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).

Franklin Bissett overweights defensive stocks over traditional Canadian sectors like Energy & Financials

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Despite a looming recession acknowledged by most of the financial industry, Franklin Templeton Canada is relatively upbeat about the prospects for both Canadian stocks and fixed income over the short- to medium-term. In a Toronto event on Wednesday aimed at financial advisors and the press, Garey J. Aitken, MBA, CFA — Calgary-based Chief Investment Officer for Franklin Bissett Investment Management — described how he has been positioning his Franklin Bissett Canadian Equity Fund somewhat defensively. (There was also a webinar version of the event.)

As you can see from the above breakdown of the fund, Aitken is way overweight defensive sectors like Consumer Staples relative to the index: the S&P/TSX composite. In Canada, consumer staples amounts to the major grocery stores like Loblaw and Metro: there’s little along the lines of such American staples giants as Proctor & Gamble or Colgate Palmolive. Aitken said his fund has owned Saputo Inc. since its IPO in the late 90s, and has long owned Alimentation Couche-Tard Inc.

The fund has been overweight consumer staples for more than a year: as the chart shows, he was overweight this defensive sector by a whopping 730 basis points a year ago and this year is even more overweight by 770 bps. He is also overweight the other big defensive sector, Utilities, by 210 bps, compared to overweight by 110 bps a year ago. The third major defensive sector globally is Health Care, but the Canadian stock market has only minimal exposure to that sector.

Aitken has moved from a small underweight position in industrials a year ago to a modest overweight in 2023 of 170 bps. And he is slightly overweight Information Technology by 140 bps, compared to a small underweight of 20 bps a year ago.

Underweight Energy, Financials & Materials

On the flip side, the fund has been and continues to be underweight in the three big sectors for which the Canadian stock market is famous: Energy, Financials & Materials. Financials (chiefly the big Canadian banks) were underweight 330 bps a year ago and Aitken has moved that to an even bigger 730 bps underweight this year. In Materials he has stayed largely pat, with a 530 underweighting today compared to a 550 bps underweighting a year ago.

The chart below shows the fund’s holding in Canadian financials. You can see that among the big Canadian banks, the fund is over the index weighting only for the Bank of Nova Scotia, and is slightly overweight Brookfield Corp. and Brookfield Asset Management:

 

However, Aitken has moved Energy (Canadian oil & gas stocks, pipelines etc.) from a small 20 bps overweight position last year to a 370 bps underweighting in 2023. The chart below shows the major Energy holdings relative to the index, with overweights in certain less well-known names: 

 

Aitken remains slightly underweight Consumer Discretionary stocks, moving from a 100 bps underweight last year to 150 bps underweight currently. Real estate is almost flat: from a slight 10 bps underweighting a year ago to a small 70 bps underweight today.  Continue Reading…

Investing in your financial future: how 4 stages of life align with your journey

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By Brian Shinmar

Special to Financial Independence Hub

If there’s truth to the statement that “change is the only constant in life,” your savings goals, habits and risk tolerance should follow closely. The topic of financial planning can be uncomfortable and intimidating for many people, but it doesn’t have to be that way. Having a sound investment strategy that evolves with your stage of life can set your mind at ease, so let’s break it down into four stages and purposefully account for some general changes you should expect along your financial journey.

Early 20s & 30s: Starting your financial journey

In this stage, many clients are just starting their careers, gaining a sense of financial independence and likely have higher risk tolerance. At this early stage of life, we don’t want clients to just invest it and forget it, we want them to build key (healthy) financial habits. The key habits that I stress are:

1.) Finding a balance between paying off debt and saving for your future: A financial advisor can help young clients establish goals and determine the balance between how much and how often contributions to debts and savings should be made.

2.) Goals with a plan: Setting attainable goals, with a clear plan to help meet them, will keep your bank account growing, and debt lowering.

3.) Saving a portion of your monthly income: A general rule is to save 10-15 per cent of your income each month, but given the higher inflation and interest rates in today’s market, that might not be realistic for everyone. The bottom line is to get into the practice of saving a portion of your monthly income. This helps build your nest egg for long-term goals, like retirement or purchasing a home. Continue Reading…

A volatility play for the US bank sector

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Portfolio Manager explains why US banks have struggled, where opportunities might appear, and how investors can benefit from short-term volatility.

