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[ad_1] .couch-potato-2021 { margin-bottom: 1em; max-width: 100% } @media (max-width: 991px) { a.menu-button-link { width: 93% } } @media (min-width: 992px) { .couch-potato-2021-links { display: flex; flex-direction: row; flex-wrap: nowrap; justify-content: space-between; align-content: space-around; align-items: flex-start } } a.menu-button-link { display: inline-block; font-size: .8em; background-color: #e5eff6; color: #102f32; font-weight: 700; text-decoration: none !important; margin: .5em; padding: .5em; border-radius: 4px; border: solid 1px rgb(35, 94, 99); max-width: 400px; } a.menu-button-link:hover { color: #e5eff6; background-color: #102f32; } Overview 5 ways to build a portfolio Core portfolios Advanced portfolios <!– Historical performance –> While the traditional Couch Potato portfolio mix of global equities and Canadian bonds is a simple and effective approach with good historical returns, it’s a bit too simple for my taste. The main problem is that it doesn’t cover investors for all economic conditions and fluctuations, which leaves numerous portfolio holes.  For example, in the 1970s and early ’80s, there was an extended period of high inflation and no growth, or what’s referred to as stagflation. It was a terrible combination in which few assets performed well. Gold, commodities, and real estate would have greatly helped portfolio returns, as shown in the chart below. But those assets are mostly missing from a traditional Couch Potato portfolio.  Asset performance in various economic conditions Source: ReSolve Asset Management All-weather ETF portfolios We can greatly increase diversification and reduce portfolio risk by adding some of these asset classes into our Couch Potato mix. That way, no matter what the economic conditions—growth or contraction accompanied by either inflation or deflation—you will always have an asset or assets that are delivering positive returns. There is always something working. A good example of the portfolio strategy is demonstrated by the Permanent Portfolio. In other words, we can build an “all-weather” Couch Potato portfolio.  It is not well known, but even a balanced portfolio can fail for a decade or more. The following chart uses U.S. stocks and U.S. bonds. An investor could improve the situation slightly by adding Canadian and global stocks, but the theme and risk to the balanced portfolio prevails.  Source: ReSolve Asset Management Stocks and bonds don’t always cut it.  Here are the main assets we’ll add into our all-weather portfolios, with suggested ETFs: U.S. treasuries. Long-term treasuries punch above their weight as risk managers for stock markets, because they increase to a greater degree than a total bond market fund. (Suggested: BMO Long-Term US Treasury Bond Index ETF, ticker ZTL.)  Short-term bonds. These bonds can work like cash protecting against a rising rate environment, as is often experienced during inflationary periods. (Suggested: iShares Core Canadian Short Term Bond Index ETF, ticker XSB.) Long-term bonds. They are known to punch above their weight as stock market risk managers. That is, they offer more convexity (the ability to go up when stocks go down). (Suggested: BMO Long Federal Bond Index ETF, ticker ZFL.)   Gold and commodities. These “real” assets are perhaps the best inflation fighters. Gold is known as an inflation asset (although it doesn’t have a perfect record) and is also a safe-haven asset for when big shocks occur. A basket of gold plus other commodities offers a greater chance of success during a bout of serious inflation or stagflation. (Suggested: Purpose Diversified Real Asset ETF, ticker PRA.)  Real estate investment trusts (REITs). Real estate is known for providing additional inflation protection. It is also an asset that often does not move in tandem with stock or bond markets, adding additional diversification for a balanced portfolio. (Suggested: iShares Global Real Estate Index ETF, ticker CGR. Note that PRA also holds REITs as a real asset; however, the total portfolio REIT exposure from PRA is small at just over 1%.) Other. You could also consider adding real return bonds that offer a yield plus an inflation adjustment as an additional inflation asset, and/or that new digital gold known as bitcoin. (Here’s an article on bitcoin that will help you to gain an understanding of this new asset.) Neither of these assets, however, are included in the sample all-weather portfolios below. To add bitcoin—many suggest a 5% portfolio weighting—you could trim from your real assets holding (PRA). To round out the bond portfolio you could certainly consider corporate bonds and high yield corporate bonds. A note on the regional allocation of stocks within the all-weather portfolios. We will add developing markets to the mix, and use separate ETFs for each of the Canadian, U.S. and developing markets. This avoids the global index weighting that currently greatly overweights the U.S. stock market, and instead allows us to hold Canadian, U.S. and international stock markets in equal weight.  