Tag Archives: investing

Which Robo Advisor differs from the other?

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By Dale Roberts

Special to the Financial Independence Hub

I recently penned the blog What and who are the Canadian Robo Advisors? That blog outlined how, true to the moniker, a robo advisor is an online financial advisor without the human.

Well, let’s say that at times there is no human present. In actuality the robo advisors are all quite human and they all have a unique personality. Think Star Wars and the loveable tin cans known as R2-D2 and C-3PO. They are very different in voice and personality.

Above left is R2 …

And to the right is my robo mascot …

The answer to the question posed in the headline is that all of the robo advisors are different, at times very different from one another. That’s why it’s important to know and understand these differences so that you might be able to find the robo that’s right for you. Getting in the ‘right robo’ might make a difference of thousands to tens of thousands of dollars or more over an investment lifetime.

The ‘robots’ don’t think in a pure sense. In most cases, this is not artificial intelligence at work. The process involves investment concepts and approach(es) and then mountains of computer programming applied so that the robo platforms can follow the direction of the human financial gurus who set the course for each robo advisor.

The Chief Investment Officers and their teams can and do also make adjustments on the fly. Some may react to market conditions. That may seem ironic given that the robo advisors will mostly embrace and use mostly passive Exchange Traded Funds, but they will then get a little more active with regards to asset allocation and types of funds used based on changing market conditions. All said, that will be one of the factors that I track moving forward as we compare the performance of the Canadian robos.

Robos can be passive or active

Some robos are more passive, some robos are very active.

One of the robo advisors, responsive, is considered AI-based as the platform will automatically change the asset allocation (mix of stocks and bonds) based on many market and economic indicators. Continue Reading…

What and Who are the Canadian Robo Advisors?

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By Dale Roberts

Special to the Financial Independence Hub

Most investors want or need investment advice. I learned after many decades in and around the industry, including over 5 years as an advisor on lower-fee index-based portfolios, that Canadians are not all that interested in their investments. We’d call that a low interest category.

Nope, folks are more interested in making money and well, living. So most need, or seek advice. Now unfortunately most Canadians by force of habit simply line up at their big bank or mutual fund sales office and sign up to pay some of the highest investment fees in the world. Those fees are crippling, I know, I saw the results when Canadians showed me how they were invested.

But just because you might need an advisor does not mean you have to pay some of the highest investment fees in the world. And yes the fees are important. We know that the fees typically and greatly impact the returns. From Justwealth the chart at the top is a comparison of the potential portfolio returns impact over longer periods, based on an initial $100,000 investment.

We can see that the effect of high fees paid can become exaggerated over time. Remember you pay investment fees every year, throughout the year, and as your portfolio grows over time you pay more in fees as the fees are based on your portfolio value. That’s a nasty kind of negative compounding.

So just what is a robo advisor?

Yup, just as per the image, a robo advisor is an investment advisor that’s well, not human. But don’t be scared. If you want to talk to a human the companies that offer robo advisory services can also put you in touch with real flesh and blood advisor types.

So if a robo advisor is not human, just what is “it”? A robo advisor is simply an online platform that asks you questions to help you get into the right investment portfolio. A robo advisor will ask the same type of questions as would a human advisor. Based on your answers the robo advisor will put you in the appropriate portfolio.

So what type of questions will the robo advisor ask you?

The robo advisor platform may try and gauge your investment knowledge. There may be questions on your net worth and salary and employment status, basic personal details. Each robo advisor offering has its own nuances and I will dig deeper into that in future articles. But most importantly a robo advisor wants to know …

  1. Your time horizon for the monies that you are about to invest.
  2. Your tolerance for risk (the amount or percentage that the portfolio could decline).
  3. Your objectives for the investment, whether you’re looking for more growth, a more balanced approach or a very conservative approach that might include a lot of bonds and fixed income.

And once again, each robo advisor will have its own methods (robo personality?) for asking those questions and discovering your investment personality and needs. If you want to ‘play around’ with a basic robo question and answer process have a look at Tangerine Investments’ Portfolio Selector Tool. Continue Reading…

The straight dope on Marijuana investing

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By Chris Arthur

(Sponsor Content)

Is all the buzz around marijuana investing deserved? How did the value of marijuana stocks get so high in the first place? Why are they currently on a bit of a low? And with valuations at a discount, is now a good time to get in on the action?

Clearly, there are big risks. But there are also big rewards for investors in this fast-growing new industry. After all, marijuana legalization is scheduled to take place very soon.

