Regular addicts will know this blog never shutters. Seven days a week, 52 a year. Just like the corner jug store, but with dividends. And dogs. Plus all the merchandise is free. And the hosts let you write stuff on the wall before you leave. It’s the 11th year now, mirabile dictu. And while a lot of people come here just to be prickish and pick a fight, other needy souls wander in seeking guidance.
So a tad more regularly we’ll be turning over space to these questions. Now, here’s Michael to kick off today’s version of The Needy.
First of all, thank you for sharing your wisdom with us – I’ve been a regular reader for a few years now. I have a question regarding portfolio rebalancing. Specifically rebalancing with new cash. I transfer saved cash to TFSA and RRSP on a monthly bases and rebalance the portfolio twice a year by buying ETF shares to restore 60/40 weighting. By buying shares with accumulated cash at every rebalancing cycle I never really have to sell any winners to restore weighting, instead, I just end up buying less additional shares that went up in price and buying more stuff that went down in price.
Question – is it a valid rebalancing strategy or you think I should change something? My concern is that I never end up locking profits from shares that went up in price. Hopefully, you will find a minute to respond or address this topic in the blog (if someone else has a similar question).
In any case, thank you very much for all the time spent writing the blog and information you shared with us over the years. It greatly influenced my perspective on some things.
Mike, this is a very valid approach. Rebalancing is essential to the health of any portfolio, yet ignored by most people. They cannot find the courage to sell winners and harvest gains (as with US equity ETFs right now) nor the guts to buy unloved, losing assets when they’re on sale (like preferreds).
When there’s no new cash going in, investors need to restore that 60/40 balance (which shifting asset values inevitably throw out of whack) through trades. But with routine contributions, just pump cash into the ETFs needed to re-establish correct weightings. No sales means no capital gains in non-registered accounts, which is also cool. Good job, M.
Now, here’s Ryan, another irritating young professional with a satchel of cash. But he’s also caught up in the Mars-Venus debate. Let’s listen.
Love your blog, been reading for a decade. Wife and I have decided it’s time to start looking at buying. 2 young kids and we do like the idea of having a paid-off house in the somewhat near future as opposed to renting.
We live in Calgary, I’m in tech sales, she’s in HR and we make ~$300K combined. Have $1.4 million in liquid net worth (maxed rrsps, tfsas, and investment accounts – all balanced ETFs). We are now planning on building a down payment fund of $100k to get a place (looking at around $500K). My question is: should we keep the $100K in cash, earning nothing in a savings account, or should we throw it into investments to make more while we take our time to find a place? She says cash, i say invest… she’s the smart one with money – what is your advice?
Such First World problems. What possible benefit is there to establishing a separate jar of money for a down payment? If your plump portfolio is correctly invested, it’ll always throw off cash in the form of interests or dividends (preferreds are now churning out 4.75%), and you can dip into it for a hundred grand with impunity.
Having a segregated DP account is 100% psychological and emotional, not practical. If the forever house doesn’t come along for a few years, you’ll have eschewed growth and accumulated taxable interest. No benefit there. And if financial markets sag because of a recession in a year or two, so will house prices in Calgary. Invest the money. Venus loses.
Now to Alex, with a unique situation but a common question:
My Mom’s house burned down a few months ago, she was insured so a new house is being built. She wants to put me on the Title (I’m her only child) and she figures it would be less hassle for me when she dies. It would just be the two of us on the Title and the mortgage will be paid off very soon. My wife and I have never owned a house but we hope to buy something one day. Her concern is that if we buy our own place and I’m already on the Title to my Mom’s place, would that pose any concerns?
Mostly this is a bad idea. First, your mom’s house will be her principal residence and the proceeds of it sale therefore free of capital gains tax if she retains full ownership. She can pass it on to you through her will (if that happens) without a tax obligation, or your being on title. Second, it costs money to have your name placed on the deed, and when the property is ultimately disposed of, more fees. Wasted money. Small probate charges are cheaper.
Third, if you’re on title and don’t live there, further increases in the market value of the property may no longer be tax-free. After all, you own half and it ain’t your principal residence. So why would you get the PR exemption?
Third, what if you and your wife split? In going after her share of your assets, suddenly mom’s house would be in play. That could cause major economic upset in your life, plus your mother would probably kill you. There are more reasons. But I think this is enough.
Tune in soon for the next episode.
82 comments ↓
My wife has gold fever at the moment.
She plans to sell off her FANG heavy Global Technology Fund and buy a Precious Metal fund dominated by gold producers.
I like being alive, so I’ll stay out of it…
M45BC
Apparently Swine flue in China killed off as many pigs as exist in all of North America and Europe. However, the Chinese authorities have just banned Canadian meat. This is so illogical it can only have been done by politicians and likely because of Huawei.
While I am grateful the Chinese won’t be buying all the meat in Canada just before barbecue season I do wonder what if anything can be done about an unreliable commercial partner like China.
