Tag Archives: risk

Three key investment strategies hidden in plain sight; #1 — Being There

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Paul Philip CLI, CFP

By Paul Philip, CLU, CFP Financial Wealth Builders Securities

Special to the Financial Independence Hub

If you’ve ever dabbled in graphic design, you’re familiar with the concept of white space. When viewing an illustration, we typically pay the most attention to the visible ink on the page, such as a paragraph of text, a bar chart or an entertaining illustration. White space is the essential empty areas in between that are hidden in plain sight. We barely notice them … until they’re not there:

Pretty cheerful girl pointing white space over hands
Where’s the white space? (Deposit Photos)

When making investment decisions, most people likewise assume that the most eye-catching ink matters the most: an alarming economic forecast, an exciting Initial Public Offering, hot trading tips. But there’s a catch. This evident assumption does not hold up under evidence-based scrutiny. In reality, you have little or no control over how the most obvious news impacts your investments. The most exciting action has already been priced into any trade you might make well before you decide to make it.

Stop fixating on headlines

Instead of fixating on the headline news, consider that liberating financial white space. There, hidden in plain sight, you’ll find a number of powerful investment strategies that are freely available and far more within our control. In this series, we’ll introduce three of our favorite “plain sight” investment strategies:

  1. Being there
  2. Managing for market risks
  3. Controlling costs

Continue Reading…

Beware the sales pitch of “downside protection”

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Ben Felix

By Ben Felix, PWL Capital Inc.

Special to the Financial Independence Hub

I often hear the phrase protect your downside. It’s the sales pitch that a large part of the investment management industry thrives on, and it plays to the myopic loss aversion that most investors exhibit.

Myopic loss aversion is the tendency of investors to evaluate their portfolios frequently with greater sensitivity to losses than gains, causing them to act as if their time horizon is much shorter than it actually is.

Let’s look at the example of John, who wants to invest for his retirement 30 years from now. After happily watching his portfolio increase with steady returns for a few years, he panics when the market trends down slightly for a week. He knows he doesn’t plan to touch the money for a long time, but the thought of a decline, even over a relatively short period of time, makes him feel sick. He may even pull his money out of the market until things feel safe again.

Myopic loss aversion

An obvious path to safety would seem to be hiring a person or a company that knows how to protect your downside, and the investment industry has answered this calling. Continue Reading…

Why David Trahair is 100% in fixed income

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David Trahair
David Trahair

By David Trahair

Special to the Financial Independence Hub

I have been writing about personal financial issues for over 12 years now. I have also been giving seminars to other accountants on my ideas since 2008.

Suffice it to say I have spent a large amount of time thinking about and analyzing the best way to get ahead financially and I have had a tremendous amount of feedback along the way.

And I still have 100% of my family’s investments in guaranteed fixed-income products.

Zero exposure to stock market

That’s correct, I have zero exposure to the stock market. It’s all in Guaranteed Investment Certificates (GICs) or provincial government bonds using a three-year laddered approach.

Sound crazy? Well I’ll tell you why it’s not.

First of all, the assumption is that you have to have exposure to the stock market because it’s the only thing that will give you excellent returns. But how good are those returns versus plain old GICs?

I have done an analysis for my Enough Bull course that will give you some idea. Continue Reading…

US Large Caps top Templeton asset-class chart but remember Winners Rotate

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Here’s my latest MoneySense column, entitled Why Diversify? This chart shows you why. I used to write about this chart back at the Financial Post, and tacked the chart up on my cubicle wall. An updated version of the chart later followed me to my office at MoneySense, and the one below is now in my Editor-at-Large’s home office. Click on the above link to get to the chart, which can be further enlarged on your monitor.

The Hub’s version of the blog below also shows a second chart at the bottom about Risk. As you’ll see, it’s more predictable, living up to Franklin Templeton’s assertion that risk is more predictable than returns. I’ve always found it a useful reminder of the futility of chasing last year’s winners or attempting to predict next year’s winning asset classes. If you can’t get the charts  free through your financial advisor, you can download them here.

By Jonathan Chevreau

Franklin Templeton Why Diversify_low resolution

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Rising Life Expectancy: Are you ready for a 40-year Retirement?

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Ermos Erotocritou, CFP

By Ermos Erotocritou, CFP

Special to the Financial Independence Hub

Are you planning for a 40-year retirement?

The question may sound absurd but if you are a healthy Canadian in your 40s having a 40-year retirement is not just possible but very likely.

According to the World Health Organization, a male’s life expectancy in Canada is 80 and 84 if you are female. Let’s take the half-way point between 84 and 80 and say longevity will be age 82.

The median retirement age in 2011 was 63.2 for men and 61.4 for women. The half-way point will be age 62. It seems logical to calculate your retirement years as your life expectancy minus the age in the year in which you retire. If you retire at age 62 and expect to live to age 82 then you should save up enough money to generate income for 20 years right? Wrong!

Planning for your retirement paycheque is a lot more complicated. Life expectancy is a moving target. In Canada, we have increased life expectancy by 5 years over the past 25 years. Increased life expectancy has been consistent for decades and there’s no indication it will stop.

If we continue at this pace, we will add 10 additional years of longevity within the next 50 years. If you are in your 40s today, it’s quite reasonable to expect your life expectancy will increase from 82 to 92. But now it gets even more complicated. Life expectancy for a surviving spouse is longer than an individual’s. As long as one or both spouses survive, savings are required to support their retirement.

Estimating your own life expectancy

Continue Reading…