Tag Archives: stock market

Should I change our Portfolio with a new President?

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

Yes, interesting times may call for interesting portfolio changes! Or not. 🙂

Inspired by a few recent reader questions and a new blogger article I found that I will link to below, here is my quick take on whether I should be making any changes to our portfolio: with a new U.S. President.

Should I change our Portfolio – With a new President?

Reader questions, adapted slightly for the site:

Reader #1:

With a new U.S. administration about to take office on January 20, 2025, it’s easy to imagine things like tariffs on U.S. imports, an overheated U.S. economy, etc. fuelling the rise of inflation.

Thoughts? Should we be using this reality in our investing style going forward? What changes should we consider? Also, with net interest income improving in that type of scenario. Banks seem like a good idea?
Just a thought for a future article.

And…

Mark, I know you’re investing more in U.S. stocks and global stocks using a low-cost indexed fund now vs. before – at least you have written about that for the last few years since the pandemic. So, with the pandemic now over and with the U.S. stock market up so much since 2023, what’s your investing plan when a new U.S. President comes into office? Do you still support that administration and that economy moving forward beyond 2025?

Readers, thanks for your questions. 

Deep subjects and questions! 🙂

And, there was also this recent post from Millennial Revolution:

I’ll unpack a few themes to provide some answers…what I am doing and what I will continue to do.

1. Politics is messy, at best

Like the Revolution article above, although I don’t always get it right (!) on this site, I try to avoid writing too much about politics and/or the broader economic climate including the influence that each subject has with the other since these subjects are far too polarizing. It’s very difficult to have any meaningful discussion online these days…

2. Equity diversification still works

Until my overall investing approach stops working towards meeting my goals, I’ll keep at it.

For new and established readers on this site, you might be aware I’ve mentioned that our investing approach could be considered a “hybrid approach” – a structure that was established about 15 years ago as follows:

  1. We invest in a mix of Canadian stocks in our taxable account – to deliver income and some growth, and
  2. Beyond the taxable account, while we own a mix of Canadian and U.S. stocks, we own (increasingly) more low-cost ETFs like XAW and QQQ in particular in our registered accounts: inside our RRSPs, TFSAs and my LIRA for extra diversification.

I like the approach, the process and the results.

As a hybrid investor, I just don’t see how I should be making any significant changes to our portfolio for income, growing income, and total growth for the coming years.

When the market is hot, low-cost ETFs like XAW, QQQ and some select stocks in my portfolio run – like Waste Connections (WCN) has in recent years.

YTD the stock is up nearly 30% in my portfolio.

If the market turns bearish, while most stocks will go down in price many blue-chip stocks will still pay dividends regardless of the market correction. The Boards know that shareholders invest in their companies for stable cashflow. Even dividends can be increased in a bear market by some companies. One good example is owning Fortis (FTS) – which has been paying higher dividends for 51 consecutive years through all kinds of market cycles…

I’m trying not to fix what isn’t broken per se. 

That said, I also don’t see the U.S. stock market flying higher, up another 20% for 2025 coming.

Sure, that could happen I guess but 2023 and 2024 have been great investing years coming out of the pandemic for the U.S. so I would expect, at some point, some reversion to the mean will occur. If and when and how much that reversion will be, well, I have no idea… Continue Reading…

What on Earth is Happening?

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image from wikimedia commons

By Noah Solomon

Special to the Findependence Hub

Markets ended the first part of the year on a particularly sour note. Over the past four months, the MSCI All Country World Stock Index fell 12.9% in USD terms. High quality bonds, which have held up well in past episodes of stock market weakness, have failed to provide any relief, with the Bloomberg Global Aggregate Bond index falling 11.3%. Given the “nowhere to hide” atmosphere of markets, even a 60%/40% global balanced stock/bond portfolio suffered a loss of 12.3%.

Markets have entered a phase which differs from what we have witnessed over the past several years (and arguably over the past 40). In the following, we have done our best to share some of our most closely held beliefs about markets and investing, which we hope can serve as a guidepost for helping investors navigate the current market regime.
 

It just doesn’t matter … until it does

Most of the time, it doesn’t matter much whether your portfolio is positioned aggressively, defensively, or anywhere in between. Nonetheless, the fact remains that the big money is made or lost during the most violent bull and bear markets.