Ahah a photo of Smoking man’s shower stall
#3 TurnerNation on 06.26.19 at 4:19 pm
Ahah a photo of Smoking man’s shower stall
…
Nah can’t be his…. they aren’t empty.
#3 TurnerNation on 06.26.19 at 4:19 pm
Ahah a photo of Smoking man’s shower stall
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Too high end for Smokey. Scope’s more his speed.
Out of curiosity, what are your (anyone reading) thresholds for re balancing? For example if you are 60/40, do you re-balance at 65/35? Sooner, later? Which and why?
Love the Q&A posts!
Garth I am surprised you recommend investing the money needed for a down payment on a home. I had thought conventional wisdom said not to invest money in equities that you might need in the next 3 years, due to market risk. Or was the advice specific to Ryan due to his net worth?
You mentioned that if equities drop, so will real estate. But you have also pointed out that real estate is local market dependent. Just because equity markets drop X% doesn’t mean Calgary prices would do the same
A hundred grand in a $1.3 million portfolio is little more than the cash weighting of 5-6% he should have anyway. Besides, it’s not in equities. It is part of a balanced portfolio. – Garth
Was just thinking the same thing re:preferreds and bought some this morning. Probably a good time since my emotions were saying “why – they suck”. They were below weight and I had money to invest.
Rebalancing for most of us in the early years is simply buying more of the losers (like prefs were for me recently). When the portfolio asset classes fluctuate more relative to each other than the new money added, that changes. But, that is usually later when the portfolio is large and contributions less. I have only had to sell to rebalance once. Some QQQ early last fall to get more bonds. Emotional me was against it, but it was the right thing to do. Everytime that I have not followed the plan because I thought I was smarter, I later felt like a dumbass.
-LD
Rebalancing…
I do it when a specific stock rises to more than 7% of portfolio value. Unless, it looks like it’s just getting going and has more upside.
That’s called ‘gambling’. – Garth
Why is this blog so obsessed with this 60/40 balance between equities and fixed income? Why not invest 100% in the higher yielding asset class? I.E., 100% in equity index funds/ETF.
I suspect the answer is volatility. However, if one is invested for the long-term, this is just noise. Aren’t we sacrificing long-term returns just to reduce the variance?
Few have the emotional strength or long-term focus to ride out the volatility an equity-only portfolio brings. Come back and read the comments here the next time we have a 15% correction. It’s pathetic. Everybody wants to buy high and sell low. – Garth
I only rebalance once a year by buying more of what is needed to shore things up.
This opens up a lot of free time, which I usually spend annoying the boss of this blog.
You reap what you sow…
M45BC
#2 David McDonald on 06.26.19 at 4:15 pm
Apparently Swine flue in China killed off as many pigs as exist in all of North America and Europe. However, the Chinese authorities have just banned Canadian meat. This is so illogical it can only have been done by politicians and likely because of Huawei.
While I am grateful the Chinese won’t be buying all the meat in Canada just before barbecue season I do wonder what if anything can be done about an unreliable commercial partner like China.
———————————————-
Politicians in the loose sense of the word, this is a single party, hybrid command economy remember and could never be painted with a single brush…
The solution to unreliable partners is to develop alternate markets. China’s dealings with Canada and vice versa present multiple lessons in that and why agreements with Europe and Pan Pacific Partnership are important despite what “anti-globalists” believe, or maybe they like to eat cheap BBQ pork…
Why doesn’t Ryan just keep his house down payment in cash and compensate by having less money in fixed income in his investment portfolio? 100k is about 7% of 1.4 million, which is close to the 5% cash weighting Garth suggests, anyways.
Win-win for Mars and Venus!
(I’m not married, but I would imagine it’s easier to find a way for Venus to win than to convince her she’s wrong.)
Re – what?
You realize most people barely know how to buy a stock let alone re-balance, right?
So, if broken down into a percentage and my weighting gets out of whack, I just shuffle to the original weighting percentages where I would be taking profits from winners and pumping it into the losers, but maintaining basically the same portfolio?
What is a good book to read on this? I need to learn.
I was all in on the “mirabile dictu” at the outset then after reading the 3 stories, I changed my mind and en Français:
Sacré bleu.
Still, good advice.
As for the shower stall and booze, there must be “Charlene – I’ve Never Been To Me” and “Patsy Gallant – From New York To L.A.” playing in the background.*
Hopefully Canada’s GDP doesn’t need a boost day after tomorrow (like Italia’s does).
*Yes, that was a Trailer Court Housewife reference if your were wondering. The shower stall Décor inspired that. Hey, I could of said White Trash but I didn’t.
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Si Garth I know, Buonanotte e Ciao d’Italia.
Pink Floyd’s David Gilmour Sold His Guitars for $21.5 Million—And Donated Everything to Fight Climate Change
https://www.motherjones.com/media/2019/06/recharge-59-climate-change-guitar-auction-pink-floyd/?fbclid=IwAR2Y0xVEgt9a9gNUkTJhK1F7aL1TKzS4oMNpK7XSJU_6PmI7mx9rU5zRwvQ
PS:
That cannot be Smoking Man’s Shower Stall.
