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).

Rethinking Retirement Income

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How real Spending Patterns challenge Traditional Retirement Income Planning  

Canva Custom Creation: Lowrie Financial

By Steve Lowrie, CFA

Special to Financial Independence Hub

Here’s a contrarian thought.

When most people imagine retirement, they picture steady cash flow from their investments to support their lifestyle.

The common assumption is that they’ll preserve their financial nest egg and live off the growth” drawing a consistent amount each year while keeping the principal largely intact.

But there are actually three broad approaches. At one end, some plan to spend their entire portfolio over their expected lifetime (as one client joked, “I want my last cheque to bounce.”  At the other end is the idea of preserving capital entirely. Most people, in practice, end up somewhere in between.

But what if that assumption is only part of the story?

The reality is that real-life retirement spending isn’t flat. It fluctuates unevenly and unexpectedly over time. And those patterns can have a big impact on your retirement income strategy.

Retirement Planning has changed. Have you?

For decades, retirement planning has focused on Saving: building a nest egg, maximizing RRSPs, and making the most of tax-advantaged accounts.

But the real challenge begins after you stop working. Then, the question becomes:

How do I turn my savings into reliable, lasting income?

This is where traditional models often fall short. Most assume spending stays constant throughout retirement. But as recent research from J.P. Morgan Asset Management shows, that’s not how real retirees actually spend.

For more on how conventional rules can mislead, see Debunking Retirement Financial “Rules.”

What the Data shows

J.P. Morgan studied anonymized spending data from more than 5 million U.S. households, offering a detailed picture of how retirees actually spend in retirement. These findings closely align with what I’ve observed over 30 years of working with Canadian clients.

Three key Retirement Spending patterns:

  • Spending Surge: Many retirees experience a spike in spending right around the time they retire. This is often due to lifestyle changes and delayed goals coming to fruition in the early retirement years, like travel, home upgrades, or helping adult children.
  • Spending Curve: Over time, overall spending tends to decline. For example, households with investable assets between $250,000 and $750,000 saw an average inflation-adjusted spending decrease of about 1.65% annually through retirement.
  • Spending Volatility: Perhaps most important, spending is anything but steady. According to J.P. Morgan’s 2025 Guide to Retirement, 60% of retirees saw their expenses fluctuate by 20% or more in the first three years of retirement. And this volatility often continues well into later years.

These findings show that retirement income strategies need to be flexible enough to accommodate spikes, declines, and everything in between.

Why it matters

Most financial plans assume a flat, inflation-adjusted income for 25 to 30 years. That’s a very good place to start. However, based on both this research and my practical experience observing hundreds of client habits over three decades, here’s what can happen:

  • You over-save early, delaying retirement unnecessarily
  • You under-spend during healthy years, missing out on the freedom you’ve earned
  • You get caught off guard by spending spikes, leading to early withdrawals or tax surprises

J.P. Morgan’s data shows retirees typically need about 92% of pre-retirement income at age 65, but just 70% by age 85. That is a significant shift and a reminder of why you want healthy exposure to equities, which is the only asset class that has historically given the best chance of outpacing inflation over the long run.

A better way to Plan for Retirement Income

Here are a few ways to build a more adaptable, evidence-based retirement plan: Continue Reading…

Canadian Stock portfolios

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

The good news for Canadians who build their own stock portfolios is that if you simply buy enough of those blue-chip companies, then get out of your own way, you’ll likely be a very successful investor. At least on the Canadian equity front.

Research shows that big ‘boring’ blue-chip stocks outperform the TSX Composite. Low volatility and high yield are top of the heap for Canadian equity over the last 25 years. On the Sunday Reads we’ll look at Canadian stock portfolios.

Here’s the post that offered Norm Rothery’s graphic on the performance of Canadian stock portfolios.

Dividends don’t contribute to wealth creation.

Yes we have to remember that the big dividends help us find those blue-chip stocks (and value at times), but the dividend payments don’t contribute to the wealth creation: as the dividend is merely a removal of value from your stock holding. The share price drops by equal on ex dividend day. That said, the dividends can help us find those great companies, and well, they make investors feel good.

Beat the TSX Portfolio

Here’s an example for the high-dividend approach – The Beat The TSX Portfolio.

