Portfolio management

cte

Let’s imagine the impossible for a minute. You read this blog. It speaks to your inner soul takes you to a better place. You know you need to invest. You agree in a balanced, diversified, liquefied state of Zen. But now you face a dilemma.

Yes, bonds are safe and you need steady stuff to preserve capital. But they pay almost nothing, and become less valuable when interest rates start to rise. What to do?

Well, as Yogi Berra said, when you come to a fork in the road, take it.

Just to be clear, a 60/40 portfolio (the kind that arouses me) has 60% in growth assets and 40% in fixed-income. Most people think this means “stocks” and “bonds”. But it doesn’t. Just as the growth portion is highly diversified (equity-based ETFs investing in Canadian, US and international markets – large, medium and small-cap companies – plus real estate investment trusts), the safe portion of a healthy portfolio is also a mix of stuff.

Yes, bonds pay nothing – at least government bonds. Central banks have hammered interest rates into the dust, seriously penalizing savers and (as detailed yesterday) forcing people to shift their retirement strategies. So why own any?

Simple. Stability. Anti-volatilty. Anchoring your portfolio. For example after UK electors surprised everyone and voted themselves off the continent, global stock markets careened lower for a few days, robbing the S&P 500 of about 6% of its value. Ouch. But Brexit also caused bond prices to spike, since billions of worried dollars flowed into these safe havens. So while the yield on the bonds was unchanged, the value of the bonds jumped – which helped to offset the drop in equities. When stocks were off six per cent, a 60/40 portfolio was down only about 1%, and quickly recovered.

Thank you, bonds. If the nutcase wins the White House, expect a similar story.

But yield is still a goal of any investor, so the 40% fixed-income portion needs to cough up more than government bonds deliver. Thus, if your portfolio is big enough (a few hundred grand) you should also have some corporate bond exposure – investment grade debt (like that issued by the banks or insurers) – which pays a higher yield and is quite safe. Ditto for provincial bonds, with zero default risk and delivering another 40-or-so basis points in yield.

Finally, don’t forget about inflation. It’s a fact of life, especially with a sea of debt swirling around us and an anemic dollar boosting import prices. So having some real-return bonds is a good idea, because the effective yield actually increases along with the rate of inflation, plus they’re guaranteed by the feds.

All of the above should end up equaling about half of the 40% making up the safe portion of your overall portfolio. (And remember to move stuff around so that interest-bearing assets like bonds are safely ensconced inside your RRSP tax shelter.) But does this mean you have to go and find actual bonds to purchase? Nope, there are lots of exchange-traded bond funds around that will do the job.

So what of the other half of the forty? That’s where the preferred shares come in. These are a hybrid of stocks and bonds. Like stocks they pay dividends and give you an ownership stake in the company. Like bonds they’re far less volatile than common stocks, with quarterly cash distributions. The income stream is also safer, which is why they’re ‘preferred.’ A company in difficulty might trim the dividend for its common stockholders, but cannot reduce it on the preferred shares.

Most preferreds today are rate-reset, so they lose capital value when rates drop (that happened last year) and gain value when rates rise (that comes next year). But in the meantime they pay a great dividend – currently a tad over 5%. Try to find that anywhere else with an asset that’s 100% liquid – and which comes with a tax credit. So while interest is 100% taxed at your marginal rate, preferreds pay dividends that have a preferential tax treatment. Yes, because they’re special. Like you.

So the preferreds (at 20% of the overall portfolio) give you a great yield boost, making the overall return on the safe, fixed-income portion equal 4% or a little better. If stock markets do nothing, in other words, you’re still beating the pants off a GIC, and doing it with less tax. Again, there are a few great ETFs around providing exposure to a basket of quality Canadian preferreds. And ignore the know-it-alls who come here to tell you prefs are bad because the capital value fell as rates were reduced.

So what? You buy them for yield and security of income, plus lower taxes, not for a capital gain. Having said that, with rates at the bottom of the curve, it’s hard to see how investors taking a position in preferreds today will not be happy dudes in the years to come.

Well, there you go. And you thought fixed income assets were boring. Shut up.

161 comments ↓

#1 Powder_hound on 09.22.16 at 6:48 pm

Hey Garth, you recommend making preferred shares as part of the bond allocation? I’ve taken your advice, sorta, and have preferred shares under my equity allocation.

#2 JImmy on 09.22.16 at 6:50 pm

Classic Greaterfool posting! Awesome advice, fabulously free!

#3 RentYVR on 09.22.16 at 6:50 pm

“Most preferreds today are rate-reset, so they lose capital value when rates drop (that happened last year) and gain value when rates rise (that comes next year).”

Rates are going down not up. So preferreds continue to be a bad investment vehicle.

#4 Tom on 09.22.16 at 6:54 pm

You should not hold bonds, rather conservative, dividend paying stocks instead. If you must hold bonds, keep to very short term and hold a bond index fund. Anyone under 60 should not have much of their portfolio in bonds. Interest rates will rise. I’ve been invested 90 percent in conservative stocks for over ten years and I have definitely averaged more than 8 percent per year. Garth is wrong on both real estate and bonds, yet he probably still makes a shit-load of money being a financial advisor because he doesn’t get paid on performance.

#5 Don Der on 09.22.16 at 6:55 pm

Garth, who has money to invest? Apparently we are all broke. Here’s a cut and paste about national debt. Who cares what you have in a diversified portfolio if we have to consult an amerikan super committee to tell us to solve our debt woes by “raising the debt ceiling”.

Garth, when YOU look at the National budget and T2’s behavior is this country diversified? Curious. Here are the notes:

Swamped by massive loans:

The US may have the largest national debt of any country at an eye-watering $19.5 trillion, but nations with a higher debt-to-GDP ratio are more indebted in relative terms.

The higher the ratio, the more unsustainable the repayments and the more at risk a country is of falling into a debt spiral.

20. Canada – 89.1%
With its economy teetering on the edge of recession, Canada’s debt-to-GDP ratio crept up to 89.1% in 2014/15 and closer to the potentially dangerous threshold of 90%, which experts believe begins to impact upon economic growth. Leading economist Steve Keen believes Canada is vulnerable to debt crisis and recession in the next few years.

10. USA – 104.5%
A combination of pricey bank bailouts, an overstretched welfare system, tax cuts introduced during the George W Bush administrations and expensive foreign wars have taken their toll on the US national debt, which is mainly owed to foreign creditors. Though manageable, the debt-to-GDP ratio had risen to a worrying 104.5% by 2014/15.

We are just like Europe n’est pas? For example, is Portage Place Mall a “no-go zone” for whites?

The world will end at 10pm….details at 11…

#6 Cleaning Up on 09.22.16 at 6:56 pm

So much for foreigners have no impact

http://vancouversun.com/business/real-estate/new-sales-figures-show-dramatic-drop-after-b-c-foreign-buyer-tax

#7 Questions on 09.22.16 at 6:56 pm

Preferreds can be great, no doubt. I disagree on rate-resets though.

In the case of an RE correction, Poloz will drop rates, if not before that for other reasons, like crappy export numbers or consumer spending, on and on…

This would put pressure on rate-reset preferred funds. As we’ve seen, that drop is harsh and prolonged, and the yield sadly goes down with it.

#8 nonplused on 09.22.16 at 6:57 pm

Is that the Turner Investments board of directors pictured?

And by “nutcase”, which one of the presidential candidates ore you referring to? They both appear nuts to me. I personally prefer Trump, because he appears less likely to march us right in to WWIII to me than Hillary does. My portfolio isn’t positioned to take advantage of WWIII, i.e. I am not 100% short everything on the planet. I don’t even think gold is a very good hedge for WWIII as although it will still be gold, it’ll all melt and be very hard to separate from the other glassified materials. Plus there’s that radio-active contamination thing.

Mind you that US airstrike on the Syrian military a day or 2 ago might mean the pentagon is going to give us WWIII no matter who gets elected. The crazy nutcases that run that place actually think the war can be won. If by “winning” they mean being the last person to starve to death or succumb to radiation while hanging out in a bomb shelter, I say why don’t we move the whole lot of them into their bomb shelters now and lock ’em in! Then the rest of us can skip the war part and carry on!

#9 SeeB on 09.22.16 at 7:02 pm

Thank you Garth! I’m really loving the more detailed advice on building the right portfolio.

#10 Smoking Man on 09.22.16 at 7:05 pm

Garth, did something fall on your head. A brain freeze, too much ice-cream. Did the merchants of white guilt finaly get to you.

Why are you giving up this Intel for free? What is wrong with you? It’s time for an intervention. I have to come up to the forks now and try and snap you out of this madness.

#11 Kelowna on 09.22.16 at 7:07 pm

Love the Belgiuns!!
Would you please share what your favorite Preferred ETF is? Thanks Garth for a great column!!

#12 RESP-ECT on 09.22.16 at 7:08 pm

Thanks! I’ve been wondering what to do with all this cash the gov. is throwing at us for my kid’s RESP. Our advisor doesn’t handle RESPs, so I need to take the plunge and invest it myself. This will help to get me going.

#13 Andres on 09.22.16 at 7:10 pm

Hi Garth, I saw a couples of new issues of preferred shares with minimum yield of 6%. This means that if the rates go down you’ll get the minimun and if they rise you get better.Is it too good to be true?