Anyway, it seems inevitable at this point. How can you add marijuana to your investment mix? With Canadian investors in mind, we took an in-depth look at these questions.

Legalization isn’t as simple as when the House of Commons votes to create a new marketplace. Many politicians are enthusiastic. However, they know that there are many other considerations and costs involved. For those interested in marijuana investing, it’s top of mind.

The marijuana marketplace has grown up fast, even before legalization

When is the absolute best time to invest in the fast-growing marijuana industry? Actually, that was probably more than a year ago. Canada’s Prime Minister campaigned on legalizing marijuana in the last election. The thinking was to disrupt the black market. At the same time, while they could create a windfall of tax revenue and they’d get a substantial cash infusion from a legalized marijuana industry.

In response to the enthusiasm, investors poured money into cannabis companies. Some of these quickly went from penny stocks to high-flying billion-dollar firms.

For instance, the market cap of the top five cannabis stocks alone grew by 400%. Canopy Growth Corp., the leader in Canada, has a market cap of over $5 billion. If you got in early enough, you saw a 261% return on your investment. Aurora Cannabis had a slightly smaller market cap. However, it posted a 1-year return of 353%. PharmaCan Capital’s stock was up 385%.

The whole reason we saw such startling triple-digit returns for marijuana stocks year? Deregulation. Sooner or later, it’s coming.

A bigger market than just Canada

Marijuana legalization creates a global opportunity. It is not confined to the Canadian marketplace. However, it is a also a unique situation. The usual big gorilla on the block, corporate America, is a no-show. Consider legalization in individual American states like Colorado and California. There, federal law still cuts American companies out of the competition.

That means, for once, Canadians can step over their southern cousins and become global leaders in a brand-new industry. This is green pasture territory. It is a dreamy prospect for investors looking for profit.

The marijuana industry includes over 85 companies with a combined market value of $30 billion. Some believe the global medicinal marijuana marketplace alone could be worth US$31.4 billion by 2021. According to Eight Capital, it could be worth $180 billion by 2025. Some think Canadians might be coming late to this market. Medical cannabis programs started here as early as 2001. If anything, we set the trends.

However, the big growth we have seen so far isn’t likely to continue forever. Investors looking into this industry need to manage their expectations.

Today, marijuana investing is about diversification. After all, there’s volatility. You’re betting on companies that must prove their worth by generating sales. What kind of sales? That’s the billion-dollar question.

Not every marijuana start-up has all the answers. So, what are paying customers really looking for? That is still up for debate.

Overview: Where the marijuana industry is today

There are different kinds of potential customers for marijuana. The first, smaller group is the smokers. But the second group includes people who consume cannabis in other ways. After all, customers can do it through food, beverages, supplements or other means. Also, medical marijuana is a big potential area of growth. Additionally, there are specialty products that cross over into the bigger food and beverage territory.

According to Evolve ETFs’ research, in 2015, there were just five countries where medical marijuana was legalized (or in the process of being legalized). By 2017, that shot up to 25 countries.

Canada is a leader in this sector. It legalized medical marijuana in 1999. The big breakthrough though came in 2015. There were new rules to allow value-added products. The Supreme Court said restricting legal access to only dried products was unconstitutional. This opened up the market with new product lines. That in turn transformed the medical marijuana landscape.

The number of adult Canadians who use recreational marijuana could be about 20 per cent of the population. How do we know this? The government is trying to get a better handle on the actual number. It’s tracking the THC-laced product that winds up in our sewers. Canadians spent $5.7 billion on marijuana for medical and non-medical purposes in 2017. Market studies estimate the value of the Canadian recreational marijuana market in 2018 to be about $7.9 billion.

Beverages will likely be big business for the marijuana industry. Energy drinks and health supplements of every variety will separate themselves from the pack by infusing them with marijuana extracts. Some companies are planning cannabinoid-infused beverages for launch in 2018. These products have huge potential for sales.

It could be an easy way for companies outside the marijuana industry to get a foot in the door in this growing industry. Alcohol giant, Constellations Brands, owner of Corona, purchased a 9.9% stake in Canopy Growth Corp (WEED.TSX).

Risks in marijuana investing

There are still many questions around the legalization process. Uncertainty is sure to prompt additional volatility. Continue Reading…

How much can you expect for investment returns?