Advanced Conservative Portfolio !function(e,i,n,s){var t=”InfogramEmbeds”,d=e.getElementsByTagName(“script”)[0];if(window[t]&&window[t].initialized)window[t].process&&window[t].process();else if(!e.getElementById(n)){var o=e.createElement(“script”);o.async=1,o.id=n,o.src=”https://e.infogram.com/js/dist/embed-loader-min.js”,d.parentNode.insertBefore(o,d)}}(document,0,”infogram-async”); Advanced Spud Conservative PortfolioInfogram Equities: 30%  Canada (XIC): 10% U.S. (XUS): 10% Developed International (XEF): 5% Developing International (XEC): 5% Real Estate: 10% Global REITs (CGR): 10%  Fixed Income: 40% Canadian long-term bonds (ZFL): 15%  Canadian short-term bonds (XSB): 10% U.S. treasuries (ZTL): 15%  Real Assets–Gold and Commodities: 20% Purpose (PRA): 20%  Advanced Balanced Portfolio !function(e,i,n,s){var t=”InfogramEmbeds”,d=e.getElementsByTagName(“script”)[0];if(window[t]&&window[t].initialized)window[t].process&&window[t].process();else if(!e.getElementById(n)){var o=e.createElement(“script”);o.async=1,o.id=n,o.src=”https://e.infogram.com/js/dist/embed-loader-min.js”,d.parentNode.insertBefore(o,d)}}(document,0,”infogram-async”); Advanced Spud Balanced PortfolioInfogram Equities: 50% Canada (XIC): 16.7% U.S. (XUS): 16.7%  Developed International (XEF): 8.3% Developing International (XEC): 8.3% Real Estate: 10% Global REITs (CGR): 10%  Fixed Income: 30% Canadian long-term bonds (ZFL): 10%  Canadian short-term bonds (XSB): 10% U.S. Treasuries (ZTL): 10%  Real Assets–Gold and Commodities 10%: Purpose (PRA): 10%  Advanced Balanced Growth Portfolio !function(e,i,n,s){var t=”InfogramEmbeds”,d=e.getElementsByTagName(“script”)[0];if(window[t]&&window[t].initialized)window[t].process&&window[t].process();else if(!e.getElementById(n)){var o=e.createElement(“script”);o.async=1,o.id=n,o.src=”https://e.infogram.com/js/dist/embed-loader-min.js”,d.parentNode.insertBefore(o,d)}}(document,0,”infogram-async”); Advanced Balanced Growth PortfolioInfogram Equities: 60% Canada (XIC): 20%  U.S. (XUS): 20%  Developed International (XEF): 10%  Developing International (XEC): 10%  Real Estate 10%: Global REITs CGR: 10%  Fixed Income 20%: Canadian long-term bonds (ZFL): 6.6%  Canadian short-term bonds (XSB): 6.6% U.S. Treasuries (ZTL): 6.8%  Real Assets–Gold and Commodities 10%: Purpose (PRA): 10%  Advanced Growth Portfolio !function(e,i,n,s){var t=”InfogramEmbeds”,d=e.getElementsByTagName(“script”)[0];if(window[t]&&window[t].initialized)window[t].process&&window[t].process();else if(!e.getElementById(n)){var o=e.createElement(“script”);o.async=1,o.id=n,o.src=”https://e.infogram.com/js/dist/embed-loader-min.js”,d.parentNode.insertBefore(o,d)}}(document,0,”infogram-async”); Advanced Spud Balanced Growth PortfolioInfogram Equities: 60% Canada (XIC): 20% U.S. (XUS): 20% Developed International (XEF): 10% Developing International (XEC): 10% Real Estate: 10% Global REITs CGR: 10% Fixed Income: 20% Canadian long-term bonds (ZFL): 6.6% Canadian short-term bonds (XSB): 6.6% U.S. Treasuries

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[ad_1] .couch-potato-2021 { margin-bottom: 1em; max-width: 100% } @media (max-width: 991px) { a.menu-button-link { width: 93% } } @media (min-width: 992px) { .couch-potato-2021-links { display: flex; flex-direction: row; flex-wrap: nowrap; justify-content: space-between; align-content: space-around; align-items: flex-start } } a.menu-button-link { display: inline-block; font-size: .8em; background-color: #e5eff6; color: #102f32; font-weight: 700; text-decoration: none !important; margin: .5em; padding: .5em; border-radius: 4px; border: solid 1px rgb(35, 94, 99); max-width: 400px; } a.menu-button-link:hover { color: #e5eff6; background-color: #102f32; } Overview 5 ways to build a portfolio Core portfolios Advanced portfolios <!– Historical performance –> You can invest in a ready-made Couch Potato portfolio, or you can build your own. The former generally costs more but requires little to no work, while the latter tends to cost less and requires some (although not much) effort on your part. Tangerine, the well-known online bank, offers pre-fab portfolios of lower-fee index mutual funds or exchange traded funds (ETFs) that are as simple as you can get. You choose the investment fund with your preferred asset allocation (the proportion of stocks vs. bonds in your portfolio, more on this below) and that’s it, you’re done. The management expense ratio (MER) fees on these portfolios range from 0.72% to 1.07%, depending on which one you choose. That’s a significant savings over the 2% charged by actively managed mutual funds; on a $100,000 portfolio you’d save between $993 and $1,280 annually, which is added to your investment returns and will compound over time. But do the holdings in these funds perform as well as actively managed funds? I was an investment advisor with Tangerine from 2013 to 2018. Part of my duties was to compare Tangerine clients’ mutual funds held at other banks and mutual fund dealers to the Tangerine index-based mutual fund portfolios (they did not yet offer the ETF portfolios at that