Image from Pixabay: Wendy Soon

By James Learmonth, Senior Portfolio Manager, Harvest ETFs

(Sponsor Content)

The US banking sector is facing uncertainty. In the wake of the collapse of Silicon Valley Bank in March of 2023 — and deposit liquidity issues at other regional banks — the whole US banking sector has suffered some significant stock market setbacks.

In those setbacks, however, investors may see opportunities, especially when we consider the scale and importance of the US banking sector. Of the 30 banks included in the global list of systemically important financial institutions, colloquially referred to as “too big to fail,” eight are based in the United States.

With those titans as ballast, investors may be able to find growth opportunities in US banking, if they understand why the sector is struggling now, where the upside could come from, and find a strategy suited to short-term volatility.

For someone seeking to take advantage of the dislocation we’ve seen in the US banking sector, a diversified approach is absolutely something you may want to look at. Adding a covered call strategy would give the opportunity to monetize the high volatility we’re seeing on the market now. It’s hard to say when the upside might come in US banks given all this uncertainty. But, there’s an argument to be made for someone who wants exposure to these US banks that a covered call strategy could make sense.

Struggles and risks in US banking today

The US banks’ stock market setbacks are due in part to a fear reaction from bank-specific failings at institutions like Silicon Valley Bank, but also reflect some structural headwinds for the sector.

The systemic issue comes down to deposit costs. As market-based interest rates rose sharply in 2022 and into 2023, the rates offered by banks to their depositors remained relatively low. Depositors, especially larger businesses, have begun to demand higher interest rates on their accounts, raising the cost of funding for many banks. Some of those depositors started transitioning some capital into other interest-bearing vehicles, such as money market mutual funds, which offered a higher interest rate as well. The whole banking sector is now facing some challenges to profitability growth due to the rising costs of deposits.

Those deposit costs can be more accurately described as a structural headwind, rather than an existential risk. While deposit costs contributed to the fall of Silicon Valley Bank, it’s notable that a range of company-specific factors played a role: Silicon Valley Bank’s high proportion of business clients, meaning its depositor base was concentrated and held high average account balances. When word spread across social media of venture capitalists sounding alarm bells to their investment companies, withdrawals cascaded. Continue Reading…

Managing Tax Season Anxiety

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By Devin Partida

Special to Financial Independence Hub

Tax season can be stressful for most people. Though there are many tools and services to help you manage your finances, they don’t do anything to help your mental state. The truth is much of that stress can be of your own making. Thankfully, there are ways to manage that anxiety and get your taxes done.

To help manage your tax season anxiety, knowing why tax season makes people so stressed might be helpful. A big part of that stress is the simple fact that it has to do with money. Although they say money can’t buy you everything, studies have shown financial troubles can directly affect your mental health.

Is it any wonder? People’s worth is often judged by how much money they earn — not to mention money can affect how high your standard of living is. You are happy when you gain more money and become stressed out when you lose it.

Financial stress has become a more significant part of the world in the last few years. Events like the COVID-19 pandemic and the war in Ukraine have caused global financial difficulties, making it harder for the average person to save.

Fear of the government also causes stress during tax season. While most people are upstanding citizens, the idea of the government swooping in and taking everything you have just because you missed a payment or filled out the wrong form is as prevalent as it is irrational.

How to reduce Stress during Tax Season

The key to overcoming tax season stress is to adjust your mental state. Doing your taxes is the same as any other task you have to complete. Here are some things to remember to make doing your taxes less stressful.

Address Misconceptions about the Government

Contrary to popular belief, the government will not throw you in jail for missing tax payments. In fact, the U.S. and Canadian governments will try to help you make your payments — though there are penalties for not paying on time.

The government also cannot immediately take your property if you’re late in your tax payments.

They can place a lien on your property that they can lift if you set up and commit to a long-term payment plan. The government will also be more lenient if you have a lower income, though they can still audit you.

If you’re living in Canada, there are ways to work with the Canada Revenue Agency so they can accommodate your financial needs. The CRA also encourages you to file your taxes online — it’s easier and faster to process.