#14 dontcallmeshirley on 09.22.16 at 7:10 pm

Then why don’t you just say “ETF”? Sheesh, just like a woman.

#15 Jungle on 09.22.16 at 7:14 pm

And try not to time the market. Including preferreds, interest rate drops/hikes and rate reset.

Remember total return is what matters-not yield. Preferred investors got a huge loss last year. That yield did nothing.

#16 Bram on 09.22.16 at 7:16 pm

What if your portfolio has a very long horizon, and you know for sure you will not be touching it for 25yrs to come?

Surely, there is no need for ‘safe’ stuff then?
A 100/0 portfolio of all stocks.

They go up, they go down, they go up again.
And guess what, 25yrs later, they will be up big time after all jumps and drops over the years.

Diversification, and safe stuff… useful if you are close to retiring I guess. For young people? Overrated. You need max growth.

#17 Another Great Post on 09.22.16 at 7:18 pm

Another great post Garth. Are you able to give some insight in how to identify these great ETFs. Do you use holdings, returns, history? Thank you.

#18 Mark on 09.22.16 at 7:19 pm

The really scary thing about the bond market, from my perspective, is that you have a whole cohort of investors and pension funds, particularly in the baby boomers, who have grown accustomed to receiving returns dramatically in excess of the stated coupons on the bonds. Due to the falling interest rate environment and ZIRP, and the trading of bond portfolios such that duration is held reasonably high.

Mathematically, this era is soon to come to an end, if it has not already. Pension funds are mostly insolvent which is extraordinary given these excess returns to ‘savers’ and bond owners under ZIRP. And RE as an asset class is essentially a derivative of the bond bubble, as RE, at the margin, is completely and utterly dependent on financing.

I can’t even begin to fathom what is going to happen to boomer society when retirement plans that were ‘calculated’ based on 6-8% bond returns, have to be scaled back to reflect actual 0% returns on bonds and significantly negative returns on RE. To say nothing of the demographic disaster that is unfolding against the boomers, and the complete and utter lack of productivity investment in the western economies (the ‘best’ they can come up with is to use foreign workers from the 3rd world, instead of aggressive application of STEM and societal re-engineering to resolving future labour shortages!).

I’m about 30% allocated to gold and silver equities these days, up from approximately 10% this time last year. Not even thinking of selling at this point.

#19 Sheane Wallace on 09.22.16 at 7:21 pm

Yes, bonds pay nothing – at least government bonds. Central banks have hammered interest rates into the dust, seriously penalizing savers and (as detailed yesterday) forcing people to shift their retirement strategies. So why own any?

Simple. Stability. Anti-volatilty. Anchoring your portfolio. For example after UK electors surprised everyone and voted themselves off the continent, global stock markets careened lower for a few days, robbing the S&P 500 of about 6% of its value. Ouch. But Brexit also caused bond prices to spike, since billions of worried dollars flowed into these safe havens. So while the yield on the bonds was unchanged, the value of the bonds jumped – which helped to offset the drop in equities. When stocks were off six per cent, a 60/40 portfolio was down only about 1%, and quickly recovered.

Thank you, bonds. If the nutcase wins the White House, expect a similar story.

————————-

At this point I had to go to the toilet.

Still hurts.

#20 Not a happy dude on 09.22.16 at 7:24 pm

“it’s hard to see how investors taking a position in preferreds today will not be happy dudes in the years to come.”

ZPR is an index fund for rate reset preferred shares. It has lost almost 6 percent since its inception almost 4 years ago. That includes that juicy 5 percent dividend. How about talking about the past, when it comes to preferred shares.

#21 mike from Mtl on 09.22.16 at 7:24 pm

Not sure why you’d recommend maple preferreds for anything but yields? Yes ZPR or CPD pay well and are on sale now but anticipating raising rates in Canada? Really!

Perhaps sometime between 2030 and 2060 maybe…

#22 Gasbag Boomer on 09.22.16 at 7:26 pm

I love the blog. Planning on naming some some ETF’s that support your strategy? :-)

#23 Rooskie on 09.22.16 at 7:32 pm

Garth,

We have 100% of our balanced portfolio in registered accounts. You’ve said in the past not to do that. Should have some non-registered stuff too, where one would park dividend tax credit eligible investments.

My wife and I are fortunately able to keep our TFSA’s topped up, as well as make an RRSP contribution equal to about the yearly max 18% of our gross income. We are entering into our peak earning years and have not yet used up all of our past RRSP contribution room either. There isn’t much money left at the end of the year after these contributions are made.

How should we prioritize our investment allocations? Do we forgo some TFSA contribution and RRSP contribution in favour of non-registered? Any time our portfolio requires more CDN equities or CDN preferred shares, stuff that into a non-registered account regardless if there’s room in our TFSA or RRSP?

#24 Surfside Boomer on 09.22.16 at 7:33 pm

Approximately two years ago I started direct investing as Garth suggested and have a preferred share ETF as one of my investments (20% of all investments). Now I have a lovely dividend payment every month. As I am on a low income this will come in handy. It yields just over 5% just as Garth advises. The value of the fund has also risen. Just do it!

#25 ShawnG in TO on 09.22.16 at 7:37 pm

Ontario Savings Bonds… what is it saving ? your future? noooooo. at the current rate, it’s saving the Ontario government

#26 AfterTheHouseSold on 09.22.16 at 7:43 pm

Thus, if your portfolio is big enough (a few hundred grand) you should also have … ”

Thank you Garth for clarifying this point.

#27 MF on 09.22.16 at 7:50 pm

#143 NoName on 09.22.16 at 5:08 pm

Sure. And while we are at it let’s invite Florence Owens Thompson.

https://en.m.wikipedia.org/wiki/Florence_Owens_Thompson

MF

#28 Andrew on 09.22.16 at 7:52 pm

Surprised there is no mention of the news out today of the complete capitulation of foreign buyers in Vancouver following the foreign buyer tax.

http://vancouversun.com/business/real-estate/new-sales-figures-show-dramatic-drop-after-b-c-foreign-buyer-tax

#29 Dabess on 09.22.16 at 7:55 pm

Just watched Love or List It: Vancouver.
Best. Comedy. Show. Ever!

#30 Kelsey on 09.22.16 at 7:58 pm

Garth, thanks for giving me some much needed advice to relax yesterday…this pathetic blog should consider hiring an intern psychologist. I know Smoking Man would be especially appreciative.

Q: You’re a strong believer in the Canadian banking sector, but is there some merit that P/E and dividend yields are low because of heightened risk? Scotiabank is trading at 12.6x trailing P/E, with a 4.2% yield. Is this fair value given the risk, or are Canadians too house horny and equity-market-risk-averse for the TSX to trade at fair values relative to other assets?

#31 BobC on 09.22.16 at 7:58 pm

And again I learn something. Thanks

#32 tkid on 09.22.16 at 8:06 pm

See how you compare to the wealthy: http://www.globalrichlist.com/

You can compare yourself based on salary, or by the size of your portfolio. Me, I’m in the top 4%.

#33 Smoking Man on 09.22.16 at 8:06 pm

Slow night

#34 Foreigner in the Shadow on 09.22.16 at 8:06 pm

There,you scared everyone away. You happy now?

#35 Proof! 25% foreign buyers in Richmond on 09.22.16 at 8:07 pm

http://www.richmond-news.com/news/foreigners-were-buying-one-in-four-richmond-homes-before-tax-1.2349606

#36 Dirk Diggler on 09.22.16 at 8:07 pm

Is this kind of mix appropriate for all ages? I’ve always heard that you rotate from stocks to bonds as you near retirement.

#37 Gasbag Boomer on 09.22.16 at 8:09 pm

Re. Post#3, Smoking Man doesn’t need a pyschologist. He needs a Agent to market the brand!

#38 macroman on 09.22.16 at 8:15 pm

Garth you forgot about 10% gold and silver.

And yes I licked my meds.

#39 Not a big deal on 09.22.16 at 8:16 pm

The amount of predictions proven wrong at the end of the year by various experts is going to be biblical. But I guess that is not a big deal.

Awesome pic of the Mals.

#40 New To Investing on 09.22.16 at 8:20 pm

Great information just when I’m trying to choose ETFs for the first time!

I know you don’t recommend specific ETFs, but would be great to get info on how to recognize good ones, how to evaluate them, etc.

#41 how to buy? on 09.22.16 at 8:20 pm

Garth,
Can you please offer some tips on how best to buy these fixed income instruments?

It seems all the new issues of bonds are snapped up by institutional investors. And if I buy an the secondary market, the spread is huge! And if I buy an ETF, the MERs clobber what is already extremely low yields.

Thoughts? tips?

#42 Smoking Man on 09.22.16 at 8:21 pm

This is a day late. Got tied up in a delusion of Fear and Loathing
……………………

Air Heads and Real Estate

The crazy real estate market is driven by the woman, not exactly the smart woman, but smart enough to know how to hold their husbands up to bedroom ransom to get what they want.

Chicks that watch the Social on CTV get all kinds of tips for getting the edge on hubby but for crying out loud, the FED was making the big announcement yesterday get your priorities straight ladies.

