Issues
It’s July and summer is upon us. Many of us are winding down looking for a bit of sun and relaxation, hopefully near one of our beautiful Canadian lakes.
As I reflect back on the past 12 years of my time with Canadian MoneySaver, I recognize the changes that both I and the magazine have gone through.
When I first started with CMS, I knew nothing about the 60/40 split, or the dividend tax credit much less about how to invest in the stock market. I admit, my vocabulary has increased significantly and my family’s future is greater for it.
But I admit, as my husband inches increasingly closer to retirement, my worry about our children’s financial future grows stronger. With the soaring costs of home ownership will they ever be able to afford their own homes? Will they be able to afford to raise a family? Or will they be able to afford many of the luxuries that we have become accustomed to? Without our help?
While the education system does include some financial literacy, the task is still largely left to parents. As a MoneySaver, I will continue to talk to talk to my children about money. Their future is in our hands.
Sharing With You,
Lana Sanichar, Editor - in - Chief
Do you ever get bored with your investments? Many investors do.
In fact, we see many investors who sell their stocks out of boredom.
But this, more often than not, is a big mistake.
Stocks don’t go up in a straight line. Sometime they will go down. Often, they
will do nothing.
When bored, it is important to distinguish between a stock doing nothing and
a company doing nothing. Stocks do not always follow fundamentals. Sometimes
they are not even close.
Look at how your COMPANY is doing. If it is growing, paying down debt and
increasing dividends, then likely nothing is wrong at all.
Don’t let boredom take you out of an investment that you should be sticking with.
Over time, boring stocks can often get higher valuations, because boring means
less volatility, and smart investors know this. Weak investors, on the other hand,
look for “action”.
Sharing With You,
Peter Hodson, CFA
Founder and Head of Research
5i Research Inc.
Featuring: Rino Ravanelli, Lisa MacColl, Colin Ritchie, Rita Silvan, Bent Gallander, Richard Morrison, Keith...
View
Well, finally the weather is getting warmer, at least here in Kitchener, Ontario.
Investors can start looking forward to a summer of BBQ's and vacations. In the 'old days' summers used to be very quiet in the investment business. It was hard for investment bankers to put deals together when everyone was on vacation. But no more. With technology keeping workers tethered 24/7, money now truly never takes a single day off.
But you don't have to be tied to your computer or phone. Are you comfortable with
your investments? Have you set up your asset allocation to meet your goals? Do you have
an investment plan? Are you diversified enough?
Take a cue from your portfolio: If you can't ignore your portfolio for at least two weeks,
and enjoy a stress-free vacation, you are probably doing something wrong.
Sharing With You
Peter Hodson, CFA
Featuring: Richard Morrison, Jason Heath, Keith Richards, Rita Silvan, Donald Dony, David Edey, Shiraz...
View
IF you have been even a casual reader of MoneySaver in the past few years, then you should know at least the basics of dollar cost averaging (DCA).
Dollar-cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on their portfolios. In effect, this strategy eliminates the effort required to attempt to time the market to buy at the best prices.
It is amazing how DCA works in real life. When I was a fund manager earlier this century, we were encouraged to put money into our own funds. In fact, at some of the investment companies I worked at we were not even allowed to have a personal stock account. So, every month part of my pay cheque simply went into units of the fund I was managing. Then, along came the 2008/2009 Great Financial Crisis. Stocks plummeted, companies
went bankrupt, and people lost their homes. Yet, still, every month, I was buying. In 2010, when it was safe to come out from under my desk, I was surprised at how unscathed my portfolio was. We had just come through a giant market crisis, and my portfolio was in good shape. Why? Because I kept buying constantly. My $600 per paycheque bought more and more fund units each month as the market declined.
So, I did some math on 2022, which was another horrible year in the market. Suppose an investor bought $1,000 worth of SPY, the S&P 500 Index ETF, every month on the 15th, or if the 15th was a weekend or holiday, then the 14th. For this exercise we will assume there were no commission charges, which is true at several brokerages these days, especially for ETFs. With a DCA strategy last year, an investor would have lost 5.9% for the year. But that compares to a 19.5% loss for the market overall. Certainly a much better performance.
Even better, those extra units bought when the market was down really help when the market recovers, as it did in the first six weeks of 2023. Today, at the time of writing, the 2022 DCA strategy would see an investor already UP about 1% in total. Think about this. A DCA strategy in the third-worst year in 30 years is already in positive territory, less than two months into the year.
If that doesn't convince you that the strategy works, then nothing will. Perhaps it's time to implement regular buying and forget about timing the market.
Sharing With You,
Peter Hodson, CFA
Featuring: Chris White, Ellen Roseman, Jason Heath, Ken Kivenko, Rita Silvan, Richard Morrison, Barbara...
View
A couple of disparate points this month:
We think all investors need to work hard to avoid 'anchoring' and 'recency' bias:
Anchoring is when an investor sets expectations based on 'old' news or an old price. Recency bias is when an investor looks at the recent past, and expects that to continue.
Both can be portfolio killers. On anchoring, be careful if you catch yourself saying, ever, "I
paid $XX for that stock". The stock does not know what you paid for it. The market doesn't care. The buyer of your stock doesn't care what you paid for it. Frankly, unless you are considering tax implications, the price you paid for a stock is completely irrelevant, once you own it. The only thing that matters now is the future. A stock down 50% can still decline ANOTHER 50%, infinitely (until delisting at least).