Stop Procrastination

Filing your taxes is probably not many people’s definition of fun. However, constantly putting it off can cause even more stress as the due date gets closer and closer. Good time management habits can help you reduce stress and get your taxes done.

A common solution is to break down filing your taxes into smaller tasks and space them throughout the month. This can make your taxes less daunting by letting you finish in increments while giving you more time to do other things.

Use Online Tools

Online tools like TurboTax can make doing your taxes much more manageable. These tools streamline the process, making it quicker to get the job done. In addition, some tax collection organizations like the IRS have partnered with certain companies to offer free e-filing. The IRS free-file system allows you to file with them free of charge.

Filing your taxes online comes with other benefits, such as receiving refunds faster and record-keeping services. Most online tools come with 24/7 support you can contact in case you need help.

Take the Stress out of Tax Season

Stress during tax season is a common problem, but one you can overcome. Practice good working habits to prevent procrastination and get it over with. Remember that the government is not out to get you. Fire up that TurboTax and get to it.

Devin Partida is the Editor-in-Chief of ReHack.com, and a personal finance writer. Though she is interested in all kinds of topics, she has steadily increased her knowledge of the intersection of finance and technology. Devin’s work has been featured on Entrepreneur, Due and Nasdaq.

Retirement investments to avoid? Here are our thoughts on this critical subject

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Retirement investments to avoid include everything from bonds down to stock options. Here’s why.

Image courtesy TSInetwork.ca

Our best retirement planning advice is to invest early and often — and don’t forget to use our three-part Successful Investor philosophy.

But if you’re heading into retirement and are short of money, you should move your investing in the direction of safer, more conservative investments. That’s a far better option than taking one last gamble on retirement investments to avoid like the ones we look at below.

Investing in bonds will hurt your retirement finances

As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments instead of holding stocks.

To some extent, this is an understandable retirement investing strategy, since bonds can provide steady income and a guarantee to repay their principal at maturity.

Unfortunately, we don’t think using bonds for retirement is the best strategy for Successful Investors. Bond prices and interest rates are inversely linked. When interest rates go up, bond prices go down, when interest rates go down, bond prices go up — and with inflation still high, there is pressure for interest rates to keep increasing.

We continue to recommend that you invest only a small part of your Successful Investor portfolio — if any — in bonds and fixed-income investments.

Investing in annuities can fall into the category of retirement investments to avoid

Here are 3 key drawbacks you should keep in mind when deciding whether annuities are a good choice for your retirement investment options:

  • It may be hard to get out if you change your mind: Unlike stocks, it can be difficult or impossible to sell an annuity if you decide it no longer meets your needs. Moreover, you will likely get a low price for your annuity because the date of your death is uncertain.
  • Link to interest rates makes today a poor time to buy annuities: The rate of return you receive on an annuity is linked to interest rates at the time you buy it. That makes periods of still relatively low interest rates an especially poor time for buying annuities. However, if you want to buy annuities, you could buy one annuity a year for the next five years. That way, your returns will increase if interest rates rise, as we expect.
  • Tax treatment: When you own an annuity, the income payments you receive are made up of interest and a return of your principal. The return of your principal is tax free, but the interest portion of the payment is taxed as ordinary income.

Retirement investments to (especially) avoid include penny stocks, junior mines, and stock options

Penny stocks: Penny stocks are cheap and that’s why many novice investors think they make great investments when they don’t have a lot of money. Here’s some insight: it’s much easier to launch a seductive penny stock promotion than it is to create a successful, lasting business. Most penny stocks are over-hyped. Penny stocks tend to be speculative, and are engaged in such things as finding mineral deposits that can be mined at a profit, commercializing an unproven technology or launching new software. They are unproven companies that have very little chance of becoming a sustainable business. You’ll also have to be on the watch for unscrupulous stock promoters who will over-inflate earnings and talk up a stock for their own best interests. If you’re headed to retirement, stay away from penny stocks.

Junior mining stocks: One rule of thumb for mining stocks is that you have to look at 1,000 “anomalies” to find one “prospect,” and that fewer than one “prospect” in a thousand turns into a mine. In other words, finding a mineable deposit is a million-to-one shot. Continue Reading…