This middle-aged woman who host the show have the mental capacity of a 12 to 14-year-old girls, yesterday when it was announced the Brad Pit and Angela are calling it quits, it was as if they and their audience just landed on planet Orgasmatron. It was feeding frenzy for all the gossip-o-holics. Later today we find out that Pitt was drunk on a plane, allegedly roughed up his kids, then stole a fuel truck and drove around the tarmac with it. Boys will be boys. But there is a story in the story and this is my theory.

The 80% reality of life for a Men is he gets bored over the years, so do woman but it’s harder for them to act, many men will find a work around or play around. Especially if you’re filthy rich.

Brad Pit was shooting a movie with a new young hottie, Angelina hired a private dick to watch him, she should know, that’s how she swiped him from Jeniffer. Woman go mental when they get burned with the same lighter they used themselves once to steal a man.

My only point being. Men are like dumb dogs wagging their tail at anything that moves, woman, are cunning little calculating competitive cats. Who live to outdo the Chic next door. Be it with the success of their kids, granite, stainless steel fridges or a McMansion.
A dude would never buy a house is he wasn’t blackmailed.

And this is why Toronto Real Estate will keep going up. Decisions to buy are driven by The View watchers. And it only takes a handful of these air heads to keep the Market Hot.

#43 Say What? on 09.22.16 at 8:21 pm

“But they pay almost nothing, and become less valuable when interest rates start to rise.” – Garth

————————————————————–

Will you please stop with this meme. It will NOT happen and you know it. You’re saying these things just to get my goat. I challenge anyone to show me why interest rates would ever rise meaningfully (like 2 points). It simply cannot happen. There’s no pressure to raise rates because there is no inflation, other than that resulting from low rates. The current financial system simply couldn’t absorb even a 2% rate hike. The resultant waste swaths of loan delinquents would cripple the current financial system. That’s why Yellen, and those of her ilk, simply talk about raising rates. A 1/4 rate hike in the last 7 years is just a joke.

#44 Freedom First on 09.22.16 at 8:24 pm

Yes. Bonds & Preferreds. Both are a must. ETF’s of both. No Preferreds paying under 5%. No Bonds paying under 4%. Except for the 10 year Real Return Bonds I own directly from the feds (average yield yet to be known). Had to sell my 20 year RRB’s as they went up 25% 30 months after I purchased them. I wrote about that here.

I am not surprised that people argue this strategy with Garth. There is no sane reason not to be liquid balanced and diversified. Gobally. It is the best strategy in the world, over time, bar none. Fact.

#45 Londoner on 09.22.16 at 8:27 pm

“Well, there you go. And you though fixed income assets were boring.”

And for anyone that doesn’t believe it, following Brexit my index linked gilts shot up 29% and core gilts were up almost 18%. Sure the ftse is up too, but the gains in equities are nothing compared to those from FI. Crazy.

#46 ANON on 09.22.16 at 8:27 pm

Big D is in da house.
(in regards to all the flood of links to the latest figures from Metro Van which are still itching to be posted).

#47 WUL on 09.22.16 at 8:33 pm

That article in the Vancouver Sun that dogs are linking and which deals with the sales of shacks in the GVRD falling off a cliff is hilarious. Seriously, I thought I was reading the Onion or Mad Magazine.

Four months ago there was no data on purchases made with off shore money. Now the stats are apparently available with absolute precision.

The Vancouver Sun is pumping Christy’s tires in advance of the May ’17 election. You moldy, rain-soaked folks on Burrard Inlet are being lied to.

#48 Felix on 09.22.16 at 8:36 pm

Tonight’s picture perfectly underscores the ghastly, obnoxious and malodorous threat that Toronto must confront and eliminate:

40,000 realtors;

and…

230,000 stupid dogs

Which is worse?

Get rid of them all, I say.

Meow :(

#49 David on 09.22.16 at 8:41 pm

“So while the yield on the bonds was unchanged, the value of the bonds jumped ”

Huh?? Oh, the coupon was unchanged???

#50 Rock Beats Paper on 09.22.16 at 8:42 pm

#38 macroman on 09.22.16 at 8:15 pm
Garth you forgot about 10% gold and silver.

And yes I licked my meds”

Don’t even go there. I have put up efficient frontier graphs in the past. Garth wont bite cause you cant teach a dog an old trick.

In fact. Garth probably knows that it is legitimate to have up to 10% of the growth part of the portfolio in alternative investments but never discusses it.

A small weighting in a completion ETF is just fine, but putting any weighting on gold more than is contained in a large-cap TSX ETF is pure speculation. It’s not investing. — Garth

#51 White Crock BC on 09.22.16 at 8:46 pm

Just heard on PBS…

Drumph’s tax plan would add $530b/yr to the deficit.

Never bet against the US.

What a joke.

#52 South Etobicoke Trump Campaign Central on 09.22.16 at 8:46 pm

@#8 nonplused

I’m with you on that one.

Cognitive dissonance is rising. The social divide in the country is also rising. The Globalist Borg is getting antsy. Their certitude that the Borg Queen would sail through this election is on shakier ground now as the polls tighten in the battleground states. Russia is not playing ball. The Borg has now decided to go all in with the MSM shaping operations to prejudice the public. We can be certain how the debate on Monday will be spun. Yellen gave the Borg more time to keep the financial markets elevated.

In the next few weeks we should expect a significant ratchet up in IO operations. I’m not so sure Les Déplorables are buying. If Trump manages to pull this off it will be epic meltdown time.

#53 Smoking Man on 09.22.16 at 8:53 pm

#136 james on 09.22.16 at 4:29 pm
#112 Smoking Man on 09.22.16 at 10:59 am

#103 CJBob on 09.22.16 at 8:50 am
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” – Steven Hawking

He should know first hand, has invented nothing, no patents, just a unique brand filling up a blackboard with equations that are wrong and no one understands.

And then there was Tesla and Either.
…………………………………………………………………..
Whats this thing about Tesla with you, he was a smart guy but a rather poor investor and was constantly broke. Owed everybody money for decades. Died penniless, alone and destitute. Came to the promised land and never looked back at his homeland!
……………………..

I’m going to fill you in on something, its a 100% true story. Tesla is the grandson of a Nictointe Pilot by the name of Shlong Zumanga who crashed on earth in the early 18 hundreds. It’s all in my book.

He was pissed that no one came to rescue him, and decided to use his alien powers to shape the world toward a one world government, this shallow beast of a man could not care one bit for humanity. He just wanted to sleep with the hottest babes on the planet with no resistance, he wanted the fathers of the girls to kiss his ring in support.

Then he ran into a problem. Fellow Nictonites with equal powers, Smokey, Assman, Jeremiah, and Barrington didn’t like his plan. Actually, it was Smokey who had the biggest problem, the others just followed. But like Shlong Zumanga, Smokey was a Sky Pilot.

If you think competition is brutal with Chics. you ain’t seen nothing yet when compared to Nictonite Sky Pilots going toe to toe.

Too bad a loony lefty like you will never spend four bucks to see the happy ending that obviously favored Smokey.

Unlike Garth with his giving away the farm for free up top. I’m an Entrupunour damn it. You need to pay..

#54 Andrew Woburn on 09.22.16 at 8:54 pm

I must say I was surprised by this but pleasantly so, for once.

“A growing universe of big data offers an increasingly complete alternative view on China’s economy, and it’s not massively different than the official statistics.

That’s according to a new report by Bloomberg Intelligence economists Tom Orlik and Justin Jimenez, who compared National Bureau of Statistics numbers with those generated from the vast amounts of data and information collected by businesses and governments.

The new gauges affirm that manufacturing is weak, real estate is better, auto sales and online consumption are robust, but malls and tourism are suffering and employment is slipping as old industries shed workers, Orlik and Jimenez wrote. For industrial, property, autos and employment, they said the picture is similar to official data, while for some aspects of consumption, big data are more negative.”

http://www.bloomberg.com/news/articles/2016-09-20/big-data-lens-on-china-s-economy-mostly-affirms-official-stats?

#55 Andrew Woburn on 09.22.16 at 9:01 pm

Who knows, might be cheaper than bombing.

“Refugee crisis: Plan to create 100,000 jobs in Ethiopia”

http://www.bbc.com/news/world-africa-37433085

#56 };-) aka Devil's Advocate on 09.22.16 at 9:07 pm

Yup… H.A.M. was a myth

#57 WalMark of Sadkatoon on 09.22.16 at 9:13 pm

Why does the Canadian economy suck compared to the US??

http://www.bloomberg.com/news/articles/2016-09-22/initial-jobless-claims-in-u-s-match-lowest-level-since-april

http://www.bloomberg.com/news/articles/2016-09-22/for-the-first-time-in-years-incomes-are-rising-faster-than-home-values

#58 WalMark of Sadkatoon on 09.22.16 at 9:17 pm

Hillary Clinton on Between Two Ferns with Zach Gilifianakis

https://youtu.be/xrkPe-9rM1Q

“How does Obama like his coffee? Weak? Like he is?”

“What’s the best way to reach you? Email?”

ROFL

Zach’s sheit-eating smirk is priceless!

#59 Steuy on 09.22.16 at 9:24 pm

Anyone looking for a good read on financing should pick up a copy of Garth’s book, Money Road : Crash Proof Your Wealth. (Shameless Plug!)

I can’t thank you enough for your efforts.

