic’ going on here. With fees at a rock bottom level, it’s difficult to replace the core large cap or total market index funds.

But what about that change that might be on its way?

Indexing does not have to be plain vanilla. We might be able to arrange our portfolios to deliver greater returns or better risk adjusted returns. Retirees might be able to create a wonderful mix of income and growth that delivers more generous and more reliable retirement funding. Indexing can deliver on that factor-based investing that can include the size premium (small and mid cap and equal weight), lower volatility, value, quality and more. For now, those types of funds are not on the lists but I would not be surprised to see new categories created to cover the spectrum.

I would also like to see REITs and foreign bonds included in the mix.

Continue Reading…

Don’t doze off on the Euro

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By Jeff Weniger, WisdomTree Investments

Special to the Financial Independence Hub

It seems like things go bump in the night only when you’re deep asleep.

Doze off on the currency markets if you choose, but don’t come crying to us if you fall out of bed because the euro wakes you with a bang.

You can be forgiven for taking your eyes off EUR/CAD lately, with all the urgent drama in Q4. But the euro may jolt you awake—trading ranges are meant to be broken (see figure 1).

Figure 1: EUR vs. CAD

Figure 1_EUR vs. CAD

Street Consensus

Wall Street doesn’t publish many EUR versus CAD forecasts. But there is plenty on both currencies relative to the USD. Fortunately, if you know Street consensus on currency A vs. B and A vs. C, you can back into the strategists’ views of B vs. C.

Let’s do that.

Figure 2 shows the 15 most recently published forecasts for CAD and EUR vs. USD, with the arithmetic for EUR vs. CAD. Sentiment on this pair is mixed, with the median and average forecast coming in 2 cents off of the spot rate. Continue Reading…

Investing in IPO excitement

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“Don’t let your guard down when investing in the excitement of initial public offerings (IPO).” — Adrian Mastracci, discretionary portfolio manager & financial advisor at Lycos Asset Management.

Levi Strauss is the current IPO euphoria darling. Investing in IPOs can be very exciting, often creating plenty of buzz and fascination. They can also be risky propositions.

Many IPOs are overpriced or priced to perfection

Many IPO stock prices turn out overpriced, or priced to perfection. IPOs are the first sale of stock by private companies to investors. Most IPO companies usually hire a securities firm to manage the stock offering and exchange listing.

It is very difficult to predict how the IPO stock price behaves after it becomes listed. Hype and excitement can overcome all signs of rational thinking.

IPOs allow initial private investors to cash out

Typically, there is limited historical data to analyze. Most IPOs are companies going through growth periods. Many IPOs are vehicles for the initial private investors to cash out or reduce the size of the holding.

Shares of IPOs can be hard to get in quantity when investor demand is high. They are better suited for speculators who have time to follow daily price gyrations. Having an iron clad sell strategy is critical.

Investors need to be convinced that an IPO’s upside potential is real. Not all IPOs have fared well after the buzz of initial excitement. Expect large price swings in both directions and often. Continue Reading…

MoneySense ETF All-stars 2019

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The latest MoneySense ETF All-stars has just been published for 2019. click on the highlighted text in the headline to access the full article: Best ETFs in Canada for 2019 (you don’t need to subscribe to access).

I’ve been writing this annual feature every year since 2013, always with the help of several ETF experts. This year, as the article reprises, there were a few changes in the makeup of the panel but we more than replaced the departing analysts, for a total of nine in total, including several returning experts. Among the newcomers are two regular Hub contributors: fee-only planner Robb Engen of Boomer & Echo, and CuttheCrapInvesting blogger Dale Roberts. Bios of the rest are below.

While there are more than 800 ETFs available on Canadian stock exchanges, our “All-Star” list remains an elite one: despite the multitude of new product launches in 2018, we increased the number of All-stars from just 21 to 25, although we also added a new feature we dubbed “Desert Island picks” to give a little more latitude to the individual preferences of each analyst.