From that post, the BTSX is having a good 2025 after a couple of years of underperformance. Of course, the big dividend payers suffered during the inflationary rising rate environment.

While the Beat the TSX invests in the top 10 yielding stocks from the TSX 60, I’d suggest investors consider more stocks from the sectors where the BTSX hunts: more financials, more utilities including pipelines. Remove some of the concentration risk. The approach has a very considerable long-term record of outperformance, but it can be very volatile. You might even consider the top 20 yields as I have suggested in the past.

Canadian wide moat portfolios

Personally, I like the Canadian wide moat portfolio approach. Greater returns, less volatility, that floats my boat in semi-retirement. I’ve updated the post for the Canadian Wide Moat Portfolios.

Be sure to give that post a full read, but here’s the wider moat portfolio:

And the returns comparison. There’s a nice beat with lower risk:

In that Canadian Wide Moat post I also offer an update on my wife’s Canadian Wide Moat portfolio. We added more financials and ditched the cyclical railways. There’s more than one way to ‘wide moat.’

And the returns comparison: Continue Reading…

Ideally, what does a diversified portfolio look like? Here are some top examples

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What does a diversified portfolio look like? A well-diversified portfolio balances risk by spreading investment holdings out across industry sectors and more

TSInetwork.ca

What does a diverse portfolio look like? It’s a question we hear often from the Pat McKeough Inner Circle. We believe a well-diversified portfolio has a few specific qualities, including holdings spread out across most if not all of the five main economic sectors, geographic diversification, both conservative and more-aggressive holdings, and both market leaders and laggards. These asset allocation strategies help ensure long-term stability.

All in all, you will improve your chances of making money over long periods, no matter what happens in the market, if you diversify your holdings as we recommend, and so successfully answer the key question: what does a diverse portfolio look like?

What does a diversified portfolio look like? Holdings in the five main sectors

As we recommend to the Pat McKeough Inner Circle, we believe you spread should your money out across most, if not all, of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.

Here are some tips on diversifying your stock portfolio by sector:

  • When it comes to answering the question what does a diverse portfolio look like? remember stocks in the Resources and Manufacturing & Industry sectors expose you to above-average share price volatility.
  • Stocks in the Utilities and Canadian Finance sectors, however, entail below-average volatility.
  • Consumer stocks fall in the middle, between volatile Resources and Manufacturing companies, and the more stable Canadian Finance and Utilities companies.

Most investors should have investments in most, if not all, of these five sectors to successfully answer the question what does a diverse portfolio look like? The proper proportions for you depend on your investment temperament and circumstances. These asset allocation strategies should be reviewed regularly.

The Pat McKeough Inner Circle, like most conservative or income-seeking investors, may want to emphasize utilities and Canadian banks for their high and generally secure dividends. Regardless, it always pays to look closely at a company’s recent acquisitions and the risk associated with that growth strategy.

More-aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks.  However, at the same time, you’ll want to spread your Resource holdings out among oil and gas, metals and other Resources stocks for diversification within the sector, and for exposure to a number of areas.

What does a diverse portfolio look like? Balanced across geography

As it’s a mistake to focus your portfolio on a company that relies on a number of recent acquisitions for growth, one of the worst things you can do is invest so that your portfolio would suffer a great deal due to a localized downturn in any one city, province or state. Good portfolio management also means balancing your investments geographically.

Like the Pat McKeough Inner Circle’s most successful investors, you should avoid focusing your portfolio on any one country or region. And a lower-risk way to add international exposure to your portfolio is to hold multinational U.S. stocks such as, say, IBM, McDonald’s and Walmart. We cover all three of these companies in our Wall Street Stock Forecaster newsletter. Continue Reading…

Visualize VUCA: Volatility, Uncertainty, Complexity & Ambiguity

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Image by Pexels: Lara Jameson

By John De Goey, CFP, CIM

Special to Financial Independence Hub

While having a conversation with a podcast guest recently, I was introduced to a term I had never heard before: VUCA. That’s an acronym that stands for volatility, uncertainty, complexity, and ambiguity.