Defining a “normal” return for any 12-month period as lying between -20% and 20%, the S&P 500 Index behaved normally during 65.7% of all rolling 12-month periods between 1990 and 2021. Of the remaining 34.3% of periods, 29.0% were great (above 20%) and 5.4% were awful (worse than -20%)

Average 12-Month returns during Normal, Great, and Awful periods:

As the table above demonstrates, during normal periods there has not been a significant difference in average returns between the S&P 500 Index, the Bloomberg U.S. Aggregate Bond Index, and a balanced portfolio consisting of 60% of the former and 40% of the latter. It is another story entirely during the 34.3% of the time when bull and bear markets are in their most dynamic stages. The good news is that there are some key signals and rules of thumb that offer decent probabilities of reaping respectable gains in major bull markets while avoiding the devastation from the worst phases of major bear markets.
 

Don’t fight the Fed

It is with good reason that the “Don’t fight the Fed” mantra has achieved impressive longevity and popularity. The monetary climate – primarily the trend in interest rates and central bank policies – is the dominant factor in determining both the stock market’s major direction as well as which types of stocks out or underperform (sectors, value vs. growth, etc.). Once established, the trend typically lasts from one to three years.

When central banks are cutting rates and monetary conditions become more accommodating, it’s a good bet that it won’t be long before stocks deliver attractive returns. In late 2008/early 2009, central banks responded to the collapse in financial markets by cutting rates aggressively and embarking on quantitative easing programs. This spurred a rapid recovery in asset prices. Similarly, to offset the economic fallout of the Covid pandemic, monetary authorities flooded the global economy with money, which acted as rocket fuel for stocks.

Conversely, when central banks are raising rates and tightening the screws on the economy, the effect can range from limiting equity market gains to causing a full-fledged bear market (not an attractive distribution of outcomes). Once the Fed began hiking rates in mid-1999, it wasn’t long before stocks found themselves in the throes of a vicious bear market that cut the S&P 500 Index in half over the next two to three years. Similarly, when the Fed raised its target rate from 1% in mid-2004 to 5.25% by mid-2006, it set the stage for a nasty collapse in debt, equity, and real estate prices. When it comes to stocks, bonds, real estate, or most other asset classes, it’s all fun and games until rates go up, which ultimately causes things to break.

Markets don’t care what you think: NEVER fight the tape

The importance of not fighting major movements in markets cannot be overemphasized. Repeat as necessary: Fighting the tape is an open invitation to disaster. This advice not only applies to the general level of stock prices, but also to the relative performance of different sectors, value vs. growth, etc.


Ignorance, which can cause people to fight market trends, is a valid justification for making mistakes during the earlier stages of one’s investment experience. But after suffering the consequences, there are neither any excuses nor mercy when you fight the tape a third or fourth time. The markets only allow so many mistakes before they obliterate your wallet.

The perils of following rather than fighting trends are well summarized by investing legend Marty Zweig, who compared fighting the tape and trying to pick a bottom during a bear market to catching a falling safe. Zweig stated:

“If you buy aggressively into a bear market, it is akin to trying to catch a falling safe. Investors are sometimes so eager for its valuable contents that they will ignore the laws of physics and attempt to snatch the safe from the air as if it were a pop fly. You can get hurt doing this: witness the records of the bottom pickers on the street. Not only is this game dangerous, it is pointless as well. It is easier, safer, and, in almost all cases, just as rewarding to wait for the safe to hit the pavement and take a little bounce before grabbing the contents.”

To be clear, there is no free lunch in investing. Being on the right side of major market moves necessitates getting whipsawed over the short-term every now and then. Inevitably, you will sometimes be zagging when you should be zigging and zigging when you should be zagging. You can get head faked into cutting risk only to watch in frustration as markets rebound, and you can also get tricked into becoming aggressive just before a decline in stock prices.

The stark reality is that only geniuses and/or liars buy at the lows preceding major uptrends and exit the very top before the onset of bear markets. Realistically, you can only hope to catch (or avoid) the bulk of the big moves. Getting whipsawed every now and then is a small price to pay for reaping attractive returns during the good times while avoiding large bear market losses.
 

You don’t need to be perfect. But you’d better be flexible

It doesn’t matter whether you are an aggressive or conservative investor, so long as you are a flexible one. The problem with most portfolios (even professionally managed ones) is that they are not flexible. Conservative investors tend to stick with defensive portfolios heavily weighted in high grade bonds, utility stocks, etc. They never reap huge gains, but they also never get badly hurt. Aggressive investors, on the other hand, often buy risky stocks or speculate in real estate using high degrees of leverage. They make fortunes in boom times only to lose it all in bad times when the proverbial tide recedes.