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S&P 500 returns since the 1930s

By Dale Roberts

Special to the Financial Independence Hub

“How much am I going to make?”

That’s likely the most reasonable question that an investor could ask. When you sign up for a savings account or GIC it’s usually the rate of return that lured you in, or got your attention. We know that many savers are ‘rate chasers’. They go from bank to bank, playing each bank against the other bank, asking for more, asking for a higher interest rate on their savings account or GIC.

I often had clients brag to me that they could get a savings account at 1.5% at so-and-so bank or credit union. I’d reply “That’s great, go for it, but I work in investments, I’m talking about earning triple or quadruple or more than that rate over time.” Of course, I would always qualify that there was the potential to earn that greater rate or return.

Did I mention that 1.5% don’t impress me much?

Of course, at this stage of the conversation I would probe the client’s savings accounts and whether or not they had a more than ample Emergency Fund. Typically, advisors will suggest that you hold 3-6 months of total spending needs in a savings account. That said, everyone knows their own personal situation and what types of emergencies that might pop up – and potentially the costs of those emergencies.

Separate short-term and long-term money

Another important practice is to separate our short-term monies and our long-term monies. Once we’re covered with that short-term emergency bucket, we move on to growth and try to make our long-term monies work real hard. You will also have day–to-day monies in a chequing or savings account.

One of the biggest mistakes Canadians make is to have too much money in “high interest” savings accounts. Guess what? That 1-2% is not going to take you to the retirement promised land. In fact, monies in a savings account are usually going backwards, it’s not making you a dime once you factor in inflation. A long term historical average for inflation is in the area of 3%. If you’re earning 2% in a savings account, you’re losing 1% spending power, each year.

Your $100,000 that you have today might feel like (or spend like) $90,000 or less in ten years. Start to extrapolate that over a few decades and the effect is greatly exaggerated. Inflation is nasty. Here’s an example that will also show my age. When I was a kid, I would take 25 cents to the movies to buy treats. With those 25 pennies I would be able to buy a pop and chips, I think I may have also been able to buy a 3-pack of gum. Yes, I also spent a lot of time in the dentist’s chair. Can you get anything for a quarter these days? I didn’t think so. Talk about losing spending power. And no, I did not grow up in the era of the Great Depression. I ‘grew up’ in the best decades of all time: the 60s and the 70s.

Only stocks can outstrip inflation

Now certainly, the 70s experienced some ‘hyper’ inflation so the effect was exaggerated. But inflation is there and it’s powerful, even in the 2.5 – 3% range. Continue Reading…

How investing makes it easier to achieve Financial Independence

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By Gary Bordeaux

Special to the Financial Independence Hub

If you are looking for a way to secure your financial future, learning how to invest your money can help accomplish that goal. There are a variety of investment vehicles that can be tailored to fit your needs, timeline, and risk tolerance.

Let’s take a look at some of the specific reasons how investing helps a person obtain financial independence (aka “Findependence”).

Make money both today and tomorrow

If you are interested in generating a steady income from your investment portfolio, you can buy dividend stocks or a REIT (Real Estate Investment Trust). You make money today by receiving a dividend payment every month or quarter. You make money in the future by holding the security as it appreciates in value. When it reaches what you feel is the height of its value, feel free to sell it and lock in a profit. It is also possible to hold stocks in a trust that can benefit children, grandchildren or other beneficiaries after you pass on.

Obtain returns greater than the Rate of Inflation

Thanks to inflation, a dollar that you hold in your hand today will be worth the equivalent of 98 cents a year from now. This is because the price of goods will increase by an average of 2 per cent per year. In some cases, inflation can reach 4 per cent or greater in a given 12-month period.

As a general rule, stocks will appreciate by about 7 per cent per year, and that amount is higher if a stock offers a dividend. What this means is that you are increasing your net worth above what it takes to keep up with cost-of-living increases. Over a period of years or decades, you could accrue tens or hundreds of thousands of dollars that can be used to enhance your lifestyle.

Improve your chances of owning a home

Let’s say that you are looking to buy your first house. You could decide to buy a single-family unit with a monthly mortgage of $1,000 that you are responsible for paying on your own. However, another option is to buy a duplex that you can both live in and derive income from. At the very least, having a tenant living in the other half of your home will decrease the monthly mortgage payment.

The money that you save can then be used to improve the home or make other investments. If you make improvements to a property that is used for rental purposes, it may be possible to write off the amount of those repairs on a state or federal tax return. Continue Reading…