time). There was no comparison. It was extremely rare to find a higher-fee mutual fund mix that beat the Tangerine approach. Chalk that up to the lower fees and the passive (indexing) investment approach. No other provider offers a ready-made portfolio of index mutual funds that contains all the necessary Couch Potato components (Canadian, U.S, and global stocks, as well as Canadian bonds), so the next Couch Potato difficulty level is to build your own portfolio of individual index mutual funds . All the major banks offer such index funds, but only grudgingly, with fees of 1% or more. The exception is TD’s e-Series funds, which stand out for having the lowest fees in Canada: their MERs range from 0.33% to 0.51%. You can select an individual fund for each of the four main asset classes and combine them in any proportion, from cautious to aggressive. The biggest limitation of the e-Series funds is that the only effective way to buy them is through a self-directed account with TD Direct Investing. Next, we come to ETFs, the darlings of the industry. Their primary appeal is their rock-bottom cost: you can build your own portfolio of ETFs for less than 0.15%. ETFs are also available in enormous variety from several providers—including Vanguard, iShares and BMO—and through any online brokerage.  Because there are so many ETFs to choose from, and you need to buy and trade the funds yourself as a self-directed investor, this Couch Potato method requires a certain comfort level with managing your own investments. But many MoneySense readers know that it’s well worth the time and energy to do the research and go the DIY route.  Rather than limiting yourself to the basics, advanced spuds can find ETFs that zero-in on specific categories of bonds or stocks: short-term or long-term bonds, government or corporate bonds, large companies, small companies, dividend payers and many others. You can also expand your portfolio to include asset classes like emerging markets, real estate, or preferred shares—none of which are available with the other options we’ve discussed. These assets might protect portfolio returns during extreme economic conditions, such as stagflation, so adding them could give you an improved all-weather Couch Potato portfolio. Finally, nothing should strike fear into the hearts of the big banks, mutual fund providers and advisors more than one-ticket asset-allocation ETFs. These ETFs give investors an all-in-one portfolio solution that is well-balanced, globally diversified and automatically rebalanced, with a one-ticket ultra-low-cost purchase. Managed portfolios at rock bottom pricing. What’s not to like? This will be the nail in the coffin for high-fee mutual funds, the only question is the timing.  For more information on all these approaches, including sample portfolios, historical returns and a tool that will help you select the appropriate one-ticket asset allocation ETF, click on the appropriate links above, or the tabs provided for the other sections of this package. Asset allocation, risk tolerance and time horizon Before you can become a Couch Potato investor, you must determine the best asset allocation (percentage of stocks, bonds, etc.) for your portfolio based on your risk tolerance and time horizon. Stocks are held for long-term growth, but these markets can be volatile. Bonds have a tendency to go up in value when stock markets take a serious hit, so they manage the stock market risk. While there’s no guarantee of this inverse relationship, it’s generally accepted that holding stocks and bonds together builds a lower-risk portfolio. There is nothing more important for an investor than remaining within your risk tolerance level. If you take on too much risk and bail on your investments during market corrections, you create permanent losses. It is often said the only good portfolio is the one you can live with through all the ups and downs of the market.  Your time horizon is also a crucial detail. Stock and bond portfolios can take time to recover from market corrections, although bond-heavy portfolios will typically recover much more quickly than portfolios with more stocks. If, however, you have money that you think you’ll need access to within two years or less, it might be wise to stick to risk-free options, such as high

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[ad_1] Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.  What was behind this week’s “mini-crash” The big story of the week fizzled out. Investors had been taking a breather over the last month or so, with markets down slightly over the period. U.S. stocks dipped  just over 2% for the month, heading into this week. Then came a “mini-crash” on Monday, Sept. 20, with stocks falling by some 3% from the close on Friday, Sept. 17, giving us the first 5% correction in 2021.  Canadian and international stocks followed suit.  Here’s a one month chart for the S&P 500 ETF, ticker IVV, courtesy of Seeking Alpha.  