#60 Smoking Man on 09.22.16 at 9:37 pm

#51 South Etobicoke Trump Campaign Central on 09.22.16 at 8:46 pm
@#8 nonplused

I’m with you on that one.

Cognitive dissonance is rising. The social divide in the country is also rising. The Globalist Borg is getting antsy. Their certitude that the Borg Queen would sail through this election is on shakier ground now as the polls tighten in the battleground states. Russia is not playing ball. The Borg has now decided to go all in with the MSM shaping operations to prejudice the public. We can be certain how the debate on Monday will be spun. Yellen gave the Borg more time to keep the financial markets elevated.

In the next few weeks we should expect a significant ratchet up in IO operations. I’m not so sure Les Déplorables are buying. If Trump manages to pull this off it will be epic meltdown time.
……………

Soros is Zumanga’s great grandkid, Obviously, he’s backing Shlong. Who fixed the FX markets for him. so he could further advance Shlongs agenda.

Smokey’s spoiler, Trump. Buddies from Atlantic city. His only fault. He don’t drink, no one is perfect.

#61 tkid on 09.22.16 at 9:37 pm

Swallow, don’t lick.

#62 Setting the Record Straight on 09.22.16 at 9:58 pm

@39
“Awesome pic of the Mals.”

Mechelaars
They’re Flemish not French.

#63 Smoking Man on 09.22.16 at 10:03 pm

DELETED 5

#64 hope & ruin on 09.22.16 at 10:08 pm

So Gerry Butts decided to give back some of the money he used moving, guess he didn’t use all of it. Figure most middle class canadians have an extra 65k laying around to just hand back.

Tell ya what Gerry, keep a little bit of that and spend it on a half decent haircut. You look like something out of a Harry Potter movie, promise we won’t make you pay it back.

#65 Smoking Man on 09.22.16 at 10:14 pm

Recently divorce son one and wife in the kitchen debating on what matters..

I’m in the Gazibo listing to hammered, my opinion don’t count

https://youtu.be/x7bIbVlIqEc

#66 Foreign buyer data and facts on 09.22.16 at 10:17 pm

Evidence is here now Garth, are you still doubting the obvious that foreign money is pumping Vancouver and Toronto??

http://www.richmond-news.com/news/foreigners-were-buying-one-in-four-richmond-homes-before-tax-1.2349606

http://www.theglobeandmail.com/news/british-columbia/data-show-drop-in-bc-foreign-property-buyers-since-targeted-tax/article32000190

The market was wobbling in June and July. All it needed was a push. — Garth

#67 Smoking Man on 09.22.16 at 10:23 pm

Next gig.

When you’re grey haired bald head says turn a page.
No one lovesc you
Writing is your last chance

https://youtu.be/5DuRVp3S2Gc

#68 Andrew t on 09.22.16 at 10:23 pm

Great post, chock full of practical advice for us DIY newbies. Thanks.

#69 Lillooet, BC on 09.22.16 at 10:23 pm

Buffett said that bonds “should come with a warning label.”

Garth’s view is different.

Buffet’s Bershire Hathaway has a bond portfolio of $25 billion. — Garth

#70 WUL on 09.22.16 at 10:23 pm

I have spent the last few days [email protected] my considerable skills at statutory interpretation on Garth’s 12 new rules re commenting here. Let me see if I can slide this one by.

@stats_canada reports that 93% of residents of Toronto didn’t even realize there were other cities in Canada.

Go Bronx Bombers, Orioles and Red Stockings. Stick a fork in it.

#71 Souvereigninternational on 09.22.16 at 10:26 pm

A small weighting in a completion ETF is just fine, but putting any weighting on gold more than is contained in a large-cap TSX ETF is pure speculation. It’s not investing. — Garth

I don’t understand your aversion to speculation. INVESTING IS SPECULATION. If you did not speculate that you would make money on investment, you would not invest would you?

Gold is a speculative commodity without much utility. These are many less volatile places to put money. — Garth

#72 BC_Doc on 09.22.16 at 10:30 pm

Preferred shares are the good-for-nothing bastard child of Mr. Stock and Mrs. Bond. If you want equity, buy a stock etf. If you want fixed income, buy a bond, bond etf, or ladder your GICs. Buying preferreds is chasing yield– the extra yield comes with volatility and risk (#nofreelunches).

Do rates go up next year? Probably. Or maybe the western world is like Japan and things go negative. If that happens, how will that extra helping of preferreds taste?

#73 Nemesis on 09.22.16 at 10:32 pm

“The Vancouver Sun is pumping Christy’s tires in advance of the May ’17 election.” – WUL

#ForTheSheerestMoment… #IThoughtThey’dSentThePremier… #ToSaunders&Larson… #MPAA:PG13

https://youtu.be/HgOaxgLMQq4

#74 Souvereigninternational on 09.22.16 at 10:41 pm

#18 Mark said,

I’m about 30% allocated to gold and silver equities these days, up from approximately 10% this time last year. Not even thinking of selling at this point

——————

Congrats Mark,

I have a similar allocation mostly in junior and mid silver and my portfolio is up thanks to those gains 104% since January lows. Hope you got lucky with some 10-20 baggers. I left couple of them in my watchlist (e.g.southern silver), but got lucky with a few 5-7 baggers.

#75 Andrew Woburn on 09.22.16 at 10:53 pm

#69 WUL on 09.22.16 at 10:23 pm

@stats_canada reports that 93% of residents of Toronto didn’t even realize there were other cities in Canada.
====================

When I lived in Toronto, I actually knew there were other cities in Canada. I thought they were all just like Toronto, except smaller. When I finally made my first visit to the West Coast and I was getting ready for my flight home, I found myself searching my luggage for my passport.

#76 };-) aka Devil's Advocate on 09.22.16 at 10:57 pm

#28 Andrew on 09.22.16 at 7:52 pm
Surprised there is no mention of the news out today of the complete capitulation of foreign buyers in Vancouver following the foreign buyer tax.

http://vancouversun.com/business/real-estate/new-sales-figures-show-dramatic-drop-after-b-c-foreign-buyer-tax

Because it’s politically incorrect to single out any given purported minority group as a source of consternation.

#77 John on 09.22.16 at 10:58 pm

The biggesst dilemma I am faced with is where to get a good investment consultant, or to which investment company to apply, having only 120k in savings…

#78 Right, only 9%....LOL on 09.22.16 at 11:06 pm

The government data included a Lower Mainland breakdown of foreign buyer sales, for the same periods of June 10-Aug.1 versus Aug. 2-31:

– In Vancouver, foreign sales fell from 508 to 14. The value of those foreign deals fell from $733 million to $11 million.

– In Richmond, foreign sales fell from 310 to 10. The value of those foreign deals fell from $335 million to $6.4 million.

– In Surrey, foreign sales fell from 318 to 10. The value of those foreign deals fell from $312 million to $6.7 million.

– In Burnaby, foreign sales fell from 262 to 5. The value of those foreign deals fell from $221 million to $2.1 million.

The government said its auditors are now reviewing the deals to see if they were structured to avoid taxes.

#79 Chump on a Stump on 09.22.16 at 11:07 pm

“So while interest is 100% taxed at your marginal rate, preferreds pay dividends that have a preferential tax treatment. Yes, because they’re special. Like you.”

Classic. Garth.

#80 Cristian on 09.22.16 at 11:08 pm

“Yes, bonds are safe and you need steady stuff to preserve capital. But they pay almost nothing, and become less valuable when interest rates start to rise. ”

So how are they safe if they can go down?
And, by the way, they can go down A LOT!
Garth, you may want to check out this piece by Jared Dillian (whom you quoted here a few days ago):
http://www.mauldineconomics.com/the-10th-man

Yep, I know all that. Read the post again. — Garth

#81 April. on 09.22.16 at 11:18 pm

Thank you.

#82 Scott in Gibsons on 09.22.16 at 11:25 pm

Very encouraging to hear that JT is looking at an extradition treaty with China.

#83 WUL on 09.22.16 at 11:31 pm

#72 Nemesis on 09.22.16 at 10:32 pm

**********

#NotedandThanks…#CalledOut…#PneumaticPremiers…#LonelyinFtMac

#84 Fed-up on 09.22.16 at 11:41 pm

#55 };-) aka Devil’s Advocate on 09.22.16 at 9:07 pm

_______________________________________________________________

With all due respect sir, please don’t waste your breath. Sales could go to zero mysteriously after the foreign fire tax in Vancouver and this still won’t be enough evidence that foreigners were bingeing on Vancouver real estate for the past 10 years. We’re supposed to believe the locals that were to blame due to the fact that they were a bunch of house horny and financially illiterate, reckless idiots, suddenly and collectively woke and became savvy and shrewd investors.

#85 b riding dirty on 09.22.16 at 11:58 pm

Smoking man you just layed down one of the best said and now read by your followers truths of women and there patterns. I think you may have another book to write to us 33 year old men. Call it ” I will teach you there ways, her-donomics “

#86 Ponzius Pilatus on 09.23.16 at 12:15 am

Garth,
Not sure which way the blog is going.
Too tight of a rope, maybe.
Only SM is hanging on.
Fire the golden boys and bring back the firsts and the pathetic posters.
Surely, you must have enough money.
Obviously, this blog is your passion.
So, let it rip.

