Tag Archives: investing

How did the Pandemic Portfolio hold up?

Posted By Financial Independence Hub | December 2, 2021

By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

I was the first investment blogger to ‘jump on’ the investment risks that might be created by the coronavirus. In fact, when I first penned on the subject in February of 2020, the virus was not then known as COVID-19. And we were not yet in a global pandemic. New cases were just starting to move around the globe, and most felt that the strange new coronavirus would be contained. Today, I can’t claim that I knew it would result in the first modern pandemic. But I did address the risk, and I did offer some thoughts on how an investor might prepare, if they needed to protect their wealth. Let’s have a look, how did the pandemic portfolio perform?

Here’s the original post from February of 2020.

How to prepare your portfolio for the coronavirus outbreak.

Do nothing, stay the course

That almost goes without saying. You don’t fix a ship in a hurricane offers our friends at Mawer Investments. If you have a solid investment plan, and you are investing within your risk tolerance level —

De-risk your portfolio

This suggestion is controversial to some, but to me it is common sense. Fear was mounting in February of 2020, and the stock markets were offering a minor hissy fit. It is safe to say that most investors are not safe. They are investing outside of their risk tolerance level. These market scares offer the opportunity to discover that you are investing outside of your comfort level.

The timing from February of 2020 to de-risk was still quite favourable.

That would have allowed an investor to move to their risk tolerance level before the market corrected by nearly 35%. While that move to a lower risk portfolio might create lesser returns over time, it can remove the greater risk of permanent losses. Investors are known to too-often sell out in fear near the bottom of the market declines. Of course that’s the complete opposite of – buy low and sell high.

And a typical balanced portfolio would have delivered about 21% to 22% to date, from February of 2020. That’s a greater return compared to the Canadian stock market from that date.

Pandemic portfolio construction

I had suggested that investors consider two of the greater risk-off assets. Risk-off will refer to the defensive investments that protect your portfolio. And typically, investors run to these assets in times of trouble. That influx of dollars can drive up prices.

Gold is known as a safe haven asset.

Gold was the lead image on the original post on how to prepare your portfolio for the pandemic. The precious metal did shine in the pandemic, when needed.

I had suggested that investors consider U.S. long term treasuries. They punch above their weight as risk mangers (keeping an eye on those unruly stock markets.

You’ll find those long term treasuries in the Permanent Portfolio post.

And mostly, at the core is a sensible and well-balanced portfolio. From the original post …

. the best investment strategy is to diversify across geographic locations, asset classes and currencies to protect against the unknowns.

Ray Dalio

That said, one of the beautiful all-in-one balanced asset allocation ETF portfolios would have performed wonderfully. It’s the same story if you held a balanced ETF portfolio.

If an investor had shaded in some gold and long term treasuries, they would have experienced some greater returns, and would have been treated to better risk-adjusted returns.

The pandemic portfolio performance

For demonstration purposes I used the asset allocation offered on the ETF Portfolio page, for a balanced model. You certainly could have (successfully) held a conservative, balanced growth or all-equity model through the pandemic. But for those with a balanced model that holds some risk-off assets, the inclusion of gold and treasuries would have helped the cause. Continue Reading…

Sector ETFs deliver diversified returns

Posted By Financial Independence Hub | November 10, 2021

By Kevin Prins, BMO ETFs

(Sponsor Content)

More and more investors are converting to Exchange Traded Funds (ETFs) over picking stocks individually. But what is it that’s so appealing? Why are more investors considering ETFs over individual stock picking? With the growth of the ETF market, you can access precise strategies that reflect how you want to invest, while at the same time reducing single security or concentration risk with strategies such as “high-dividend ETFs” “clean energy ETFs” “commodity ETFs” and “tech ETFs.”

Essentially, an ETF is a bundle of securities that tracks an index, sector, commodity, bond, or other asset, and is traded on the exchange like an individual stock. So, by buying an ETF, you end up gaining exposure to a whole basket of stocks, commodities, or bonds.

But what makes them more popular is that they are easy to use, as a single ticket solution on the exchange, just liking buying a single stock.

Most individual stock-pickers don’t add value

Consider that academics — who have conducted a lot of research on the subject of stock picking — have found that investors can reduce market risk by diversifying across securities, typically starting at 20 holdings.¹

In fact, they’ve concluded that while talented stock pickers can add value, the majority do not. According to S&P Dow Jones, as of the end of December 2020, 75% of large cap fund managers underperformed the S&P 500 over a five-year basis and 60% underperformed over a one-year basis. ²

So, if stock pickers aren’t the most consistent way to generate market returns, what is?