Source: Seeking Alpha The main source of concern was the imminent collapse of Chinese property developer Evergrande, which has been scrambling to raise funds to pay its lenders, suppliers and investors. It has $305 billion worth of bills (liabilities) coming due, and that’s stoked fears of contagion and broader risks to the financial system.  There was and is fear of a Chinese Lehman situation. That’s the bankruptcy (largest in U.S. history) that started the cascade of carnage known as the great financial crisis. As an aside, I remember it well, as I was working on a U.S. bank client at the time—ING Direct U.S.—and became one of the employment casualties. (Here’s a tip: Don’t work in the financial industry during a financial crisis.)  David Rosenberg, the Canadian rockstar economist, offered on CNBC that the Evergrande/Lehman comparison is unfounded.  Even so, many wonder what might lurk beneath the surface of the Chinese real estate and financial markets. Is Evergrande the tip of an economic iceberg? Rosenberg goes on to discuss the general weakening in the Chinese and global economies.  And there was more than Evergrande to keep investors on edge.  There are concerns about the regulatory environment in China. Plus, we have soaring energy prices and fears of an energy crisis, as we mentioned last week. There’s the ongoing debate about whether inflation is transitory or sticking around for a while. And can central banks begin tapering their bond buying programs without sending shock waves through the stock and bond markets?  In this post we covered the question of what is a taper tantrum and what is QE (quantitative easing)?  All said, “buy-the-dippers” showed up right on schedule, taking markets up about 3.5% from the low of the week (for U.S. stocks). Canadian stocks rallied in similar fashion, led by energy stocks that are on a tear for the month.  Given the excessive valuations for the U.S. stock market, I think a real correction would be healthy. But that real correction seems illusive. But margin calls would drive a stock market correction into meaningful territory. Let me explain: Leverage (borrowing to invest) is at outrageous levels. Corrections in any asset price are often accelerated by margin calls. That’s when the broker gets nervous about an impending correction and sends you a note telling you it’s time to pay up. Investors often have to sell assets to pay the tab. That increased selling can put further downward pressure on the markets and that can beget more margin calls. It becomes a vicious circle, a downward price spiral.  I asked Lance Roberts (no relation), chief strategist at RIA Advisors, at what level of correction we would normally see the margin call cascade begin. Roberts said that happens at the 20% pullback level.  While we can’t time the markets, this may be the right moment to remind you to stick to your rebalancing schedule: Trim those stocks and other assets that are driven to new highs to keep your allocation targets in check. And, of course, keep any capital gains and tax issues in mind.  If we get to that 20% correction level and then experience a margin call event, be ready to move in the other direction. You might get the opportunity to buy at margin-sale prices.  Fed policy meeting report: The loudest voice speaks softly The U.S. Federal Reserve was not expected to announce any major policy change at the conclusion of its meeting on Wednesday, Sept. 22. And Jay Powell, the Federal Reserve Chair, did not disappoint when given the opportunity to say nothing. Of course, there is no rate increase, nor is there any date or clarity on when they might start to taper their bond purchases. Those bond purchases help to suppress rates and overall borrowing costs.  It was a whole bunch of nothing, and that’s just what the market ordered. But, remember, the Fed speaks in code, and market watchers dissect and translate the specific language used by the Chair, and from the Fed’s larger statements.  Market makers are looking for language that is either more hawkish or dovish. Hawkish policy or tone tends to focus on controlling inflation as a primary goal of monetary policy. Dovish policies are more concerned with promoting economic growth and job creation.  Hawkish means taking away some of the punchbowl known as stimulus. While there was a slight hawkish bent, we could call it hawkish extra-light.  Soft language was used—such as “taper may soon be warranted.”  And the central bank would begin to remove its accommodative policy when “substantial further progress” was made toward achieving full employment.  And when trying to not spook the markets, it is very important to throw in a few “ifs.” Such as the central bank said in its statement: “If progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted.”  Yup. Use enough of “may” “when” and “if” and you’ve mastered the art of hawkish extra light.  All hawkish humour aside, there is and was the communication that tapering of some sort is on the horizon. In fact, the Fed even delivers a dot plot graphic that offers the guess of Fed members on when they think we might see rate increases, and to what degree will be those

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