NO ASHTRAY.
If you don’t smoke please don’t rebut with the obvious (pun intended) or have ever had a large enough shower stall in your life.
I’m realizing now that I am the Kawhi Leonard of this blog.
Never too high, never too low.
And I can turn it on when I want…
M45BC
Not emotionally weak here. I just sold crypto and gold after buying it in November and now buying into the slumping equities.
My rule of thumb is to not trust my own instincts. If I have the urge to buy, I hit the sell button.
The probability of this working out for me has been 93% accurate since 2010.
I have proven to myself over and over again that my instincts are perfectly wrong. And that is okay as long as I remember my golden rule: never trust your instincts, recognize and reverse.
Must be Smoking Man’s bathroom.
OK all you Trumpster wanna bees. Serious business tonite 6:00 pm. The first law of warfare, “know thine enemy.” The next two nites you’ll get to see the foe before the varnish & boilerplate to come. Vicarious pleasure watching the enemy reveal their fault lines. Look at it like a homework assignment. The dangerous ones will be those that ignore the Trumpster & have their own reasonable platform.
RE: #6 Guy in Calgary on 06.26.19 at 4:56 pm
Out of curiosity, what are your (anyone reading) thresholds for re balancing?
===========================
I usually only rebalance when I put new money in. But if I have already topped up my TFSA for the year and the market moves a lot, I’ll rebalance the ETFs which are out by more than $2000 which works out to 0.5% for a $10 trading fee.
I really like these reader Q&A’s. Always learning something new on this blog! You’re helping average folks become financially literate so they actually have a chance at bettering their lives. Thanks for all you do Garth!!
Flop’s Deal of the week.
This is the segment where we try to see if anyone can find any value in an overheated market.
I featured this one about a month ago as a possible buy and now someone saw some value and snapped it up.
The details…
22180 Sharpe Ave Richmond.
Originally asking 998k
Assessment 990k
Just sold for 910k
Assessment and original ask were under a million but it still took them six months to reach an agreement.
The best thing about this place is most things in this bracket in The Inner Ring need a bit of time and a lot of money, not so with this one, only 13 years old and the main concession is that is in East Richmond, closer to New West, than the more fancied West Richmond.
This information is provided for free.
I don’t expect 5% of your lifetime savings…
M45BC
https://www.zolo.ca/richmond-real-estate/22180-sharpe-avenue
#20 What? on 06.26.19 at 5:55 pm
…I have proven to myself over and over again that my instincts are perfectly wrong. And that is okay as long as I remember my golden rule: never trust your instincts, recognize and reverse.
>Good work, Costanza!
A reader a while back recommended the book “The Mandibles.”
Thanks for the tip. Couldn’t put it down.
Though the second half was a disappointment. I’d say the author rushed it just to get ‘er done.
I would like to echo Jay’s #24’s comments, the Q and A, is a great way to learn and the examples are interesting.
Garth, Ryan and Doug, demonstrate for me, a trend which is sadly disappearing from our Political Landscape, much to the Peril of the Electorate. I am long enough in the tooth, to remember when our Leaders tried to help us… Imagine if there was a free vote in the House of Commons, to change up, some ideas, and actually help Canadians… For example, in Canada, instead of bashing, critizing, hobbling our Energy industry, the so called Leaders, actually promoted Energy Independence, and we had access to Energy at very competitive prices….. Can you imagine, the Benefits, if folks, could drive their cars, and trucks, and not go broke…The discourse about Investment and Manufacturing advantages, is too lengthly a topic.. but imagine a positive focus…
Another example of our Leaders inadequacies, is the comment that Garth made the other day…. That there were very few MP’s that have any Financial accumen, or invest in the Equities Market….. Having MP’s who are financially illiterate in our Modern Global marketplace, is not a good plan… maybe this Blog should be required reading… Needless to say, we need some Business Skills, to man the ship…Please consider this in October at the Ballot Box.
Re: #1 Flop… on 06.26.19 at 4:14 pm
Gold will get pulverized from May 2020 to September 2020 likely back down to $1,200 even U.S. in that time-frame. Meanwhile the central bankers are not buying any gold and silver is continually being monkey hammered. If they only cut one quarter of a point in July gold will get shellacked that day. I don’t see any resolution in the trade deal between China and America at the upcoming G20 meeting. Preferred shares should do very well in that same time-frame May 2020 to September 2020. Playing a non-rigged commodity like uranium or long Bitcoin would be my choice. Natural gas at today’s levels look like the safest trade I don’t see any chance at all of a recession in America before the 2020 election.
#11 Mr Fundamental on 06.26.19 at 5:28 pm
Why is this blog so obsessed with this 60/40 balance between equities and fixed income? Why not invest 100% in the higher yielding asset class? I.E., 100% in equity index funds/ETF…
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Easy cowboy, I was 100% equites then 09 wiped me out. Not having any free cash or assets not already down 30-50% was rough. Selling already beaten losses to buy slightly less losses.
