Tag Archives: mutual funds

How to Invest your way to Findependence

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By Devin Partida

Special to Financial Independence Hub

Today’s economic and job-growth landscape might have you turning to investing as a prominent option.

It takes patience and effort, but anyone can save up enough through intelligent investments.

How do you begin the Investment Process?

As of 2023, the average American makes around US$57,000 annually, which is lower for minority groups. Even if you’re careful with your spending, becoming financially independent with that salary can take a long time.

The average person from the United States only has about $5,000 in savings. Before beginning the process, you must consider how much money you can invest. The ultimate goal is financial independence [aka “Findependence” on this site], but getting there can take a while. Only put in what you’re willing to lose because things might not pan out as expected.

The formula for Findependence takes your yearly spending and divides it by your safe withdrawal rate to calculate your goal savings figure. Then, it subtracts the amount you’ve already saved and divides that amount by how much you can save each year. It’s only an estimation, but it can help you know how much your investments need to make.

What Investments should you Consider?

There are plenty of investment types. The stable ones often have lower returns and you usually need to take some risk to see a high reward quickly.

1.) Real Estate Investment Trust

A real estate investment trust (REIT) receives money from investors to purchase and manage property. Most generate revenue through rental income and pay dividends in return for the initial payment you made. It’s similar to owning by yourself, but you pool funds for the purchase and let someone else take care of the tenants. There are also other REIT types, so you have more options than rental properties.

2.) Stocks

The stock market usually requires more attention to detail because you must keep up with it. Anything from an upcoming brand deal to an overseas political event can affect this investment type. You should frequently check the stocks you hold and the businesses they belong to so you can quickly respond to changes.

The Canadian stock market differs from the United States version. Firstly, you need a brokerage account. Most brokerages charge about $5 to $10 per trade, with average commission fees of $6.95. It might seem minor, but paying to invest or shift your stocks around puts you at a loss before you begin. The flat rate cut you must pay can also make investing smaller amounts challenging because it takes a higher percentage the less you put in. Continue Reading…

The superiority of Canadian “Robo Advisors” over mutual funds

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

This is a battle between lower-fee Canadian Robo Advisor portfolios vs high-fee Canadian mutual funds. As you are likely aware, Canadians pay some of the highest investment fees in the world. Larry Bates, the author of Beat The Bank, calls those fees wealth destroyers. Lowering fees is one of the most predictable ways to increase your investment returns. More money stays in the right pocket; your pocket. By way of the Questwealth Portfolios (from Questrade) let’s have a look at the superiority of Robo Advisors over Canadian mutual funds.

Here’s the review of Larry’s Beat The Bank. That is a must read. On Larry’s site you will also find a tool that will calculate the cost of high investment fees.

The Questwealth Portfolios

There are three simple ways that Canadians can leave behind their advisor and high fee mutual funds. If you want investment advice and managed global ETF portfolios, you can look to one of the Canadian Robo Advisors.

Here is a post on what is a Robo Advisor? As you’re about to discover, this is a far superior approach to a typical high-fee mutual fund. Also consider that most high-fee mutual funds in Canada are offered by salespersons and not ‘real’ advisors.

Questwealth is one of the Canadian Robo Advisors. And don’t be fooled by that Robo word. While you can choose to do everything online from start to finish, real humans are available for investment advice and guidance. And at a shop such as Justwealth you’ll have a dedicated advisor, with financial planning available.

You can have it all in a low-fee environment.

Not investing with Mom and Dad’s guy

Questwealth offers the Questwealth Portfolios. They are the lowest fee Robo offering in Canada. And they are famous for their advertising. Many younger Canadians are not following their Mom and Dad, running into the bank, Investor’s Group or AGF (or other mutual fund sales shop) to fill the pockets of advisors and mutual fund creators. Nope, they are learning how to self-direct and how to take control of their own wealth building destiny.

In one commercial the younger brother turns to his embarrassed older bro and offers …

You’re not still investing with Mom and Dad’s guy, are you?

It’s nice to see many Canadians become their own advisor. Keep that 2% or more in your own pocket. You’ll need bigger pockets, by the way.