ETFs provide exposure that captures the returns of all the securities in its targeted market. With a variety of ETFs, you can gain exposure to a diversified group of securities across industries and sectors.

This diversified exposure allows you to track entire industries that are set to see growth, like, for instance, tech ETFs and clean energy ETFs. Continue Reading…

The six phases of financial independence [Revisited]

Posted By Financial Independence Hub | November 8, 2021

By Mark Seed, myownadvisor

Special to the Financial Independence Hub

I’ve recently updated this post to include more links to related content. I hope you enjoy it.

The term “financial independence” has many meanings to many people.

To some, it means not working at all.

To others, financial independence covers all needs and many wants.

To others still, it means the ability to work on your own terms.

Where do I stand on this subject?

This post will tell you in my six phases to financial independence.

Retirement should not be the goal, financial independence should be

Is retirement your goal?

To stop working altogether?

While I think that’s fine I feel the traditional model of retirement is outdated and quite frankly, not very useful.

As humans, even our lizard brains are smart enough to know we need a sense of purpose to feel fulfilled. Working for decades, saving money for decades, only to come to an abrupt end of any working career might work for some people but it’s not something I aspire to do.

With people living longer, and more diverse needs of our society expanding, the opportunities to contribute and give back are growing as well. To that end, I never really aspire to fully “retire” – cease to work.

Benefits of financial independence (FI)

In the coming years, I hope to realize my desired level of financial independence.

We believe the realization of FI will bring about some key benefits:

The opportunity to regain more control of our most valuable commodity: time.
Enhanced opportunities to learn and grow.
Spend extra money on things that add value to your life, like experiences or entrepreneurship.

Whether it’s establishing a three-day work week, spending more time as a painter, snowboarder, or photographer, or whatever you desire – financial independence delivers a dose of freedom that’s hard to come by otherwise.

More succinctly: financial independence funds time for passions.

FI concepts explained elsewhere

There are many takes on what FI means to others.

There is no right or wrong folks – only models and various assumptions at play.

For kicks, here are some select examples I found from authors and bloggers I follow.

JL Collins, author of The Simple Path to Wealth, popularized the concept of “F-you money”. This is not necessarily financially independent large sums of money but rather, enough money to buy a modest level of time and freedom for something else. I suspect that money threshold varies for everyone.
Various bloggers subscribe to a “4% rule”* whereby you might be able to live off your investments for ~ 30 years, increasing your portfolio withdraws with the rate of inflation.

Recall the rule:

*Based on research conducted by certified financial planner William Bengen who looked at various stock market returns and investment scenarios over many decades. The “rule” states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, assuming a 50/50 equity/bond asset mix, and then adjust subsequent withdrawals for inflation, you’ll avoid running out of money for 30 years. Bengen’s math noted you can always withdraw more than 4% of your portfolio in your retirement years however doing so dramatically increases your chances of exhausting your capital sooner than later.

In some ways, the 4% rule remains a decent rule of thumb.

Are there levels of FI?

For some bloggers, the answer is “yes”:

Half FI – saved up 50% of your end goal (e.g., $500,000 of $1M).
Lean FI – saved up >50% of your end goal; income that pays for life’s essentials like food, shelter and clothing (but nothing else is covered).
Flex FI – saved up closer to 80% of your end goal (e.g., $800,000 of $1M). This provides financial flexibility to cover most retirement spending including some discretionary expenses.
Financial Independence (FI) – saved up 100% of your end goal, you have ~ 25 times your annual expenses saved up whereby you could withdraw 4% (or more in good markets) for 30+ years (i.e., the 4% rule).
Fat FI – saved up at or > 120% of your end goal (in this case $1.2M for this example), such that your annual withdrawal rate could be closer to 3% (vs. 4%) therefore making your retirement spending plan almost bulletproof.

There is this concept about “Slow FI” that I like from The Fioneers. The concept of “Slow FI” arose because, using the Fioneers’ wording while “there were many positive things that could come with a decision to pursue FIRE, but I still felt that some aspects of it were at odds with my desire to live my best life now (YOLO).”

They went on to state, because “our physical health is not guaranteed, and we could irreparably damage our mental health if we don’t attend to it.”

Well said.

My six phases of financial independence

With a similar line of thinking related to Slow FI, since we all have only one life to live, we should try and embrace happiness in everything we do today and not wait until “retirement” to find it.

After reviewing these ideas above, among others, I thought it would be good to share what I believe are the six key phases of any FI journey – including my own.