#87 Shane on 09.23.16 at 12:59 am

Frn buyers June-Aug: Metro 16.5%; Van 18%; Rich 27%; Bby 24%. Can we agree now BCREA’s >5% estimate was bullshit? news.gov.bc.ca/files/Property…

Guess we were wrong again. Sigh. Stats from BC government say foreign buyers were up to 27% of market in some cities.

Foreign money aka HAM is probably 50% of the market then. How could we get it so wrong here? Confused.

#88 JSquared on 09.23.16 at 1:18 am

#136 james on 09.22.16 at 4:29 pm
#112 Smoking Man on 09.22.16 at 10:59 am

#103 CJBob on 09.22.16 at 8:50 am
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” – Steven Hawking

He should know first hand, has invented nothing, no patents, just a unique brand filling up a blackboard with equations that are wrong and no one understands.

And then there was Tesla and Either.
…………………………………………………………………..
Whats this thing about Tesla with you, he was a smart guy but a rather poor investor and was constantly broke. Owed everybody money for decades. Died penniless, alone and destitute. Came to the promised land and never looked back at his homeland!
……………………..

I’m going to fill you in on something, its a 100% true story. Tesla is the grandson of a Nictointe Pilot by the name of Shlong Zumanga who crashed on earth in the early 18 hundreds. It’s all in my book.

He was pissed that no one came to rescue him, and decided to use his alien powers to shape the world toward a one world government, this shallow beast of a man could not care one bit for humanity. He just wanted to sleep with the hottest babes on the planet with no resistance, he wanted the fathers of the girls to kiss his ring in support.

Then he ran into a problem. Fellow Nictonites with equal powers, Smokey, Assman, Jeremiah, and Barrington didn’t like his plan. Actually, it was Smokey who had the biggest problem, the others just followed. But like Shlong Zumanga, Smokey was a Sky Pilot.

If you think competition is brutal with Chics. you ain’t seen nothing yet when compared to Nictonite Sky Pilots going toe to toe.

Too bad a loony lefty like you will never spend four bucks to see the happy ending that obviously favored Smokey.

Unlike Garth with his giving away the farm for free up top. I’m an Entrupunour damn it. You need to pay..

——

Dude…we’ve been through this. Get a life & stop filling the comments section up with your garbage.

#89 NoName on 09.23.16 at 1:37 am

#27 MF on 09.22.16 at 7:50 pm
#143 NoName on 09.22.16 at 5:08 pm

Sure. And while we are at it let’s invite Florence Owens Thompson.

https://en.m.wikipedia.org/wiki/Florence_Owens_Thompson

MF
///////

Florence met and married hospital administrator George Thompson. This marriage brought her far greater financial security than she had ever enjoyed.

https://en.m.wikipedia.org/wiki/Florence_Owens_Thompson

#90 nonplused on 09.23.16 at 1:38 am

#51 South Etobicoke Trump Campaign Central

Not sure I understood all of your post but my point would be at this point go for the anti-WWIII candidate as otherwise your investment strategy should be bomb shelters and canned food. Thanks for responding though.

#59 Smoking Man

I didn’t get that one either. Who the heck is Shlong?

#91 Joe2.0 on 09.23.16 at 2:01 am

Markets go up with no rate hike.
Down with threat of a rate hike.
What a joke.
Manipulation 2.0
The end is near.

#92 Shaky d on 09.23.16 at 2:27 am

Minister Moroneau has stated that Trudeau Liberal policies are specifically designed to kick the crap out of the Canadian economy ergo lower rates as the economy continues to be gutted by Trudeau. So why buy Canadian prefs if the government is telling you that rates will be by nessesity driven down. Are you saying to buy US pref etfs with USD . Because the Loon will also fall under the Trudeau Recession Plan

#93 NEVER GIVE UP on 09.23.16 at 2:49 am

I love Warren Buffets views on income inequality.

https://ca.finance.yahoo.com/video/income-inequality-problem-warren-buffett-201325553.html

#94 NEVER GIVE UP on 09.23.16 at 2:57 am

Its time for the Vancouver Market to give back about 50% of the ill gotten gains of the last few years.

We still need 3 levels of Gov. to completely rethink the housing supply as they have been the architects of its restriction.

Nobody wants to do anything now because the 15% tax is there and is working the medias Micro-brains to the max.
So every problem has a single factor and consequently a single solution says the simpletons in the MSM. Look no further than the 15% tax.

#95 Shawn on 09.23.16 at 4:46 am

Yes Buffett has a bond portfolio of $25B. But they have an equity portfolio of >$100B and $70B in cash. More importantly, with a total market cap of $350B, bonds represent a small portion of the total value of Berkshire Hathaway. Buffett has significantly reduced his bond holdings in recent years.

#96 Shawn on 09.23.16 at 5:21 am

http://www.bloomberg.com/news/articles/2016-02-29/buffett-cuts-bonds-after-saying-they-need-a-warning-label-chart

Buffett has been reducing his bond holdings for years. I’m sure he would have accelerated this process had it not been for tax reasons.

Bottom line, his advice for most investors is simple. 90% in a Vanguard S&P500 index fund and 10% in a short term bond fund (effectively cash).

Keep it simple. The more things are complicated, the lower returns tend to be over the long term.

#97 Great post and Trump...something's up on 09.23.16 at 5:21 am

Exactly how I have invested my meagre savings for years (compared to this Blog’s wealthy). I thought most invested like that. Seemed logical to me, when 1 investment vehicle drops, another will go up…true offsetting, but over time you are well ahead.

Something is happening in America with their election. For the past 2 days the EC count has changed, yet again, dramatically (yesterday and today from RealClearPolitics, EC, No Tossups):

Clinton 272
Trump 266

…46 more days and 3 debates to go.

bsant54

#98 Shawn on 09.23.16 at 5:36 am

Relative to what one would read in the media S&P500 to 3000 seems like an outlier call. But this is probably where we’re going over the next few years.

Best to get long now…

When the media turns bullish the majority of the gain will be in the rearview mirror.

#99 Percey Shell on 09.23.16 at 6:01 am

I hold the CPD, bought it technically at 12.40. It’s been steady. But even as a stock picker I fear it every day due to the zany fools we have elected. I have upped my cash position to 30 percent since Trudeaunomics. Conversely I have upped my US equity to 60 percent with a full ten percent into Indonesia. They’re making smarter moves than the Trudeau Gong Show.per

#100 Zen Headspace on 09.23.16 at 6:45 am

#41 Smoking Man

“Decisions to buy are driven by The View watchers.”
——————————————————————-

Now THAT’s hilarious. I love it! It’s funny ’cause it’s true.

#101 Zen Headspace on 09.23.16 at 6:55 am

Garth:

“You agree in a balanced, diversified, liquefied state of Zen.”
——————————————————————-

Yes I do.

#102 Bytor the Snow Dog on 09.23.16 at 7:14 am

Let ’em eat cake!

BASTILLE DAY- RUSH

There’s no bread, let them eat cake
There’s no end to what they’ll take
Flaunt the fruits of noble birth
Wash the salt into the earth

But they’re marching to Bastille Day
La guillotine will claim her bloody prize
Free the dungeons of the innocent
The king will kneel, and let his kingdom rise

Bloodstained velvet, dirty lace
Naked fear on every face
See them bow their heads to die
As we would bow as they rode by

But they’re marching to Bastille Day
La guillotine will claim her bloody prize
Sing, o choirs of cacophony
The king has kneeled, to let his kingdom rise

Lessons taught but never learned
All around us anger burns
Guide the future by the past
Long ago the mould was cast

For they marched up to Bastille Day
La guillotine claimed her bloody prize
Hear the echoes of the centuries
Power isn’t all that money buys

#103 pBrasseur on 09.23.16 at 7:28 am

#5 Don Der

You’re wrong on US debt, if you exclude intra governmental debt (which you should because the government don’t have to service that debt) it’s not that bad. Less than Canada anyway and with much better growth prospect and fiscal margin. As it stand taxpayers pay less to service public debts in the US than in Canada.

https://en.wikipedia.org/wiki/National_debt_of_the_United_States

at 89 trillions and counting US households have never been richer, and un like Canada their wealth it not founded on a mountain of debt:

http://scottgrannis.blogspot.ca/2016/09/were-richer-than-ever.html

#104 DIY Meow on 09.23.16 at 7:33 am

For those of us who’ve maxed out on our registered plans and need to invest in margin accounts, is using swapped based ETFs a smart idea? There are no dividends just capital gains.

#105 Mishuko on 09.23.16 at 7:37 am

Would you toss some US preferred shares in the mix?

#106 CJBob on 09.23.16 at 7:38 am

For those who are considering doing it themselves for the first time and moving away from the high fees consider the orange guys street wise funds as a step. 1.07% fee while you study and then ultimately take it over yourself. Good if you have a small amount as well since there are no trading fees, you can contribute a bit each month.

It goes without saying this is the best blog in Canada, but if you want specific ETF’s search for the Canuck Sofa Potato blog which contains a simply approach to getting started :-)

Pay the fruit people 1.07% and have no advisor, no advice, no tax or retirement strategies, or hire an experienced professional fee-based guy for 1% and get to deduct the cost from your taxes. Hmmm. Tough choice… — Garth

#107 Classic 60/40 Portfolio on 09.23.16 at 7:40 am

Thank you for clarifying the right mix for the fixed income (not just ‘bonds’) part of a diversified portfolio. Great column.