Questwealth Portfolios vs Canadian mutual funds

Questrade suggests (based on the simple fee math) that over time Canadians could retire 30% wealthier. That said, it’s a much greater benefit than that 30% suggestion. Based on the return differential to date, you’d be looking at returns that are 50% better (or more) over a 30-year period. Retiring with 50% more is obviously life changing.

And of course, a 5-year performance is a shorter period, but it aligns with the known underperformance of high-fee actively-managed Canadian mutual funds.

Also, past performance does not guarantee future returns.

You’ll find a calculator on their site.

Here’s the Questwealth Portfolios vs typical or average mutual funds in Canada, to the end of February 2023. The mutual fund returns are based on Questrade calculations, looking at the available data for the mutual fund space. That list and returns for the individual mutual funds was also provided to me.

And here’s Questwealth vs the RBC Select balanced mutual funds.

And here is a post that looks at Justwealth vs Canadian bank mutual funds.

The outperformance is outrageous.

Ditch your high-fee mutual funds

It appears to be a no-brainer: ditch your high-fee Canadian mutual funds. If you decide that a Robo option such as the Questwealth Portfolios is right for you, you’ll find it is an easy process to make the move. They can help you with the transfer process.

Here’s the link to Questrade.

But please pay attention to any tax consequences should you have any taxable accounts. You might consider Justwealth if you need to transfer considerable taxable amounts. They can accept your taxable account mutual funds and will drawdown the assets over time in a tax-efficient manner.

Create your own ETF Portfolio

If you want to leave your mutual funds behind, you can also create your own ETF portfolio. Here’s the performance of the core ETF portfolios.

Continue Reading…

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…

The Vanguard Effect on Mutual Funds, Fees and Performance

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Vanguard is best known in Canada for its low cost, passively managed ETFs. Indeed, since entering the Canadian market in 2011, Vanguard now boasts a line-up of 37 ETFs with more than $40 billion in assets under management – making it the third largest ETF provider in Canada.

Keeping costs low is in Vanguard’s DNA. Their low fee philosophy hasn’t only benefited investors in Vanguard ETFs – it’s helped drive down costs across the Canadian ETF industry. This process has come to be known as the “Vanguard Effect.”

The cost of Vanguard ETFs is 54% lower than the industry average. Since 2011, they’ve cut their ETF’s average MER by almost half – saving their investors more than $10 million.

The Vanguard Effect has made a noticeable difference for ETF investors in Canada, but the vast majority of Canadian investments are still held in actively managed mutual funds.

  • Mutual fund assets totalled $1.896 trillion at the end of May 2021.
  • ETF assets totalled $297.4 billion at the end of May 2021.

The Vanguard Effect on Mutual Funds

Vanguard took aim at the Canadian mutual fund market three years ago with the launch of four actively managed funds, including the Vanguard Global Balanced Fund (VIC100), the Vanguard Global Dividend Fund (VIC200), the Vanguard U.S. Value Windsor Fund (VIC300) and the Vanguard International Growth Fund (VIC400).

Ticker Name Category Management Fee MER
VIC100 Vanguard Global Balanced Series F Global Equity Balanced 0.34% 0.54%
VIC200 Vanguard Global Dividend Series F Global Equity 0.30% 0.48%
VIC300 Vanguard Windsor U.S Value Series F US Equity 0.36% 0.54%
VIC400 Vanguard International Growth Series F International Equity 0.40% 0.58%

With three years under their belt in the Canadian mutual fund space, I thought I’d check in on the performance of Vanguard’s mutual funds.

While investors can’t glean much over a three-year period, the Vanguard funds have performed well compared to their benchmarks and industry peers.