Thing is in a real correction all assets tend to fall all at once, EXCEPT for cash/bonds. Perfs are the worst of bonds and common shares so just like late 2018 don’t count on things like REITs or Prefs to rebalance against, it all goes to crap all at once.
The only way to expect a 100% common to work is really never ever look at it, never rebalance just ‘because’, always contribute all in, say 5-10k chunks. Your contributions are your fixed portion. Mathematically it does not make a difference if that cash is rotting in a chequing account at -2% or actually earning (little) interest on bonds.
Easier said than done.
I found pretty hard to resist of buying pref (dividends 5.22%) instead of bonds (2.88%) on income side.I almost hit the button today but again… That’s probably why people pay advisors.
It’s just matter of time when you gonna forget all that you have learned and make emotional-wrong decision.
Garth , C’mon …in a registered account preferred shares decrease returns
Cpd – 10 yr average return : 1.75
A long term gic would have doubled that .
Facts
Currently churning out about 5% with a tax credit. Fact. Buy them for yield, not capital gain. How many times does that have to be said? – Garth
Preferred shares in the states are not on sale so you are referring to Canada Preferreds. The cannabis industry has surplus inventory which could go “up -in-smoke” apparently you can’t keep all the BUD forever and CHINA is just not toking like we hope they wood. Happy Canada Day. I luv u guyz.
Btw, I found a lot of comments here useful and would like to “like” them.
Garth, did you think about adding some kind of similar options here?
No. – Garth
#32 Sam on 06.26.19 at 8:01 pm
Garth , C’mon …in a registered account preferred shares decrease returns
Cpd – 10 yr average return : 1.75
A long term gic would have doubled that .
Facts
Currently churning out about 5% with a tax credit. Fact. Buy them for yield, not capital gain. How many times does that have to be said? – Garth
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Point is still valid, anything other than a non-reg you get zero credits or tax advantages only that very real total return.
So put them in the right place. – Garth
Nice photo set-up!
if it were for real, the glasses would be shelved bottom up!
btw, showers are for cleaning up, bathtubes for relaxing.
I put bottle and ashtray beside the bathtub. I don’t like drinking while standing.
but on a more serious note:
The answered questions like today are a very good idea.
I’ve got a question too.
Today I stumbled over a (to me) new expression.
“inverse ETF”
What is that?
Mr Turner? Anyone?
What are the fund codes for these ‘preferreds’ of which you speak?
Please and thanks :)
Flop… on 06.26.19 at 6:50 pm
Flop’s Deal of the week.
This is the segment where we try to see if anyone can find any value in an overheated market.
I featured this one about a month ago as a possible buy and now someone saw some value and snapped it up.
The details…
22180 Sharpe Ave Richmond
================ xxxxxx=============
Hi Flop, greatly appreciate your efforts into Sir Turner nightly story time section.
That 22180 Sharpe Ave , is south Richmond, at about 9 Road east !
Yikes ! Think Saskatcgewan is closer to YVR airport!
What were they thinking?
Location, location, location…… wasnt on their minds.
Ps :: anyone know why my Cohiba Esplendido is so hard to keep lit? My socks burn better than these.
Got to be a humidor issue.
“Mirabile dictu”
Love it Garth. Keep up the Latin. And greetings from YPR. I’m on vacation.
#36 Sierts: inverse exchange-traded fund (ETF) – investopedia.com
I think the synonym for this is gambling.
#36 Sierts
I’ve got a question too.
Today I stumbled over a (to me) new expression.
“inverse ETF”
What is that?
Mr Turner? Anyone?
————————————————————-
Google inverse etf
https://en.wikipedia.org/wiki/Inverse_exchange-traded_fund
There are a couple ETFs with CPD buried so far deep in them you will never see it dogging around. Buy those.
I think that Michael and the rest of your strung out, stressed out bloggers should come to Alberta and chill out with our farm animals and just relax; these ladies may be on to something!
https://www.cbc.ca/news/canada/calgary/alice-sanctuary-farm-animal-yoga-classes-1.5191125
#38 Spectacle on 06.26.19 at 9:52 pm
Flop… on 06.26.19 at 6:50 pm
Flop’s Deal of the week.
This is the segment where we try to see if anyone can find any value in an overheated market.
I featured this one about a month ago as a possible buy and now someone saw some value and snapped it up.
The details…
22180 Sharpe Ave Richmond
================ xxxxxx=============
Hi Flop, greatly appreciate your efforts into Sir Turner nightly story time section.
That 22180 Sharpe Ave , is south Richmond, at about 9 Road east !
Yikes ! Think Saskatcgewan is closer to YVR airport!
What were they thinking?
Location, location, location…… wasnt on their minds.
/////////////////////////
Hey Speckie, I did write this in my original post.
“…only 13 years old and the main concession is that is in East Richmond, closer to New West, than the more fancied West Richmond.”