According to my guest, all four are touchstones for the global environment in the middle of 2025. Many people have commented on how the world is becoming less predictable and more dangerous, but that was the first time I heard someone come up with a term that tried to encapsulate everything at once. Having heard the term, I thought I would take a moment to point to some specific examples of each of the four elements:

Volatility

  • In early April, the so-called ‘liberation day’ tariff announcement caused stocks to tumble almost 10% in one day. Then, less than a week later, those same punitive tariffs were postponed for 90 days and replaced with new, across the board 10% tariffs. Markets reacted swiftly and began a rapid ascent so that now, at the end of the quarter, most market levels are near where they were at the start of the quarter.
  • The VIX indicator has been more volatile than usual in the recent past. Many commentators see this as a ‘new normal.’

Uncertainty

  • Recently, the American administration was crowing about how it had utterly and totally destroyed Iranian nuclear capabilities. In the days that followed, the veracity of that boast was called into question. At the time of writing, it is unclear where the truth lies.
  • Similarly, ceasefire agreements are on again and off again. The stakes are high, but few people would go so far as to suggest that the end game is in any way obvious.

Complexity

  • Has there ever been a point in history where investors and policy makers alike need to contend with so many interwoven mega threats? The United States now has a $37 trillion accumulated debt and is adding to it by over $2 trillion annually. Climate change is an ongoing threat that demands our attention. Income and wealth inequality are the highest they have been in nearly a century. Political polarization is increasing throughout the world. Demographic challenges make meaningful economic growth nearly impossible …. and so on.
  • Solving one problem might well exacerbate another. There are several highly credible commentators who insist that for the first time in half a century, the stars are aligning for a prolonged bout of stagflation. Fighting inflation means central bankers need to be willing to raise interest rates. Then again, if economic growth really is grinding to a halt, higher rates will merely pump the brakes on economic growth and would also accelerate the aforementioned debt problem.

Ambiguity

  • If you can figure out what’s really going on, you’re either brilliant, or, more likely, deluding yourself with a false sense of control. Markets went up when it looked as though the Iranian nuclear facility was destroyed, then went up further when that appeared not to be the case. Political tensions caused people to worry about the security of oil supply through the straits of Hormuz, yet the price of oil dropped precipitously. Up seems to be becoming the new down.
  • Nothing seems to make sense anymore. In a previous blog post, I questioned the efficacy of the efficient market hypothesis. I remain surprised that markets seem unresponsive to tariff developments. There has been no material change over the quarter, even though the largest economy in the world has effectively slapped a new 10% tariff on all other nations.

No one really knows where all this will lead us. Will the conflict in the Middle East intensify or de-escalate? Will Canada and the United States reach a trade deal before the end of June? If so, what will it take entail, and what will American deals with other nations look like if Canada chooses to go first? Continue Reading…

Risk Management: The Sine Qua Non of Successful Investing

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Image public domain/Outcome

Another turning point, a fork stuck in the road   

Time grabs you by the wrist, directs you where to go

So make the best of this test and don’t ask why

It’s not a question, but a lesson learned in time 

It’s something unpredictable, but in the end is right

I hope you had the time of your life

— Good Riddance (Time of Your Life), by The Green Day

 

By Noah Solomon

Special to Financial Independence Hub

The Latin term sine qua non literally means “Without which, not.” It refers to something that is indispensable. With respect to investing, this term applies to risk management, which is essential for achieving better than average results over the long term. 

In this month’s commentary, I will discuss the advantages and drawbacks of the more commonly used approaches to reduce portfolio volatility. I will also explain why volatility management for its own sake is a value-destroying endeavour. Lastly, I will provide a contextual framework for measuring managers’ risk management skills. 

Macro Forecasting: Failing Conventionally

Ever since tariff-related concerns unsettled markets in April, I have been asked countless times what I think is going to happen and how investors should be positioned. Relatedly, to improve performance by predicting macro developments, you need the ability to:  

  1. Consistently predict short-term developments, and
  2. Make portfolio changes that produce results that are better than what would have been the case had you simply done nothing.  

By no means is this failure due to lack of effort, diligence, or intelligence. However, the simple fact is that interest rates, inflation, unemployment, and economic growth are all influenced by thousands of factors. Not only do these factors influence economic conditions on an individual level but also influence each other. In other words, millions of complex interactions affect macroeconomic conditions, thereby making forecasting a thankless endeavour.