  • Vanguard Global Balanced Fund (VIC100): +9.28% – VIC100 is a global balanced strategy with a strategic mix of 35% fixed income and 65% equities. It was designed to mirror the Vanguard Global Wellington Fund offered in the US – a 5-star rated fund by Morningstar. VIC100’s returns place it in the first quartile of its Global Equity Balanced category since inception.
  • Global Dividend Fund-Series F (VIC200): +6.06% – VIC200 invests in higher dividend yielding securities across the globe. Its style has been out of favour for most of the time since inception as markets have preferred high growth companies that don’t pay dividends. That has changed Year-to-Date (YTD), and VIC200’s returns are in the first quartile of its Global Equity category.
  • Windsor U.S. Value Fund-Series F (VIC300): +11.28% – VIC300 is the sister fund to the Vanguard Windsor Fund, offered in the US. The fund offers exposure to US large and mid-cap value stocks. Its value orientation was out of favour for the last few years but it’s ahead of its Russell 1000 Value Benchmark after fees since inception. As value has roared back, the fund is in the first decile of the US Equity category in Canada YTD.
  • International Growth Fund-Series F (VIC400): +19.20% – VIC400 has been a top performing fund since inception. It offers exposure to stocks primarily outside of North America. It mirrors a fund of the same name offered to US investors since 1981. The US fund is rated 5-stars by Morningstar. VIC400 has outperformed its benchmark by 12% per year.
As of Jun 30, 2021 – Peers beaten in the fund’s Morningstar category
Ticker Name Category Annlzd 3 Yr % Peers beaten 3 Yr
VIC100 Vanguard Global Balanced Series F Global Equity Balanced 9.28% 79%
VIC200 Vanguard Global Dividend Series F Global Equity 6.06% 12%
VIC300 Vanguard Windsor U.S Value Series F US Equity 11.28% 30%
VIC400 Vanguard International Growth Series F International Equity 19.20% 98%

[Editor’s Note: in September, Vanguard Canada launched two more mutual funds: VIC500 and VIC600]

I recently had the opportunity to speak with Tim Huver, Head of Intermediary Sales at Vanguard Investments Canada about the success of their mutual funds and what we can expect in the future. Continue Reading…

The seven money myths that stand in the way of a good financial plan

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Financial Literacy Month is natural moment for a reality check-up

By Jennifer Cook, EPD, PFA, PFA™, QAFP™

For the Financial Independence Hub

On the path to financial security, there are natural peaks and valleys that can be navigated via the help of a good advisor.  It’s the map in the form of a personal plan that can help guide an individual toward their goals, whether it is saving for a house, planning for retirement or protecting against unforeseen events.  But more than any other hazard along the journey, is when road signs are misread or misunderstood.

Financial literacy is key to unlocking an individual’s ability to realize their dreams, and that is why Financial Literacy Month in November is so important to us at Co-operators.  It’s a moment for all of us to fill in some of the gaps in our knowledge about planning.

Many of us have developed habits or rely on inherited ideas about finances, so I look at financial literacy as an opportunity to put to rest some of the myths that can affect good financial planning.

As Canadians face year-end decisions on investments, taxes, and RRSPs, we at Co-operators have identified common gaps in financial preparedness stemming from the spread of money myths. There are many myths that can derail planning, but I’d like to talk about the top seven and offer a remedy in the form of a reality.

Myth 1: Saving is safe. Investing is risky.

Reality: As Canadians feel the impact of raising interest rates and inflation, it’s tempting to embrace the idea of “safe” or “lower-risk” investment options. But this strategy comes with a risk of considerable lost earning power. Investing in a diversified portfolio that matches individual needs with the help of a Financial Advisor can build long-term returns, while managing risk.

Myth 2: Single, young people don’t need insurance.

Reality: No one is free from the risk of loss or liability. When budgets are tight, tenant or renters’ insurance can provide critical coverage for unforeseen events like theft, fire, or water damage. Young people can also take advantage of lower insurance rates that provide continuing benefits as their lives develop and their needs grow.

Myth 3: RRSP season starts in mid-February.

Reality: Though the typical RRSP frenzy may suggest otherwise, there is no rule that says lump sum payments must be made to RRSPs before the annual March 1 deadline. Canadians can contribute to their RRSPs (up to individual contribution maximums) at any time of the year. The March 1 date is used to determine how tax benefits will apply to the previous year’s income. Depending on a person’s situation, a Financial Advisor may recommend contributing smaller amounts to an RRSP on a weekly, bi-weekly, or monthly basis.

Myth 4: Those who invest in mutual funds have sufficiently diversified portfolios.

Reality: Today’s spectrum of mutual funds is widespread. It’s not easy to gauge whether an individual investor is appropriately diversified. And that can leave some people vulnerable to losses from sectors. Leveraging the expertise of a Financial Advisor can help investors make nuanced adjustments to ensure their portfolio has the right balance of diversification aligned with their risk tolerance. Continue Reading…