#108 pBrasseur on 09.23.16 at 7:42 am

Bonds can lose you money if rates go up, sometimes a lot of money.

There are many ways preferred shares can lose you money as well.

In general, remember that avoiding short term volatility may cost you money in the long term. You should consider if avoiding short term volatility is trully a worthy goal.

For most people it is critical. — Garth

#109 Mishuko on 09.23.16 at 7:44 am

Sorry should of clarified more… having some us preferred exposure in an rrsp or tfsa type account?

#110 pBrasseur on 09.23.16 at 7:46 am

#94 Shawn

That’s right, Warren Buffet thinks bond are in a bubble and should be mostly avoided.

But as usual Bay Street smart-asses think that are better than him…

Buffet has a $25 billion bond portfolio. Ignorant comment. — Garth

#111 Ace Goodheart on 09.23.16 at 8:02 am

Re#13 Andres: read the prospectus. Don’t buy any preferred unless you understand what it does. They are NOT like regular stocks.

#112 fancy_pants on 09.23.16 at 8:15 am

that boardroom (picture) makes better decisions than one with this guy in it

http://www.dailymail.co.uk/tvshowbiz/article-3803247/Austerity-Not-Bank-England-boss-Mark-Carney-racked-300k-foreign-travel-expenses-three-years.html

#113 fancy_pants on 09.23.16 at 8:20 am

dead on. rate increase will come next year. every year. accurate message today, tomorrow, next year and the next, and the next after that. just like telling a donkey to keep walking, carrot is right there.

#114 Johnny on 09.23.16 at 8:21 am

ZPR is down -30% in the past 24 months. Doesn’t sound like a low-volatility asset class to me. Perhaps using it as a complement to your “growth” portion would be better.

#115 David on 09.23.16 at 8:25 am

For anyone sore over the decline in preferreds over the past couple of years consider tax loss harvesting. You can swap out preferred ETFs for each other, harvest the tax loss for future capital gains and retain exposure to the preferred share market. The key here is that the ETFs cannot track the exact same index.

http://www.bmo.com/newsletter/ETF/weekly_nov_V1_13_EN.html
http://canadiancouchpotato.com/2014/11/03/tax-loss-harvesting-revisited/

Obviously, talk to an accountant before doing so. Just make sure they know what preferreds are…

#116 att0m on 09.23.16 at 9:11 am

Garth, I know from reading your blog for several years that you are a big fan of preferred shares, but not everyone thinks the same. Many say that preferred shares don’t offer enough diversification to be useful in a balanced portfolio. I personally have some in my taxable account from the days before “mat leaves” when we were maxing out our tax-sheltered accounts. I’m perfectly happy with 40% fixed income being “boring”, the 60% that tracks the stock markets is enough excitement for me.

#117 maxx on 09.23.16 at 9:21 am

#63 hope & ruin on 09.22.16 at 10:08 pm

…..”Tell ya what Gerry, keep a little bit of that and spend it on a half decent haircut. You look like something out of a Harry Potter movie, promise we won’t make you pay it back.”

Valid point, but nope. He can pay for his haircuts out of his salary. Government today suffers from a very bad case of misplaced adequacy.
It has migrated to paying its members exactly like private industry corporate elites.
People often do get the royal treatment when they move for a private corporation. HOWEVER, private industry runs squarely on its success and its mandate is to make and build on PROFIT.
A government’s prime mandate is the protection of people and also property, the nature of which is largely tax revenue and public assets.
We’ve got immature, entitled twits running the country. They fancy themselves corporate moguls with all of the money wielded through ginormous public-private partnerships and fee structures that have evolved to mimic those of banks. They produce generally less than nothing because of the frightening waste of tax revenue.
If we have “deficits” that have led to today’s debt, it is not because of the people who pay their taxes. It is not due to an ageing population. It is due to government WASTE.

#118 cramar on 09.23.16 at 10:01 am

According to the Economic Policy Institute, the top 1% of Americans are getting wealthier. Many are flaunting it! No wonder there is a general dissatisfaction with the 99%.

10 obscene displays of wealth that shock average Americans

http://www.marketwatch.com/story/10-obscene-displays-of-wealth-that-shock-average-americans-2016-09-22

#119 Arse on 09.23.16 at 10:24 am

I am bearish on Canada and bullish on America in the long term.

#120 Sheane Wallace on 09.23.16 at 10:40 am

https://ca.finance.yahoo.com/news/newsalert-consumer-price-index-1-123351304.html

and when the things get really bad, they will lie…

Inflation at 1 %? Hello? Which planet are you living on?
Have you seen the action in the loonie today? Drops like stone.

#121 Tazi Bnu on 09.23.16 at 10:47 am

This is my first time commentating. Garth you may need to expand on using preferreds, as this is where I think there will be great opportunities within a balanced approach. As you rightly said most preferreds are rate-resets, but there are 3 other main types: Perpetuals, Floaters, and the newer Resets with floors.

Perpetuals react just like a infinite duration bond, so interest rates up then price goes down,.

Floaters are based on a spread above Prime or the Government of Canada 3 month rates, so short term rates go up then the prices go up.

The Resets with floors are similar to the rate-resets but with a guaranteed base yield 5 years later. So if the expectation is that the yield will reset higher at the end of the 5 years, most likely they’ll be called and will act like a 5 year bond getting closer to maturity. However, if rates are expected to fall at the reset time, these will exercise their guaranteed floor yield and thus act more like a perpetual. If the 5 year rate rises only slightly one might get an increased yield without getting called, because the cost to call then refinance at a cheaper rate outweigh the savings. This is where they act like a regular rate-reset.

With that in mind, I think in general CPD works out to be about 50% negatively correlated and 50% positively correlated to interest rates. So this should have low interest rate risk, but with a juicy yield. However, there can be above average credit risk, because the dividend only has to be paid before the commons get their dividend, but doesn’t actually have to be paid if they plan on giving the commons nothing. This is another reason to have the Government and Investment Grade Bonds to reduce the credit risk of the fixed income side of the portfolio.

Maybe you don’t need to expand on preferreds anymore, just clear up anything I got wrong.

#122 Ace Goodheart on 09.23.16 at 11:07 am

The method discussed in this blog post works very well (splitting the portfolio).

I have found the following method, roughly splitting as indicated above, will work for an investment of $100,000.00:

What you are trying to do is never hold more than $1000.00 in any one item. So you want to resist the urge, say, to purchase $50,000 of one security that you feel is doing really well. The idea is to force yourself to diversify. You want 100 securities, at around $1000.00 each initial investment, set across a broad base roughly as he describes in his blog.

If you do this, what you will find is that on a per year basis, a few of your $1000.00 investments will “blow up” or lose a lot of value. A number will increase by the usual 2% to 6%, you will find a few go up by double digits and a few just hover. The upside of this is the few that “blow up” are covered by the increases in the other ones, and you end up ahead.

This is actually what they teach you when you do an MBA, you are supposed to have a million different ways of doing the same thing, so you can keep going in any circumstance.

The bottom line is, force yourself to buy new securities that you don’t already own. Don’t load up on any one thing. Just keep diversifying.

#123 Something I was sent on 09.23.16 at 11:22 am

When to retire? – A study by Dr. Lin.

This study is worth reading again and again

It carries a weighty title: “Optimum Strategies for Creativity and Longevity”, and was the hard work of a Dr. Lin, a member of National Council of the Chinese Institute of Engineers , USA/Greater New York Chapter.

According to the academic, pension funds in many large American corporations (e.g., Boeing, Lockheed Martin, AT&T, Lucent Technologies, etc.) have in recent years been “over funded” because many retirees who work into their old age and retire after 65 tend to diewithin two years of retirement.

Many of these late retirees, he observes, do not live long enough to collect their pension money.

Dr Sing Lin says statistics gathered from several corporations indicated that the longer you work, the shorter your life will be.

If people retire at 50, their average life span is 86. If they stop work at 65, their average life span is only 66.8.

An important conclusion from his study is that for every year one works beyond the age of 55, one loses an average of two years of life.

The Boeing experience seems to confirm this: Employees retiring at 65 receive pension checks for only 18 months, on average, prior to death.

Similarly, at Lockheed, employees retiring at 65 receive pension checks for only 17 months, on average, before they die.

Dr David T. Chai, another academic, whom Dr Sing Lin quotes in his research, says the Bell Labs experience is similar to those of Boeing and Lockheed. Chai bases this on his casual observation from newsletters on Bell Lab retirees.

Hardworking retirees apparently place too great a burden on their aging bodies and minds, such that they become stressed out, says Dr Sing Lin.

This leads to serious health problems which will force them to stop work.

With such long-term stress-induced health problems, they die within two years of their retirement.

On the other hand, people who retire at 55 tend to live long and well into their 80s and beyond.

Dr Sing Lin acknowledges that early retirees are probably wealthier or more able to plan and manage their health and career, and this is probably why they can afford to stop work and still live comfortably.

His observations also reveal that many early retirees do not idle their way into old age. They continue to do part-time work at a more leisurely pace, which reduces stress.

He concluded his research with this advice: Plan your career path and save enough so you can retire comfortably at the age of 55 or earlier to enjoy a long and happy retirement life into your 80s and beyond.