Canadian Equity ETFs

All four Canadian equity ETFs are returning under the new revised panel: VCN, XIC, HXT and ZCN. There were also a couple of vigorous debates about Canadian equities, particularly about the fate of Horizons HXT, a swap-based total return product that has long been a pick of the All-Star panelists because of its tax-efficiency in non-registered portfolios. Last week’s federal budget added the possibility of regulatory risk to HXT and more than a dozen other similar products from Horizons. For 2019 at least, the panel opted to retain HXT as an All-Star, and we will monitor developments in the meantime. In the meantime, caveat emptor. (See Dale Roberts’ post on the topic.) Go to this MoneySense link for the chart of the winners and further commentary.

US equities

Here the panel again stood pat, opting to retain all four of our 2018 US equity picks: XUU, VFV,  VSP and ZSP. Go to this MoneySense link for the chart of the US equity winners and further commentary.

International Equities

The panel was in favor of retaining our three international ETF All-stars from previous years but also decided to add two new ones, both from Vanguard. The returning picks include the two from BlackRock: the iShares Core MSCI All Country World ex Canada Index ETF (XAW) and the iShares Core MSCI EAFE IMI Index ETF (XEF.) Also back is Vanguard’s Emerging Markets ETF (VEE). A new addition this year is VXC, the Vanguard FTSE Global All Cap ex Canada ETF. Also new this year is VIU, the Vanguard FTSE Developed All Cap ex North America Index ETF. Go to this MoneySense link for the chart of the International winners and further commentary. Continue Reading…

Instead of helping investors ravaged by fees, Ottawa plays gotcha on total returns for the “rich”

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HorizonsETFs.com

 

By Dale Roberts, CuttheCrapInvesting

Special to the Financial Independence Hub

The week just completed was budget week in Canada. And government finances certainly get most of the attention and most of the ink. But there were some investment issues that made it into Budget 2019. Not the larger societal issue of Canadians paying the highest mutual fund fees in the developed world combined with the standard and unscrupulous and unethical practices of the typical financial ‘advisor’ in Canada.

Nope, this made it into the budget. From a post on holypotato.net and John Robertson the author of The Value of Simple:

The derivative transaction mention means they will target total return ETFs such as Horizons’ TSX 60 Total Return (TRI) index ETF. Here’s the link to HXT, which replicates the TSX 60 by way of swaps. These funds are derivative based and they can be incredibly tax efficient. They remove the funds’ income. From Dan Bortolotti in this MoneySense article…

There are several advantages to building an ETF with a swap rather than holding the stocks or bonds directly. The first is tax-efficiency. The most important advantage of swap-based ETFs is their potential to defer or reduce taxes. As we’ve noted, these ETFs do not pay dividends or interest, which means you won’t be taxed on any income as long as you hold your units. All of the gains in the fund are considered capital gains, which are not taxable until you eventually sell the holding. And even then, capital gains are taxed at only half the rate of regular interest income and foreign dividends. (Canadian dividends enjoy favourable tax treatment too, but for high-income earners, capital gains are still taxed at a lower rate.)

And this ETF allows Canadians to invest at an incredibly low MER of just .03% with rebate. Horizons offers a suite of total return funds that includes US and International stock indices plus Canadian and US bonds. One could build a tax-efficient portfolio. [Editor’s Note: The chart shown at the top of the Hub version of this blog shows a Horizon bond ETF that operates along similar principles.]

Eat the rich investors

There is almost $1.9 billion in the HXT. There is well over $1.6 trillion in Canadian mutual funds. Now certainly not all of those funds are crap, but most of ’em are quite poor due to average fees in the area of 2.2% annual. Of course couch potato investors will know that passive low fee index investing drastically outperforms high fee actively managed funds over longer periods.

So instead of going after the 2.2% fee junk, they go after the .03% offering.

I’d estimate that the amount that Canadians pay and lose needlessly to high fees is in the range of $20,000,000,000 or more annually. Yes that’s $20 billion. That’s massive. It’s so massive it’s the size of our annual deficit projections. Ha. I’m not sure that picking up some tax scraps to the tune of tens of millions of dollars from swap based funds is going to close the deficit gap. Continue Reading…