I do suspect they will spend more time grocery shopping and running errands in New West than Richmond, but once again, even the ones below a million in New West are older Bernie Sanders.
Less time doing maintenance, a little bit more time driving might have been the trade off.
Still inside the second velvet rope and I wish them well.
I used to get letters from all over the world asking if there is any value to be found, that is subjective, but I try help out.
We can bash real estate all day long, but people want to put a roof over their heads and that’s why I still continue with the value picks and don’t worry about the millions being lost on the Westside anymore.
If my stalker doesn’t like that, then we’ve got a problem.
Let’s get it on…
M45BC
M45BC
#37 There are several of them and they are different (some have fix dividends, some not, some react more on interest rates ect.) I use ZPR. It is not found but ETF ( ETFs are the same products as founds but with much lower fees and that’s why more and more investors prefer ETFs).
>I looked over Josh Gordon’s paper on the Vancouver housing market again. I was wondering if I got my analysis correct. I admittedly did it quickly. To follow up, I still agree with Derek Holt of Scotiabank’s assessment.
Now two questions for Gordon and his supporters.
From Gordon’s own charts and data:
—
(Figure 3, as below)
2018: Vancouver 8.5% market share.
2016: Price to Income Ratio: 31
>So can an 8.5% market share in itself cause a Price to Income Ratio of 31?
—
Figure 4: Non-resident ownership vs. “de-coupling” in 2013, Metro Vancouver
Y-Axis: Price to income ratio, detached houses, 2013
X-Axis: Non-resident ownership share, detached houses, 2018
>2013: Price to income ratio: 19. 2018: Vancouver Non-resident ownership share: 8.5%
Figure 3: Non-resident ownership vs. “de-coupling” in 2016, Metro Vancouver
Y-Axis: Price to income ratio, detached houses, 2016
X-Axis: Non-resident ownership share, detached houses, 2018
>2016: Price to income ratio: 31. 2018: Vancouver Non-resident ownership share: 8.5%
>So in three years the Price to Income Ratio went from 19 (2013) to 31 (2016) while the Non-Resident Ownership Share remained at 8.5% (2018). As there was no change in the Non-Resident Ownership Share what accounted for the 12 point increase? This data is from Gordon’s own (poorly – X&Y Axis) correlated charts.
—
Solving Wozny’s Puzzle
Foreign ownership and Vancouver’s “de-coupled” housing market
Josh Gordon
School of Public Policy, Simon Fraser University
June 18, 2019
http://www.sfu.ca/content/dam/sfu/mpp/WorkingPaperSeries/Solving%20Wozny%27s%20puzzle%20on%20decoupling%20and%20housing%202019%20Gordon%20(1).pdf
23 kommykim on 06.26.19 at 6:24 pm
RE: #6 Guy in Calgary on 06.26.19 at 4:56 pm
Out of curiosity, what are your (anyone reading) thresholds for re balancing?
===========================
I usually only rebalance when I put new money in. But if I have already topped up my TFSA for the year and the market moves a lot, I’ll rebalance the ETFs which are out by more than $2000 which works out to 0.5% for a $10 trading.
—-
This is a really good point. Trading fees can certainly add up. There are a few online brokers including the big guys that offer free trades on select ETFs. Most likely to compete with the mutual fund style and address the $100 per month investor.
#39 will & #40 Ronaldo
Thank you, gentlemen.
Seems, like it’s better to stay with betting on horses.
(less variables)
Interested in preferreds? What are they and any recommendations for ones to look into?
#2 David McDonald on 06.26.19 at 4:15 pm
Apparently Swine flue in China killed off as many pigs as exist in all of North America and Europe. However, the Chinese authorities have just banned Canadian meat. This is so illogical it can only have been done by politicians and likely because of Huawei.
While I am grateful the Chinese won’t be buying all the meat in Canada just before barbecue season I do wonder what if anything can be done about an unreliable commercial partner like China.
————
Google Rectopamine.
If you have faster heartbeat and higher blood pressure after eating Canadian pork, don’t blame the Chinese and 160 countries who have banned this substance.
will on 06.26.19 at 9:53 pm
“Mirabile dictu”
Love it Garth. Keep up the Latin. And greetings from YPR. I’m on vacation.
#36 Sierts: inverse exchange-traded fund (ETF) – investopedia.com
I think the synonym for this is gambling
=============================
Hi will,
Is this really wul?
The Latin thing was a tip-off, and close proximity of i to u, in an inebriated state.
Are you going through ‘Rupert on your way back from the R2AK? (race to Alaska)
Which team?
Good drama again this year.
Cheers, R
Only little kids and fall down drunks tell the truth.
Everything else is a sales pitch of sorts.
Dr Smoking Man
PhD Herdonomics
All ways be my babe.
Best movie of the year.. Netflix’s.
Genius writers.
DELETED
I am smart enough to know that I am too stupid to re-balance my 60/40 myself.
That’s why I have smarter people doing that for me for a minuscule fee.