“If you are not able to get out of the pressure-cooker or the high-speed battleground at 55 and have to keep on working until the age of 65 or older, you will probably die within 18 months of retirement,” he writes.

“By working in the pressure cooker for 10 extra years beyond the age of 55, you give up, on average, at least 20 years of your life.”

#124 Brett in Calgary on 09.23.16 at 11:32 am

10 Smoking Man on 09.22.16 at 7:05 pm

Garth, did something fall on your head. A brain freeze, too much ice-cream. Did the merchants of white guilt finaly get to you.

Why are you giving up this Intel for free? What is wrong with you? It’s time for an intervention. I have to come up to the forks now and try and snap you out of this madness.
———————————————————-

Because even if he tells people exactly what to do, many won’t. Case and point, sell your house in Vancouver circa March 2016.

#125 crossbordershopper on 09.23.16 at 11:37 am

liquid, balanced and diversified. ok. i got it, if like 10 million canadians who have nothing, are liquid, when you have nothing, your liquid, all 69 dollars in your account.
in terms of balanced, like balance what? you own nothing, how do i move money from my cayman account to the bahama balanced? like really.
and diversified, what does that mean, i switch from coke to pepsi or what other name brand pop is on special at the discount grocery store this week. diversified.
poor people have no risk its the middle class that are walking on eggs. a few missed paycheques and they fall from grace. They are risky position. have car and house etc all that peril. poor people have nothing so the first step down is no big deal. you simply take your kid and move in with your sister and her kid. reality of poor people, they just move their junk around from one apartment to another.

#126 Prairieboy43 on 09.23.16 at 11:55 am

Pay the 0.75-1.0% fee. You will not go Grey Early. Get moving, now!

CJBob on 09.23.16 at 7:38 am
For those who are considering doing it themselves for the first time and moving away from the high fees consider the orange guys street wise funds as a step. 1.07% fee while you study and then ultimately take it over yourself. Good if you have a small amount as well since there are no trading fees, you can contribute a bit each month.

It goes without saying this is the best blog in Canada, but if you want specific ETF’s search for the Canuck Sofa Potato blog which contains a simply approach to getting started :-)

Pay the fruit people 1.07% and have no advisor, no advice, no tax or retirement strategies, or hire an experienced professional fee-based guy for 1% and get to deduct the cost from your taxes. Hmmm. Tough choice… — Garth

#127 WalMark of Sadkatoon on 09.23.16 at 11:57 am

#18 Mark on 09.22.16 at 7:19 pm
I’m about 30% allocated to gold and silver equities these days, up from approximately 10% this time last year.

This is why WalMark never profits.

Sad.

Gold is a speculative commodity without much utility. These are many less volatile places to put money. — Garth

#128 LL on 09.23.16 at 11:58 am

# 41 – Be it with the success of their kids, granite, stainless steel fridges or a McMansion.
A dude would never buy a house is he wasn’t blackmailed.

I don’t like stainless steel fridges, stainless steel toaster, stainless steel oven..alouette! So ugly!
(Would fit better in a commercial kitchen!)

Granite is also ugly…have you see the granite colors? Yieurk………

I also don’t like McMansion (with their kitchen in dark color)…to big to clean!

You look at a condo, a house and they all look the same…granite, stainless steel, dark kitchen, and floors made with the same stuff!

There still woman who are not lemming and are not interested at all by those stuff!

#129 WalMark of Sadkatoon on 09.23.16 at 12:01 pm

#116 Arse on 09.23.16 at 10:24 am
I am bearish on Canada and bullish on America in the long term.

The US is doing something right

They also blew off a lot of risk in the Great Recession.

#130 TurnerNation on 09.23.16 at 12:13 pm

MIC Genworth bloodening today on new mortgage rules. Portend. Pretend.

I went to a party last night. ..Sharp magazine. You could sit on a real Harley roadster and rev the snot out of it. I demurred. Open bar and scotch tasting.

I shuddered to think of the oil and cylinder head Temps on that air cooled beast last hot night. B. Lamb was there too.

#131 Jerry Stein on 09.23.16 at 12:14 pm

Sheanne Wallace does not get it. They don’t want people to have money and be debt free.

Reverse Mortgages at 5%+, lines of credits at 4% to 8%, credit cards at 12% to 33%, payday loans at 300% to 500%, title loans on vehicles at 30% to 55%, car loans for 84 to 96 months at 0%, yeah right!!!

Real estate assessments at 40% to 50% higher and property taxes, going up by 6% to 10%+ a year, water rates going up 8% to 11% a year, cap and trade, carbon taxes added, H.S.T. of 13% to 20% and going up soon, natural gas rates going up, auto insurance coverage being cut by 50% or more and home insurance, car insurance rates rising much more like 25% to 50%, electricity rates up 300% in 11 years.

They have been fudging the numbers for years now!!!!

#132 Victor V on 09.23.16 at 12:26 pm

Bank watchdog is beefing up capital requirements for mortgage insurers

http://business.financialpost.com/personal-finance/mortgages-real-estate/watchdog-tightens-rules-to-help-mortgage-insurance-industry-weather-severe-but-plausible-losses

“These new capital requirements, if implemented, will provide greater certainty that risks associated with residential mortgages are adequately capitalized for,” Mercer said, adding that this should reduce concerns about the impact of a housing downturn.

In his June report, Mercer estimated that a housing crash in Canada could result in combined losses of more than $17 billion for Canadian banks and mortgage insurers.

The new OSFI rules for mortgage insurers are to come into effect Jan. 1, with possible revisions, following the consultation period that ends Oct. 21.

#133 bill on 09.23.16 at 12:26 pm

does anyone know what the figure for cmhc current ,all in, total for insured mortgages?
I have a 520 billion figure. does that sound about right?
thanks folks!
Bill

#134 Millionaire next door on 09.23.16 at 12:29 pm

I’m a long time preferred share investor. Made lots of money in 2008/2009 on Canadian prefs. Having seen this movie before, I loaded up in Dec-Feb 2016 on rate resets: mostly sub-investment grade variety. People focus on the cause and effect of the GOC 5 yr and don’t pay attention to the effect of credit spreads when fear take hold of the markets. I locked into some juicy yields and capital gains ytd are 20 – 70% as spreads narrow. In comparison, I bought some ZPR around the same time and its up around 3%. Best to pick individual shares but you need to know what you are doing.

#135 Ogopogo on 09.23.16 at 12:39 pm

#15 Jungle on 09.22.16 at 7:14 pm
And try not to time the market. Including preferreds, interest rate drops/hikes and rate reset.

Remember total return is what matters-not yield. Preferred investors got a huge loss last year. That yield did nothing.

The financial ignorance is astounding. The only “huge loss” is if you sell, oh ye of little intelligence. I call it a gift, since it allows me to average my cost down further and further.

*facepalm*

#136 Willdaman on 09.23.16 at 12:39 pm

#118 Tazi Bnu
——–
Nice post.

Couple of points to add:

– for resets, the likelihood of an issuer calling a pref series at reset time will also depend on the spread associated with that pref. If a company issued prefs with a spread of say 4% above bank of Canada five year bond rate, and come reset time the environment has changed and the company thinks they can issue new prefs with a lower spread (e.g if the company’s credit rating has since improved), then the likelihood of being called rather than reset is in the cards. For high spread prefs trading below par value today, you’d be looking at a capital gain in addition to collecting divs along the way in such scenarios.

-floaters typically reset quarterly, so are more interest rate sensitive. If you believe interest rates are destined to go up, these are golden. I’ve got a whack of prefs that float based on bank prime which I think are no brainer bets…banks will be first in line to increase their prime rates when the boc overnight rate finally hikes, and in the event the boc has a brain fart and decreases rates by 0.25% you can be sure that banks will not drop their prime by the same amount (and if they did I would be piling more money into these particular prefs).

#137 Damifino on 09.23.16 at 12:55 pm

#75 };-) aka Devil’s Advocate

“Because it’s politically incorrect to single out any given purported minority group as a source of consternation.”
——————————————-

Does the set of all people in the world who are not Canadian Citizens constitute a ‘minority group’?

#138 bdwy sktrn on 09.23.16 at 12:59 pm

604 crash report – seeing the first new listings pop up since the big freeze. a house round the corner, small (25′) lot, nice reno of a blah smaller house. mostly ham free comm dr area (the tats must scare them off!)

early spring pricing on this baby would have been right around 1.7m.

open house this wknd, just listed asking price 1.85.

some crash.

#139 bdwy sktrn on 09.23.16 at 1:07 pm

https://www.realtor.ca/Residential/Single-Family/17409376/2023-KITCHENER-STREET-Vancouver-British-Columbia-V5L2W6

link

#140 Victor V on 09.23.16 at 1:15 pm

Allan Lichtman has correctly predicted every presidential election since 1984. This year, he’s calling it for Trump.

https://www.washingtonpost.com/news/the-fix/wp/2016/09/23/trump-is-headed-for-a-win-says-professor-whos-predicted-30-years-of-presidential-outcomes-correctly/?postshare=3031474650298265&tid=ss_tw

#141 Survivor on 09.23.16 at 1:19 pm

the tribe has spoken
http://www.ctvnews.ca/business/ontario-real-estate-associations-oppose-taxing-foreign-buyers-in-toronto-1.3085541

#142 bdwy sktrn on 09.23.16 at 1:19 pm

only other nearby listings are 2 unrenoed van specials for 1.80 and a nicely renovated one for 2.2m.

nothing else available. zip.

peak pricing lives on in this hamfree zone.