How prices respond to events is not merely a function of the events themselves but also of the degree to which events are already discounted in prices before they occur (i.e. investor expectations). This observation explains why overly optimistic expectations can result in a company’s stock falling after it reports stellar results. Similarly, it also explains how excessively pessimistic expectations can result in price increases after disappointing news. 

In short, with respect to price movements and events, it’s not about whether an event is positive or negative, but rather about how the event compares with what was expected. Unfortunately, when it comes to gauging expectations, and by extension, how much of a given event is “baked in” to security prices, investors are by and large flying blind. There is no place where you can determine exactly what investors are expecting regarding inflation, GDP, or unemployment. Whereas asset prices offer some clues in this regard, they by no means offer any reasonable degree of precision. 

Finally, even if people could predict future events and accurately estimate broad-based expectations of such events, it is still unclear if such knowledge would lead to superior performance, as shorter-term price movements are largely a function of swings in investor psychology, which are impossible to predict. 

If I am correct in my assertion that basing one’s investment strategy, either in whole or in part, on forecasting future developments is at best impractical, then why does doing so remain popular? All I can offer in this regard is the following: 

1.) The proverbial “size of the prize” is so large that investors can’t resist the temptation, regardless of how poor the odds: if you could consistently profit from short-term market movements, your performance would make even Buffett’s look poor!

2.) Entertainment value: predicting economic trends can be intellectually engaging and even a “sport” for some.

3.) Following the herd: Managers may engage in forecasting for the simple reason that everyone else is doing it, and that it would therefore be irresponsible not to. According to John Maynard Keynes, “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

Volatility: Winning the Battle but Losing the War

Considered in isolation, portfolio volatility is undesirable. However, like almost anything desirable, volatility reduction comes at a price. All else being equal, the more you tilt your portfolio in favour of lower-volatility securities and strategies, the lower your returns will be. I suspect that most people who allocate a portion of their portfolios to lower-volatility assets have a reasonable appreciation for what they are getting. However, I also believe that they have little appreciation for what they are giving up in exchange for this benefit, or more specifically for the magnitude of this sacrifice. 

The aftermath of the late ’90s Tech Bubble involved a three-year decline in stocks. During this time, hedge funds weathered the storm relatively well, far outperforming their traditional, long-only peers. 

Predictably, the pain of those years in combination with an augmented appetite for stability prompted investors to pile into hedge funds, which caused assets to grow from several hundred billion dollars in 2000 to over $2 trillion by 2007 and to over $4 trillion today.

Just as Adam Smith’s theory of supply and demand would have predicted, the aftermath was far less rosy than hoped for. While the average hedge fund made good on its promise of stability, returns were sorely lacking, resulting in massive opportunity costs for their investors. Over the past 10 years, the HFRX Global Hedge Fund Index has delivered an annualized return of 1.87%, as compared to 9.8% for the MSCI All Country World Equity Index. Using these figures, a $10 million investment in the HRRX Index ten years ago would currently have a value of $12,035,470, while the same amount invested in global stocks would be worth $25,469,675.

Given this stark difference, investors should ask themselves whether their aversion to volatility is mostly financial or mostly emotional. By definition, the answer is the latter for those with long-term horizons. In such cases, the emotionally driven component of volatility aversion has proven, and likely will prove to be very costly indeed! 

Private Assets: See no Evil, Hear no Evil, Speak no Evil

Over the past decade or so, private assets have become increasingly viewed as a “you can have your cake and eat it too” panacea which can deliver strong returns while simultaneously shielding investors from high volatility and severe losses in challenging environments. These perceived attributes have led to explosive growth in private investment funds, with assets under management increasing from roughly $600 billion in 2000 to $7.6 trillion as of the end of 2022. 

There is good reason to be somewhat suspect of private asset funds’ low volatility and short-term, unrealized returns. While most funds may provide accurate asset values for their holdings, this may not always be the case. Although 2022 was a horrific year for both stocks and bonds, many private equity, private debt, and private real estate funds reported negligible losses.  Continue Reading…