If you do it yourself, I wonder if you fill your own cavities as well.
#30 mike from mtl on 06.26.19 at 7:51 pm
#11 Mr Fundamental on 06.26.19 at 5:28 pm
Why is this blog so obsessed with this 60/40 balance between equities and fixed income? Why not invest 100% in the higher yielding asset class? I.E., 100% in equity index funds/ETF…
///////////////////////////////////////////////////////////////////
Easy cowboy, I was 100% equites then 09 wiped me out. Not having any free cash or assets not already down 30-50% was rough. Selling already beaten losses to buy slightly less losses.
Thing is in a real correction all assets tend to fall all at once, EXCEPT for cash/bonds.
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Equating cash and bonds is dangerous. There have been numerous incidents where bonds and equities have fallen at the same time. The negative correlation is a recent (last 20 years or so) feature of markets. There’s no reason to expect it to be permanent.
Chris Cole give a good explanation here: https://static1.squarespace.com/static/5581f17ee4b01f59c2b1513a/t/561dc6bfe4b0ee35464228f2/1444791999826/Artemis_Q32015_Volatility-and-Prisoners-Dilemma.pdf on page 16.
Assets falling together is a relatively rare event, and usually short-lived. Over the course of years negative correlation is a valuable reality to harness. Worked well in the last correction – just six months ago.
millionaires talking about money, ok sure, this place seems to be so far away from reality for the vast majority of people who live in Canada trying to simply pay their bills as they come up. paycheque to paycheque be it welfare, disability,pension or a job that doesnt pay much, not the 150K a person with 1.4mm in liquid assets and it looks like no real estate.
i have never met anyone who has money but no real estate, mayby my crowd different obviously.
dividend tax credit is 1.3x interest equivalent at highest rate, the magic is at low only dividend income, but tfsa is a real game changer,
what do i know, millionaires asking for financial advice. we should all talk about where to get deals and save money to get by.
do you know july 1 is the busiest moving day of the year across canada, have you ever wondered why,
Life is about choices. – Garth
I particularly like the multi-disciplinary approach this weblog takes at the intersection of gender and finance.
Namely the Bikes, Babes and Balanced Portfolio approach.
Or for the more erudite among us, Harleys, Hotties and Hedge Funds tack.
— Hey with rebalancing only twice per year what else are Blog Dogs to do but come here nipping and snarling.
#55 Tater on 06.27.19 at 8:10 am
Assets falling together is a relatively rare event, and usually short-lived. Over the course of years negative correlation is a valuable reality to harness. Worked well in the last correction – just six months ago. – Garth
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Bonds and stocks have been positively correlated for more of the last 100 years than not.
The last 20 years have allowed a number of large, leveraged positions to build up, under the risk parity framework, that are based on the assumption of negative correlation. If we get a fall in stocks and bonds, a positive feedback loop will be created and the selling will intensify.
Nope. – Garth
@ #54
Tend to agree with that. Used to have my own DIY 60-40 and just couldn’t keep away from either obsessively unnecessary too frequent rebalancing or fiddling with allocation to make an occasional dumb tactical bet.
Don’t see why in this day and age everyone just doesn’t use either VBAL/XBAL/ZBAL or VGRO/XGRO/ZGRO. These products tend to have pretty similar allocations to what Garth recommends in terms of US vs CAD vs international equities. The only thing missing is REITS and preferred, but one can add a dash of that manually.
I’d say anyone younger, who has not yet accumulated so much as to stuff both TFSA and RRSP to the limit and need unregistered account ought to just buy some VBAL and fuggedaboutit for a decade or two or three.. If you really want to get fancy with REITs and prefs maybe like 90% VGRO + 5 XRE +5 XPF and rebalance when adding new cash once a year. But nothing more complex than that.
#58 Tater on 06.27.19 at 8:41 am
#55 Tater on 06.27.19 at 8:10 am
Assets falling together is a relatively rare event, and usually short-lived. Over the course of years negative correlation is a valuable reality to harness. Worked well in the last correction – just six months ago. – Garth
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Bonds and stocks have been positively correlated for more of the last 100 years than not.
The last 20 years have allowed a number of large, leveraged positions to build up, under the risk parity framework, that are based on the assumption of negative correlation. If we get a fall in stocks and bonds, a positive feedback loop will be created and the selling will intensify.
Nope. – Garth
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Erudite.
Of course, everything I said are simple facts. You can disagree that there are no conditions that would warrant stock and bonds selling off in tandem, but the mechanics are what they are.
Conjecture is not fact. – Garth
#1 Flop… on 06.26.19 at 4:14 pm
My wife has gold fever at the moment.
She plans to sell off her FANG heavy Global Technology Fund and buy a Precious Metal fund dominated by gold producers.
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Nice. That is my signal to get out of HEP.to today. According to trading account, it recently made a 7% price appreciation and I’ve been collecting 5% monthly dividends from it for holding. Tell your wife to keep the shares safe for me, I’ll come back for them later. :D
Most DIY investors find the task of rebalancing complicated and confusing because they don’t know what they’re doing in the first place.