Phase 1 – FI awakening. This is where there is an awareness or at least an initial desire to achieve FI even if you don’t know exactly how or when you might get there.

FI awakening might consider self-reflection questions or thoughts like the following:

I would love to retire early or retire eventually…
I can never seem to get off this credit card treadmill…
I wish I had some extra money to travel…
Wouldn’t it be nice to buy X guilt-free?

(I had my awakening just before I decided to become My Own Advisor, triggered by the financial crisis of 2008-2009.)

Phase 2 – FI understanding. This is the phase where people are getting themselves organized; they start to diligently educate themselves on what their personal FI journey might be.

In this phase, they might set goals or get a better handle on what goes into their financial plan. Even if your plan is not perfect, it’s a start.

They might start asking some deeper questions like:

Why is money important to me?
What is my money for?
How do I know I’m doing it right?

I would say it took me until my mid-30s to get my financial life in order through more financial education and improved financial literacy. It was a process that took a couple of years although I’m always continuously learning and improving. I don’t pretend to know it all.) Continue Reading…

Making investing better for every type of trader

Posted By Financial Independence Hub | October 19, 2021

By Scarlett Swain, Director, Investment Products at Questrade

Special to the Financial Independence Hub

It’s no secret that over the past few years more and more people have started trading and investing. Maybe it’s more time on their hands, maybe they’re becoming more focused on their future and want their money to work harder for them. Regardless of the reason, at Questrade we’ve seen a real increase in the influx of new customers and have heard loud and clear from them that they need trading to be less complex. This is their money, their future, and they don’t want to make mistakes while they learn or want a busy platform full of things they don’t use.

On the other hand, we’ve also heard very experienced and active traders tell us, they want more. More order types, more tools, greater speed, and they want it all in the mobile app. So, we dove deep into customer feedback and conducted a ton of research, through all this emerged themes which created the crystal clear path we’re on today: we need a platform and mobile experience for customers that only want to do basic investing AND we need an even more sophisticated mobile experience for our advanced and option trading customers. One tool could not do it all, so we got to work on building three.

Two new platforms launched

Two of our three new platforms launched on September 27: the new Questrade Trading, a web-based platform specifically designed for those who just opened their first self-directed account and also for people who want to stick to the basics of investing, and its mobile companion, QuestMobile. Screen by screen, we worked to implement the features that gave investors the information they needed to make good decisions. Continue Reading…

Should you own a lot or a little in Canadian stocks?

Posted By Financial Independence Hub | October 15, 2021

By Steve Lowrie, CFA

Special to the Financial Independence Hub

It’s not easy being a Canadian investor, is it? Given recent elections, we’re unlikely to see a pro-business surge anytime soon … to say the least. (It’s not investable info, but did you notice I happened to accurately forecast this?)

Plus, we’ve had to watch other countries’ stock markets beat the pants off our own during the past decade. U.S. glamour or FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) have been living especially fat and larger than life lately.

It’s no wonder I’ve been fielding questions about how to best allocate among the global equity markets these days. How much is too much in Canada? Should we just dump everything into the U.S. market? Is diversification dead?

My short answers are: It depends. No. And, I wouldn’t bet on it. This is an admittedly incomplete response, so let’s consider four points and counterpoints to fill in the blanks.

1.) Canada’s market cap is tiny, and concentrated

While we’re rich in land mass, Canada represents just 3% of the world’s stock market capitalization. Plus, that 3% isn’t very well-diversified, with relatively heavy exposures to banking and natural resources.

2.) Canadians and everyone else have a home bias

Home bias means we prefer familiar objects close to home. If (like me) you’re rooting for your kid’s hockey team, cheer on. But in the markets, this tempts most investors – and many financial professionals – to pile too heavily into their own countries’ stocks.

For example, despite recent underperformance, the typical Canadian still allocates 60% of their investments to Canadian stocks. The Behavioral Investor author Daniel Crosby reports that U.S. investors typically allocate 90% of their holdings to the U.S. market; U.K. investors allocate about 80% of their holdings to the U.K. No matter where you roam, home bias is right at home.

3.) Markets are unpredictable

Before you ship all your investments across the border or overseas, remember: Markets can turn on you, abruptly and without warning. While it might seem like a distant memory, it should be noted, from 1999–2009, Canadian stocks (S&P/TSX composite) returned 7.7% per year, whereas U.S. stocks (S&P 500 in Cdn$) seemed cursed in the new millennium, delivering –2.5% per year … yes that is a negative return for 10 years! Continue Reading…