(in 2013 specials were going for 900k)

#143 Ferrari321 on 09.23.16 at 1:32 pm

Well, there you go. And you THOUGHT fixed income assets were boring. Shut up.

:)

#144 Kootenay Hippie on 09.23.16 at 1:59 pm

Preferred shares are awesome but I am staying away from them at the moment for two reasons: 1. I am in my high earning years and even though dividends get a preferential treatment, the tax hit is still significant and 2. I have kids, so with the 38% dividend gross up, T2’s pogey gets clawed back.

When I retire preferreds will be a corner stone of my portfolio. In BC, one can receive over 75k in eligible dividends before paying a cent of personal tax.

#145 Bram on 09.23.16 at 2:01 pm

#130 bill on 09.23.16 at 12:26 pm
does anyone know what the figure for cmhc current ,all in, total for insured mortgages?
I have a 520 billion figure. does that sound about right?

You can consult their reports, like this econ prof did:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/01/cmhc-reserves-revisited.html

He’s not worried at all, btw. Although the article is dated.
Let me quote:

2009 was a bad year for CMHC losses. But despite that $1.1 billion in Net Insurance Claims expense, CMHC reserves increased by over $1 billion both in 2009 and in 2010. It would take something much worse than 2009, at least 10 times worse, to wipe out CMHC’s reserves.[Nick Rowe]

So make of that what you will.

Bram

#146 Hakuna Matata on 09.23.16 at 2:16 pm

Great post, Garth!

Question if you have time: Do you think high yield bonds have any place in your balanced 60/40 portfolio, or is it better to stick only with investment grade stuff?

#147 Penultimate Square on 09.23.16 at 2:18 pm

The housing market crisis is your fault. Didn’t you know that! http://www.huffingtonpost.ca/ben-myers/canadas-housing-market-crisis_b_12134820.html?ncid=engmodushpmg00000004

#148 Millionaire next door on 09.23.16 at 2:21 pm

#133 Willdaman

this is exactly the strategy I employed with some Bell floating preferreds (BCE.PR.E). Floating rate preferred calculated on ratchet rate formula of Canada Prime rate. People fear negative rates and potential impact on conventional 5 yr rate resets. Let’s just say I don’t expect Prime will drop to zero or below. Upside is great, especially bought at 5.5% yield at 50% below par. Lots of possiblities here if you employ margin on these things.

#149 Sheane Wallace on 09.23.16 at 2:34 pm

#128 Jerry Stein on 09.23.16 at 12:14 pm

Sheanne Wallace does not get it. They don’t want people to have money and be debt free.
———————————

I do get it, hence I am moving out.. whoever is left to witness the s..tstorm, good luck.

It is going to hit the fan big time, will be smelly and long-lasting and inflation will be horrific (just watch the action with our currency/loonie/northern peso today)

But hey, on the ‘positive’ side: we are going to get additional taxes! increased CPP, new carbon/green economy taxes, selfie with JT surcharge tax, JT retirement tax (his retirement, not yours) etc.

#150 bdwy sktrn 2.0 on 09.23.16 at 3:13 pm

https://www.realtor.ca/Residential/Single-Family/17409376/2023-KITCHENER-STREET-Vancouver-British-Columbia-V5L2W6
They will be lucky to get 1.4 mil. now, listing price =/= sell price, especially after the HAM fear is gone … like 97% gone baby

#151 Freedom First on 09.23.16 at 3:28 pm

#41 Smoking Man

Yes. Woman is much smarter than man. Court backed too. Brilliant.

#152 Cory on 09.23.16 at 3:43 pm

2 excellent posts in one week. Is love in the air?? ha.

#153 espressobob on 09.23.16 at 4:18 pm

Sure, ZPR & CPD have taken a hit. But as investing goes it’s usually better to average in to beaten & bloodied asset class. As long as its quality.

Emotions usually dictate because something smells bad even though this may not be the case.

The best way to buy more prefs is by holding ones nose and keeping a 5 gallon bucket beside your pc in case it all just gets to be too much.

Down the road and looking back on a buying opportunity that slipped through your fingers, ouch.

Great stuff to own in a non-registered account.

#154 westcdn on 09.23.16 at 4:31 pm

I believe we are in a debt crisis. Interest rates must stay low for everyone to manage their cash flow. But one person’s debt is another person’s asset. It should be obvious the elites are the debt asset holders. They want the value of those debt assets held. They will insist debt be repaid. God forbid they lose their “right” to control plebs.
Julius Caesar inherited a debt crisis. Rome depended on an agriculture economy and farmers were the backbone. Unfortunately, due to endless wars and competition to slave labour farm estates and cheap imports of grain, the average Roman citizen/farmer was going slowly broke and into debt over his head. The Roman Senate members were the ones who owned the public and private debts – they were few in number but very wealthy.
Julius Caesar crossed the Replicon as a populist to the average farmer/citizen. They cheered him on his march to Rome and the senators fled. Caesar had to kill many of the senators in battles – most notably Pompey. Caesar brought them to heal, temporarily, as they would assassinate him later to restore the old order.
Julius Caesar solved Rome’s debt crisis by a partial debt jubilee. He ordered that interest payments be treated as capital repayments (zero interest loans). The end result was Roman senators saw their debt assets fall in value by an estimated 30% and the farmer citizens get the debt relief they needed. No wonder the Roman senators were mad at Julius. Julius also continued to transform Rome into an empire as a structural reform. Sadly, people don’t realize the power of his reforms that formed the basis of Western Government philosophies today.
Will a debt jubilee work today? I have to say no because the Romans didn’t have the social systems we have today. A debt jubilee would also apply to pension plans and there is no way plebs will accept a 30% cut to their pension benefits (many boomers). The millenniums are gaining the power to brush this aside but they would be shooting themselves in the foot.
But not to fear, our fearless leaders are working on better solutions. More comments to follow if I don’t get stoned to death. https://www.youtube.com/watch?v=DEzvnBTXMj0

#155 Shamalamdingdong on 09.23.16 at 4:31 pm

The market was wobbling in June and July. All it needed was a push. — Garth

Still no admission from the Mighty Garth the those of us who live here and witnessed “The Yellow Peril” were right all along. Significant offshore Buyers pushing up prices.

You shouldn’t have dismissed those that live in the Metro Vancouver area so readily Garth. It makes you look like your not willing to consider different data points.

Being humble is a virtue.

How do you expect me to invest with you, when you won’t admit you were clearly wrong? We can’t all be right, all of the time…….

Foreign buyers did not push up overall prices. The fear of them did, and locals carried out the damage. I’d rather be correct than humble. — Garth

#156 Mark on 09.23.16 at 4:34 pm

“does anyone know what the figure for cmhc current ,all in, total for insured mortgages?
I have a 520 billion figure. does that sound about right?”

Don’t forget the 90% re-insurance CMHC provides for Genworth and Canada Guaranty subprime mortgage insurance programs. Tag on another ~$300B or so for this.

#157 Smoking Man on 09.23.16 at 4:38 pm

#148 Freedom First on 09.23.16 at 3:28 pm
#41 Smoking Man

Yes. Woman is much smarter than man. Court backed too. Brilliant.
…..

No question about that.

#158 Mark on 09.23.16 at 4:51 pm

“This is why WalMark never profits.”

Don’t know who you’re referring to (you quoted me, but I’m not “WalMark” — that’s you!). However, the 10% to 30% change in allocation wasn’t due to any purchases. Just growth, with most positions tripling.

Think about that before you run your mouth off talking about things for which you have no clue. You belligerent twit.

#159 cramar on 09.23.16 at 6:12 pm

#120 Something I was sent on 09.23.16 at 11:22 am
When to retire? – A study by Dr. Lin.

This study is worth reading again and again

[snip]

—————–

Thanks for this. Fascinating. I did some checking on this and it seems Dr. Lin’s study is from 2002.

http://www.ptarmigannest.net/wp-content/uploads/2008/04/retirement-age-vs-life-span.pdf

Makes one wonder if the study was duplicated today, would the results be similar or different? I suspect that for those retiring at 65 today, their lifespan is longer than 18 months.

And it could just be an urban myth with faulty data:

http://www.intmath.com/blog/mathematics/retiring-early-means-a-longer-life-an-urban-myth-822

#160 };-) aka Devil's Advocate on 09.23.16 at 6:56 pm

#134 Damifino on 09.23.16 at 12:55 pm
#75 };-) aka Devil’s Advocate

“Because it’s politically incorrect to single out any given purported minority group as a source of consternation.”
——————————————-

Does the set of all people in the world who are not Canadian Citizens constitute a ‘minority group’?

Within the confines of our borders, apparently so.

“Political Correctness”; it’s an oxymoron.

#161 ptsakani on 09.23.16 at 11:35 pm

Foreign buyers did not push up overall prices. The fear of them did, and locals carried out the damage. I’d rather be correct than humble. — Garth
_______

Agreed. But if it all it takes is 1 foreigner to start this process, then the removal of this foreigner will restore equilibrium and save Canadians furthermore from their self destruction. Same reason T2 has introduced CPP changes.