Neither approach is sound by itself. Being aggressive is okay, but there are nonetheless times to gear down and be a wallflower. By the same token, there are market environments in which even conservative investors should be somewhat aggressive. Continue Reading…

Is it time to time the market?

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By Steve Lowrie

Special to the Findependence Hub

Has market news got you thinking it might be time to rethink your market positions?  It’s certainly understandable if the economic uncertainty unfolding in the daily news has left you wondering – or worrying – about what lies ahead.  No matter how you feel about the U.S. entering into a trade war with China, it’s hard to deny that the prospect is currently causing considerable market turmoil.  It is also hard to avoid the recent financial media obsession with an “inverted yield curve” (a rare situation when short-term bond maturities are yielding more than longer-term maturities).

You might have heard that each U.S. recession since the 1970s has been preceded by an inverted yield curve.  However, perhaps for the sake of sensationalism, not all articles correctly report that this relationship does not always hold true.  In reality every yield curve inversion does not lead to an imminent recession and/or lower equity prices.  Recent analysis by professors Eugene Fama and Ken French tested this very hypothesis.  Using data from the U.S. and 11 other developed markets, they found “no evidence that inverted yield curves predict stocks will underperform bills (bonds).”

Regardless of how the coming weeks and months unfold, are you okay with gritting your teeth, and keeping your carefully structured portfolio on track as planned?  This probably doesn’t surprise you, but that’s exactly what we would suggest.  Unless, of course, new or different personal circumstances warrant revisiting your asset allocation for reasons that have nothing to do with all the tea in China.

That said, the recent news is admittedly unsettling. If you’ve got your doubts, you may be wondering whether you should somehow shift your portfolio to higher ground, until the coast seems clear.  In other words, might these stressful times justify a measure of market-timing?

Here are four important reminders on the perils of trying to time the market – at any time. It may offer brief relief, but market-timing ultimately runs counter to your best strategies for building durable, long-term wealth.

1) Market-Timing is Undependable 

Granted, it’s almost certainly only a matter of time before we experience another recession.  As such, it may periodically feel “obvious” that the next one is nearly here.  But is it?  It’s possible, but market history has shown us time and again that seemingly sure bets often end up being losing ones instead.  Even as recently as year-end 2018, when markets dropped precipitously almost overnight, many investors wondered whether to expect nothing but trouble in 2019.   Continue Reading…

What’s the real deal with Mutual Funds?

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By Anita Bruinsma, CFA

Special to the Findependence Hub

Mutual funds stir up heated debates all across the internet. Fund companies sing their praises while others say they are taking you to the cleaners. It can be confusing – are they good or bad? What’s the real deal with mutual funds?

A game-changer for investors

Mutual funds democratized the stock market, making investing accessible to more people, and this was a very good thing. Before the popularization of mutual funds in the 1950s, it was more difficult to get your money invested in the stock market: you needed a stock broker to buy stocks for you and you needed a fair amount of money. 

The idea behind a mutual fund is simple: collect money from a group of people and hire professional money managers to invest this pool of money into dozens of stocks, generating a return for the investors. It’s the pooling of money that is so powerful: it allows a fund to be diversified, giving investors exposure to a myriad of stocks instead of just a few.

As an individual investor, you’d need a lot of money to get that kind of diversification. And whereas a broker would charge a large commission for every trade, a mutual fund has economies of scale, making the costs lower overall. Plus, as a mutual fund investor you don’t need to know one single thing about the stock market. What a win for the masses!

The downside

So why do mutual funds get a bad rap sometimes? It’s mainly because sales practices around mutual funds have a muddied history. Investment advisors who are making recommendations to their clients about what to invest in might be influenced by sales commissions, possibly encouraging them to put their clients’ money into funds that pay them the most commission. Worse, these commissions (and other perks that used to be permitted) were not always properly disclosed to clients. Regulations have improved in this area, but sales commissions can still influence an advisor’s choice of funds. Continue Reading…

3 of top 6 NYT bestsellers reprise Trump’s last year in office, with two more to come

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Sadly for democracy, the summer of 2021 has seen yet another flurry of books about former US president Donald Trump. The three main ones are shown in the photo above (taken from the Toronto Sunday Star’s reprint of the New York Times Book Review that appeared on August 15th, referencing late July sales).  

And two more may shortly join them on the list, both by authors who have tackled this terrain at least once before: one by Bob Woodward, Peril, coauthored with Robert Costa, and Mary Trump’s sequel, The Reckoning, which came out this week, more on which below.

While we did publish a version of this blog earlier this summer I have revised it to reflect the fact that the three books already published make up three of the top six bestsellers .

