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).
Frederick Vettese has written good books for Canadians who are retired or near retirement. His latest, The Rule of 30, is for Canadians still more than a decade from retirement.
He observes that your ability to save for retirement varies over time, so it doesn’t make sense to try to save some fixed percentage of your income throughout your working life. He lays out a set of rules for how much you should save using what he calls “The Rule of 30.”
Vettese’s Rule of 30 is that Canadians should save 30% of their income toward retirement minus mortgage payments or rent and “extraordinary, short-term, necessary expenses, like daycare.” The idea is for young people to save less when they’re under the pressure of child care costs and housing payments. The author goes through a number of simulations to test how his rule would perform in different circumstances. He is careful to base these simulations on reasonable assumptions.
My approach is to count anything as savings if it increases net worth. So, student loan and mortgage payments would count to the extent that they reduce the inflation-adjusted loan balances. I count contributions into employer pensions and savings plans. I like to count CPP contributions and an estimate of OAS contributions made on my behalf as well. The main purpose of counting CPP and OAS is to take into account the fact that lower income people don’t need to save as high a percentage of their income as those with higher incomes because CPP and OAS will cover a higher percentage of their retirement needs. Continue Reading…
By Ryan Crowther, Portfolio Manager, Franklin Bissett Investment Management
and Yan Lager, Portfolio Manager, Equity Research Analyst, Franklin Equity Group
(Sponsor Content)
For well over a decade, investors have focused on growth stocks: shares of companies expected to grow faster than the market average. But in recent months, the calculus has changed. Market volatility, driven by ongoing COVID-19 concerns, Russia’s invasion of Ukraine, rising interest rates and inflation, has led to a noticeable shift to value stocks. As investors focus on companies with strong fundamentals and comparatively lower-cost shares, do growth stocks still have a place in a diversified portfolio?
Financial Independence Hub: How would you describe the current landscape for growth stocks?
Yan Lager: We’ve been witnessing one of the most pronounced rotations from growth to value stocks in decades. In retrospect, following a multi-year run for growth-oriented equities that were clear beneficiaries of ultra-low interest rates, a rotation to value stocks as interest rates increase is not surprising to us.
Ryan Crowther: Looking at growth stocks generally, the terrain has become much more challenging in recent months, both in terms of the outlook for business fundamentals and a more discerning investor sentiment.
Have all growth stocks been hit equally hard?
Ryan Crowther: This is an important question, because when there’s a broad sell-off and a significant number of stocks drop sharply, they might all be considered “growth” stocks; but do they really share the same fundamentals? What risk versus return is the share price truly discounting? That’s where our GARP approach (growth at a reasonable price) has proven powerful for over 40 years, as it helps avoid focusing too much on whether a stock sits in the growth or value basket.
Which stocks have been most affected by the recent pullback in equity markets?
Yan Lager: Companies that benefited from the pandemic shift to working from home and the broader adoption of e-commerce, or persistently low interest rates, have seen their shares pull back due to profit-taking or concerns that future earnings performance may fall short of pandemic-high levels. Harder-hit stocks have included earlier-stage companies in the information technology sector, which have seen significant price and valuations fluctuations. We’re constantly reassessing the fundamental, longer-term investment theses and strategic merits of our investments.
What types of companies do you look for?
Yan Lager: In managing a global growth fund, we believe that owning a diversified portfolio of high-quality companies with strong secular growth drivers, unique competitive positions and capable management teams can deliver attractive returns, as ultimately share prices follow fundamentals. This is particularly the case if you’re investing for the long term, which we believe you should be if you’re investing in equities.
Ryan Crowther: We look for businesses with strong, consistent earnings and growing cash flow—attributes that will hopefully work to offset some of the factors that can challenge growth in the near term. In addition, a company’s valuations must also be attractive. We focus on combing through our investment opportunity set to find stocks offering a good risk-adjusted return profile over the course of an economic cycle.
Where are you finding opportunities these days?
Ryan Crowther: Focusing on mid- to large-cap Canadian companies, we’ve been active in securities that sold off as part of the broad weakness in growth stocks. We took advantage of that weakness to add new, quality companies at an attractive entry point. The shift — from the largely complacent and speculative equity market generally experienced throughout the pandemic — to the less forgiving market, characterized by a more rational mindset thus far in 2022, has created opportunities for us. Continue Reading…
Warren Buffett of Berkshire Hathaway, which just held its first live annual meeting since Covid hit.
By Akshay Singh
Special to the Financial Independence Hub
You’ve probably heard of the multi-billion dollar company Berkshire Hathaway, owned by mega-billionaire and philanthropist Warren Buffett, but what does Berkshire Hathaway do exactly?