Their portfolios are so chock full of the wrong crap to begin with, so the prospect of properly rebalancing what is so out of whack is highly unlikely.
Find a good advisor. Get the right instruments. Have them fine tuned periodically by someone that knows what they’re doing.
@56 crossbordershopper
FYI, for those who may not know:
Moving Day, July 1st:
https://en.wikipedia.org/wiki/Moving_Day_(Quebec)
Another awesome post Garth. Rebalancing was a question I had so Thank you for addressing it.
Home buyers now need to compete with algorithms.
Meet the A.I. Landlord That’s Building a Single-Family-Home Empire
http://fortune.com/longform/single-family-home-ai-algorithms/
I wonder how the algorithm would assess the investment case for a Vancouver special? Would probably blow up…
#54 Captain Uppa on 06.27.19 at 7:46 am
I am smart enough to know that I am too stupid to re-balance my 60/40 myself.
That’s why I have smarter people doing that for me for a minuscule fee.
If you do it yourself, I wonder if you fill your own cavities as well.
_____
Same – pay the Pros.
Incidentally, I could probably fill my own cavities given a bit of time to research and figure out the processes.
But I won’t be trying to re balance my portfolio any time soon.
#49 Ponzius Pilatus on 06.27.19 at 12:41 am
Google Rectopamine.
If you have faster heartbeat and higher blood pressure after eating Canadian pork, don’t blame the Chinese and 160 countries who have banned this substance.
___
Hey Ponzie! I bet your BC Auto Insurance rates do the exact same thing to your BP/HR!
Rectopamine – that must be the lube those public Insurance companies keep on the shelf for use at renewal time.
PFFFFTTTT that would never happen….
“what if you and your wife split? In going after her share of your assets, suddenly mom’s house would be in play. That could cause major economic upset in your life, plus your mother would probably kill you. ”
Umm Yeah. It does.
ADD cottage purchases between family members and their spouses. Now the share is up for dispute.
David Pylyp
Seen it all …
#60 Tater on 06.27.19 at 9:05 am
#58 Tater on 06.27.19 at 8:41 am
#55 Tater on 06.27.19 at 8:10 am
Assets falling together is a relatively rare event, and usually short-lived. Over the course of years negative correlation is a valuable reality to harness. Worked well in the last correction – just six months ago. – Garth
———————————————————-
Bonds and stocks have been positively correlated for more of the last 100 years than not.
The last 20 years have allowed a number of large, leveraged positions to build up, under the risk parity framework, that are based on the assumption of negative correlation. If we get a fall in stocks and bonds, a positive feedback loop will be created and the selling will intensify.
Nope. – Garth
————————————————————-
Erudite.
Of course, everything I said are simple facts. You can disagree that there are no conditions that would warrant stock and bonds selling off in tandem, but the mechanics are what they are.
Conjecture is not fact. – Garth
————————————————————-
The paper I linked lays out the correlation argument, if you’d like to point out a criticism with the data, that’d be great.
As for the mechanics of risk parity and the effect on the market, those are also facts. These strategies are new, but the mechanics of them are well known and very mechanistic. It’s not dissimilar to the portfolio insurance in the mid 80’s. I’m sure you remember how that resolved itself.
#66 IHCTD9 on 06.27.19 at 9:30 am
#54 Captain Uppa on 06.27.19 at 7:46 am
I am smart enough to know that I am too stupid to re-balance my 60/40 myself.
That’s why I have smarter people doing that for me for a minuscule fee.
If you do it yourself, I wonder if you fill your own cavities as well.
_____
Same – pay the Pros.
Incidentally, I could probably fill my own cavities given a bit of time to research and figure out the processes.
But I won’t be trying to re balance my portfolio any time soon.
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But there are many things that Financial Planners and others cannot do that you yourself can do such as plumbing, electrical, mechanical, carpentry, etc right? Just think of the money you have saved because of these skills. I know for me its many thousands. On the other hand there are many people who are quite capable of looking after their own financial affairs with a little help from the pros. I will leave cavity filling to my dentist.
#61 n1tro on 06.27.19 at 9:07 am
#1 Flop… on 06.26.19 at 4:14 pm
My wife has gold fever at the moment.
She plans to sell off her FANG heavy Global Technology Fund and buy a Precious Metal fund dominated by gold producers.
———————-
Nice. That is my signal to get out of HEP.to today. According to trading account, it recently made a 7% price appreciation and I’ve been collecting 5% monthly dividends from it for holding. Tell your wife to keep the shares safe for me, I’ll come back for them later. :D
——————————————————————
Sold my Hep last week for a nice 33% gain. When everyone starts getting the gold fever, it’s time to get out and like yourself I will pick it back up later once it’s back down to around $21.
Just wanted to say thanks Garth for this blog! Always informative and a great read.
Appreciate your efforts.