Notice that all three titles originated with words originally from Trump’s mouth. I have now read or listened to all three of I Alone Can Fix It (number 1 on the adjacent list), Landslide (number 3) and Frankly, We Did Win This Election (Number 6). Thank you for the sympathy.

In the case of the three books already out and flagged above, I borrowed ebooks or audio books from the Toronto Public Library’s excellent Libby service and/or a paid service called SCRIBD: a paid service that has a 30-day free trial. Not being a Trump fan, I really don’t relish the idea of actually paying for these books, although you could also argue the authors are performing a public service in reminding American voters of the folly they committed in 2016 and may yet repeat in 2024.

I certainly hope that these five books will be the last batch but fear that we’re not even close. 45 — as I prefer to call him — grabbed an outsized share of the world’s attention during his ill-fated first term and it’s well within the realm of possibility that he will continue to do so in what may prove to be a mere interregnum of the Joe Biden presidency.

If, God forbid, 45 also becomes 47 by winning in 2024 then all told the world would be subjected to more than 12 years of his commanding the media’s attention and that of the publishing world, like it or not. The implications for the global economy and by extension the stock market are not, I think, pretty, should the worst happen.

True, 2024 may seem like a long shot, given 45’s age (75), obesity and poor dietary and exercise habits, not to mention the multiple criminal and civil legal cases unfolding against him. One hopes that eventually all this will catch up with him and that the American electorate will finally wise up to the conman/would-be dictator. You can fool some of the people all of the time but are there really 74 million Americans who are blinded to 45’s obvious faults?

So far, he’s got away with everything

CNN.COM

Apparently so. As Mary Trump wrote in the closing pages of her book on her uncle,  Too Much and Never Enough, “So far he’s gotten away with everything.” He’s dodged every bullet fired at him during his checkered career as real estate mogul, reality TV star and twice-impeached US president.

In her followup book, Mary outlines her ideas on how America can cope with the aftermath of her uncle’s chaotic four years.

Again, I read a library e-book and found the 205 pages of The Reckoning to be a fairly quick read. Roughly half the content reprises the first book and its focus on Uncle Donny. The other half, including the opening chapter, covers perhaps more American history than most Canadians will be interested in: especially its native origins and early days of slavery of Black Americans and/or a lot of analysis and recommendations for how America can emerge from the “trauma” that psychologist Mary Trump hypothesizes afflicted her and many other Americans following her uncle’s 2016 electoral victory.

Certainly, she has not dialled down her rhetoric about her uncle. A few sample passages:

She concedes that 74 million people voted for Donald, who she describes as “the least worthy person I can imagine.”

“…. despite, or because of, the four years of incompetence, cruelty, criminality, grifting, unconstitutional behaviour, treachery, treason, and most breathtaking of all, the fact that almost there hundred thousand Americans had died by Election Day as a direct result of Donald’s willfully malicious inaction.”

Or:

“Donald wasn’t just incompetent, laughable, and cruel — though he was all of those — he was actively laying the groundwork, through his rhetoric, his policies, and his perversion of democratic norms and institutions, for autocracy.”

 

What has this to do with Financial Independence?

What has all this got to do with Financial Independence? At first blush, not a lot. See for example this Hub blog I wrote from 2018: The glut of books about Trump and prospects for Boomers’ retirements. If he actually wins back office from 2025 to 2029, many of his generation will be retired if they’re not already.

The last time we looked at Trump books was last fall, as we steeled ourselves for the possibility of his reelection: apart from the Mary Trump book cited above I reviewed Michael Cohen’s Disloyal and Bob Woodward’s Rage. Again, note that Woodward is about to publish Peril, another book about Trump’s last year in office, coauthored with the Washington Post’s Robert Costa.

Which brings us to the three bestsellers flagged in yellow in the list at the top of this blog. Apart from them, hose interested in the Covid aspect of the Trump presidency might also want to read Nightmare Scenario. I  enjoyed it, although anyone paying attention to the news throughout 2020 will be familiar with the story arc: 45’s initial and ongoing denial of Covid, his attempt to keep the stock market from being spooked by it, and on through Operation Warp Speed and Pfizer’s announcement of its successful vaccine scant days after the election, which of course infuriated 45. Mary Trump’s The Reckoning also spends a lot of time on Donald’s negligence with respect to the pandemic

Landslide

This is Michael Wolff’s third book on Trump, which in itself should be cause for pity for this author. The New York Times favourably reviewed this along with I Alone Can Fix It. Continue Reading…