Berkshire Hathaway Inc. is a conglomerate holding company, meaning it does not produce goods or services and instead has a controlling interest in and owns shares of other companies to form a single corporate group.
That leads us to our next question: What companies does Berkshire Hathaway own to make it one of the most valuable companies on the planet? The team at Indyfin turned to the 2021 Berkshire Hathaway annual report to create this compendium of all of the Berkshire Hathaway companies. The holding company has a controlling interest in more than 60 companies and partially owns another 20 on top of that. You’ll recognize a lot of brand names from a wide variety of industries that make up the impressive Berkshire Hathaway portfolio.
Does Berkshire Hathaway own one of your favorite or most-used brands? Check out this roundup of Berkshire Hathaway companies from Indyfin to find out.
What Is Berkshire Hathaway?
Berkshire Hathaway is an American conglomerate holding company with a market cap of US$774.24 billion, making it the seventh most valuable company in the world. What is a conglomerate? A conglomerate is a combination of businesses from a variety of different industries that operate as a single economic entity under one corporate group. Conglomerates are usually large and multinational and generally include a parent company and many subsidiaries. The “conglomerate fad” was big in the 1960s due to low interest rates, rising prices, and a decline in the stock market, which led to large corporate conglomerates like Berkshire Hathaway forming. The parent company in this scenario is also referred to as the holding company, as it holds a controlling interest in the securities of all of the other companies. Holding companies do not produce goods or services; instead, they own shares of other companies to form a single corporate group. Holding companies are beneficial because they reduce risk for shareholders and can hold and protect assets like trade secrets or intellectual property.
Investors follow the 60/40 rule because they are told bonds will protect capital while equities grow it. Why recent drops in bond prices should make us reconsider that rule.
By Paul MacDonald, CIO, Harvest ETFs
(Sponsor Content)
From the moment they start putting money in the market, investors are told to follow the 60/40 rule. It is the broadly accepted wisdom that, for an average retail investor, a 60% allocation to equities and a 40% allocation to bonds will result in a robust portfolio. Equities should deliver growth prospects in the long term while bonds will offset downsides in equities by delivering uncorrelated returns. Bonds preserve capital, and equities grow capital. That’s the accepted wisdom.
Countless investment fund issuers have packaged this logic into their balanced funds. These funds offer a specific allocation to equities and bonds, usually in line with the 60/40 rule, forming the core of a retail investor’s portfolio.
The problem with accepted wisdom is sometimes circumstances turn it upside down. In the past months we have seen volatility in equity markets and a significant drop in bond prices. That is because the investment landscape has changed.
Why are bond prices dropping?
After over a decade of historically low interest rates, followed by massive rate cuts by central banks at the onset of the COVID-19 pandemic, inflation has begun to set in. With rising inflation comes pressure on central banks to raise rates and market expectation that rates will rise, which is itself pushing interest rates higher. Continue Reading…
We think that small caps should not make up the bulk of your diversified portfolio — but you can benefit from making the best Canadian small cap stocks a smaller part of your holdings.
We generally feel that most investors should hold the bulk of their investment portfolios in conservative securities from well-established companies. This means holding a total of 15 to 25 well-established, dividend-paying stocks, chosen mainly from our “Average” or higher ratings, and spreading your holdings out across most if not all, of the five main economic sectors.
However, some investors choose to add more aggressive or speculative stocks to their holdings in their pursuit of bigger, faster gains. That can involve holding some of the best Canadian small stocks.
Understanding how we look at the best Canadian small cap stocks
We recommend a number of small-cap stocks in our Power Growth Investor newsletter, and we comment on others in our Inner Circle mailings, in response to questions by members. We also recommend some higher-risk investments in our Spinoffs & Takeovers publication.
Our Aggressive Growth Portfolio selections in The Successful Investor and Wall Street Stock Forecaster tend to be more highly leveraged and more volatile than our Conservative recommendations, and they can give you bigger gains and bigger losses. Their higher risk may be due to financial leverage, or to the risks facing their industry or particular situation. Still, our Aggressive Growth stocks are typically less aggressive than the picks in, say, our Power Growth Investor newsletter.
We can be wrong on any of our stock recommendations, of course. When we’re wrong on an aggressive stock, losses are likely to be larger than on a well-established stock.
Ultimately, the percentage of your portfolio that you should hold in either conservative or aggressive investments depends on your personal circumstances. An investor with a longer-time horizon or without the need for current income from a portfolio can afford to invest some money in aggressive stocks.
We look at many stocks before singling out our aggressive favourites, and we try to choose those with as much underlying value and as many hidden assets as possible. This is the best way to cut risk for conservative and aggressive investors, alike. Continue Reading…
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By Michael J. Wiener
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