Recency bias is never good, but this year could be more harmful. After a horrible year, where both stocks and bonds declined sharply, you might want to 'go conservative', or 'go to cash'. There is nothing wrong with that, if that meets your goals. But we would caution against making major changes AFTER a decline. We do not know if the market is going to rise this year. But we do know that it has always risen, eventually, after every decline. Something to think about before you go stick your head in the sand and hide from the markets this year.
Peter Hodson, CFA
Featuring: Matt Poyner, Rita Silvan, Fred J Masters, Keith Richards, Wynn Quon, Richard Morrison
View
In case you hadn’t heard, the Tax Free Savings Account (TFSA) limit for 2023 has been
raised to $6,500, from $6,000 last year. That’s due to inflation, so there is at least one
benefit from the inflation problem that wrecked a lot of stocks last year.
We would strongly advise everyone to utilize their TFSA as much as possible. If you can’t
fund the maximum, put in what you can. Tax-free compounding is a wonderful thing.
Anyone over 18 can set up a TFSA and fund it with $6,500 in 2023. Someone who turned
18 in 2022 can put in $12,500 this year. The current lifetime contribution limit is now $88,000, assuming you have contributed the maximum since the TFSA’s inception in 2009.
TFSA withdrawals can be made any time, tax-free. All withdrawals can be put back into
account in the year after the withdrawal.
If you have children, and the means, we think the following is a good idea, to help your
childrens’ futures: Once they turn 18, tell them you will fund all, or half, of their TFSA
contribution every year. But, once they take ANY money out, that gift program stops. Sure, it is a bit of a bribe....but it will help show your kids that time is the most important factor when investing.
Sharing With You
Peter Hodson, CFA
Featuring: Brian Quinlan, Richard Morrison, Ed Arbuckle, Julie Petrera, Steve Benmor, Giles Jordan, Caitlian...
View
Well, it is hard to believe, but 2022 is soon coming to a close. After the pandemic
years of 2020 and 2021, most people expected better things from 2022.
But alas, it was not meant to be. While the Covid situation certainly eased, and we can now
all go out to dinner again, the year was not great in other areas. Of course the Ukraine War
was devastating, inflation bit into consumers’ budgets, and the stock market seemed to go
down every day. Fixed income investors were crushed as bond prices plunged for their worst
performance in 100 years.
For investors, bad years happen. It is part of the game, and that’s why there is a risk premium
for owning stocks and bonds. If GICs could get you compounded giant returns, there would be no stock market. But no GIC is going to give you a 1,000% return, as many stocks have done.
2023 could be bad, or it could be good. We don’t know. And anyone who tells you they
know (especially the doom-sayers) doesn’t know either. If they say they do, they are probably just selling something.
So, don’t anchor expectations. Bad now does not mean bad in the future. It may, or may not.
In World War Two, markets fell for three years in a row. But then they went on a tear. If your
timeframe is appropriate, there will be some good times ahead, one day.
Best wishes for the season and the New Year.
Peter
Peter Hodson, CFA
Featuring: Norm Rothery, Chris White, Rita Silvan, Richard Morrison, John De Goes, Milan Topolovec, Warren...
View
Interest rates continue to rise in Canada, finally offering a break for savers.
GIC rates of nearly 5% can now be found at smaller trust companies, for 5-year terms,
and fully guaranteed up to $100,000.
When I bought Canadian MoneySaver magazine back in 2011, I really never thought I
would ever talk about GICs. After all, I love stocks, and they provide solid long-term returns,
if you can handle volatility.
But as investors get older (like me!) GICs paying 5% start to look more attractive compared
with a near-20% loss on stocks this year (referencing the S&P 500, as I can only buy US stocks because of my role at Canadian-research firm 5i Research).
GICs are taxed at the highest rate, will never provide ‘more’ interest than stated, and are still below today’s inflation rate. In real dollar terms, even at 5% you are still losing money. They clearly
are not perfect. But then again, neither are stocks. Sometimes, after a tough year, investors just might want to sleep, and not have to worry about part of their investment portfolios.
GICs can offer you more sleep and can help stabilize an overall portfolio. For some investors,
it is probably time to start looking at them again.
Peter Hodson, CFA
Editor
Featuring: Ryan Modesto, Matt Poyner, Colin Ritchie, Rita Silvan, Julie Petrera, Richard Morrison, Barbara...
View
Long-term MoneySavers will know that we never think it is wise to try to time the
market. The market dances to its own beat, and is the collective bet from billions
of investors. No one has shown consistency in predicting the market for more
than a quarter or two.
That being said, we are pretty sure we reached ‘maximum pessimism’ in the market in late June. After a horrible start to the year, investors were simply fed up. They hated everything: Stocks were down, bonds were down, cryptocurrencies were down, utilities were down, real estate was declining, small caps were destroyed, the Canadian dollar was down, and even gold--the asset that is supposed to offer ‘insurance’ in such times--was struggling.
When everyone is negative, by default the market has priced in the worst.Theoretically, at least, the market should go up when ‘all the selling is done’. We will see. Certainly July showed some positive market signs, but one or two months does not make a trend. Talk to us in December.
But, based on our experience, the worst is likely over, or close to it. Inflation will likely peak
this year. Interest rates have risen sharply, but the bond market is already predicting lower rates next year. Corporate earnings, so far, have not been as bad as feared.
It is probably safe to go back in the water. But maybe make sure there is a lifeguard in sight,
just to be sure.
We hope you had a happy and safe Summer.
Peter Hodson, CFA
Featuring: Ellen Roseman, Ken Kivenko, Keith Richards, Steve Benmore, Rita Silvan, Jason Heath, Richard...
View