#2 David McDonald on 06.26.19 at 4:15 pm
I do wonder what if anything can be done about an unreliable commercial partner like China.
=================================
China has learned a lot from the British model of Divide and Conquer. They use this technique to bully smaller nations to get in line all over the world.
China has a severe inferiority complex and a huge axe to grind. They won’t let go of the past. Simply turn on the TV in any hotel room in China and you will at any time of the day see some program highlighting the history of past wrongdoings from the Japanese, the British, and the Americans.
It would stand to reason that the Fentanyl crisis is largely due to payback for the Opium wars that decimated the Chinese economy in the 1800’s.
You can see the smirk on their faces over the Pacific all the way from Hastings and Main.
https://en.wikipedia.org/wiki/Opium_Wars
Ironically after all the above the Chinese are proud of the European buildings in Hong Kong, Shanghai, Tianjin and elsewhere. They have beautifully restored them and they remain a huge tourist draw for both Chinese and foreign tourists.
On the Mars/Venus dilemma, the answer is correct RE: invest vs. cash, but the logical follow-up is that the answer makes the question itself moot.
They have 1.4 million in liquid assets, a 300k combined annual income, and a home budget of 500k. There’s no need to save an additional 100k for a down payment, they’ve already saved it and are in a perfectly secure position to buy when they please. The difference between buying now then saving another 100k vs. saving another 100k and then buying is pretty insignificant IMO.
#55 Tater on 06.27.19 at 8:10 am
Assets falling together is a relatively rare event, and usually short-lived. Over the course of years negative correlation is a valuable reality to harness. Worked well in the last correction – just six months ago. – Garth
———————————————————-
Bonds and stocks have been positively correlated for more of the last 100 years than not.
The last 20 years have allowed a number of large, leveraged positions to build up, under the risk parity framework, that are based on the assumption of negative correlation. If we get a fall in stocks and bonds, a positive feedback loop will be created and the selling will intensify.
Nope. – Garth
Tater has a point. The Zeitgeist just needs to turn from focus on “return ON my capital” to “return OF my capital” and bingo. Ask anyone who lent money to friends or family.
Why would you do that? – Garth
Addendum to the Fentanyl Crisis:
The Chinese are only taking advantage of the crisis that was largely started by our own Doctors who have legally prescribed Meds and then left patients with addictions.
Our backward thinking about prohibition has led to the deaths of 40,000 people per year in North America.
Crystal Meth is a natural go to drug for those who have been given a taste by the medical profession in the form of Desoxyn which is a pure form of Methamphetamine. If Desoxyn were legalized for addicts the entire Fentanyl crisis of 40,000 deaths per year would disappear instantly.
Every death caused from Fentanyl overdose is a death root caused by our esteemed Medical Establishment.
It is not a matter of whether or not we like to see our people on these drugs or not. It is a matter of the supply chain. The supply chain is dangerous unless regulated. The ongoing Drug War seems to deny the human condition that has one constant: People will get whatever they want that makes them feel better. They will pay anything for it and that drives the free market in drugs.
Methamphetamine’s are useful in people with ADHD, Obesity and Narcolepsy.
Our society has no real idea how prevalent the above medical need is. There are varying degrees of these maladies and our doctors will cut off people who themselves feel much better when given these drugs in fear of losing their license to practice or their insurance when a patient becomes addicted.
So to protect the licenses of Doctors and to satisfy the backward thinking Drug War advocates it is much preferred that the patient gets the drug on the street supplied by China, Mixed with all kinds of bathtub drugs with all manner of unknown doses.
https://family-intervention.com/blog/key-facts-about-desoxyn-prescription-methamphetamine-stimulant-for-adhd/
Rebalancing will only lower your returns long term. you will be continuously selling the high performers (stocks) for low performers (fixed income). No thanks
#56 Crossboardershopper
do you know july 1 is the busiest moving day of the year across canada, have you ever wondered why
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Because it is not -30C?
#24 Jay on 06.26.19 at 6:29 pm
I really like these reader Q&A’s. Always learning something new on this blog! You’re helping average folks become financially literate so they actually have a chance at bettering their lives. Thanks for all you do Garth!!
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This cute quip arrived in my inbox:
I’m glad I learned about Parallelograms in high school math instead of how to do my taxes.
It comes in so handy during Parallelogram Season.
Sorry if it was already posted:
https://www.msn.com/en-ca/money/topstories/vancouver-man-gets-surprise-dollar17k-bill-for-empty-homes-tax-on-live-work-townhouse/ar-AADtYsj?li=AAgh0dA
Looks like if a property is zoned for both residential and commercial, BC is enforcing the empty home tax if you have it rented to a business and not for use as a home.
76 Karlhungus on 06.27.19 at 1:51 pm
Exactly.
Buy high sell high for the win!
….I think?
MF
Guy in Calgary, the 5/25 rule for re balancing makes sense for me.
http://awealthofcommonsense.com/2014/03/larry-swedroe-525-rebalancing-rule/