More on sequence of returns risk

Sequence (of returns) risk is something I mentioned in my recent piece about my upcoming third quarter portfolio review. Sequence risk is a major factor in my planning as our household heads into retirement in the near future.

Looking at the current valuation of the S&P 500 vs. underlying gross national product is a bit sobering.

More on this here.

Previewing my next quarterly household portfolio review

September brings my next quarterly portfolio review and my next, self-imposed, securities trading window (I only trade four times a year). I have been giving a fair bit of thought this summer to what’s next for our portfolio.

Here’s a preview of my thinking….

 

 

 

 

 

My Q2 2018 portfolio review has been published

I’ve published my second quarter of 2018 portfolio review. In it I discuss my current take on managing our household portfolio, some of the trades I’ve recently made and my thoughts for the rest of the year.

See my review here.

Breaking my own asset allocation rules

I have a confession to make. I have broken my own asset allocation rules with my second quarter trades.

I bought more equities even though I was already a bit overweight in them.

Why did I do this?

My reasoning is as follows:

  • I have a relatively low target equity weight to begin with (46% of our portfolio)
  • I had a lot of cash on hand (way over 10% of our portfolio)
  • I have more cash becoming available due to savings, bond maturities, dividends and interest in the next 12 months or less
  • quite a bit of that cash was in our TFSAs and I wanted to get that money working at better than than bond returns since the returns are tax free
  • bond yields are still not that attractive in spite of rising rates (~3.1% yield-to-maturity on a five-year investment grade corporate bond)
  • there are a lot of relatively good deals in consumer staples, utilities and telecommunications right now – several companies are off their highs and are trading at reasonable multiples
  • these three sectors are pretty defensive and could do OK in a recessionary environment
  • I only bought high quality equities with relatively low risk and often decent dividends (with one or two exceptions)
  • I did not add any new positions, just added to our existing holdings to increase their position size to something more in line with our average position size
  • Next quarter is another opportunity to review our portfolio and decide if we should trim some of the big gainers, especially in technology, which are starting to become more dominant single positions in our holdings

What I bought (all in our TFSAs):

  • Algonquin Power (AQN) – initially bought in my Canadian TFSA and journalled to my US TFSA to get the dividend that is paid in US dollars without conversion back to Canadian dollars
  • Bell Canada Enterprises (BCE)
  • Fortis (FTS)
  • Loblaw (L) – has a relatively low dividend
  • ONEX (ONEX) – this is an exception as it is a growth stock with a very small dividend in the multi-sector holdings industry
  • North West Co (NWC)
  • Telus (T)

I also bought some bonds:

  • CALLOWAY-I 3.985% 30MY23
  • FAIRFAX FINL 4.5% 22MR23
  • CANADIAN WESTERN BANK Maturity Jun 16 2022 Coupon 2.737

So, after this investment “spree,” our weightings vs. targets are as follows:

Asset Type Planned Actual Variance
Equities 46.0% 51.9% 5.9%
Bonds 36.0% 29.6% -6.4%
Bullion 9.0% 9.1% 0.1%
Total Cash/Near Cash 9.0% 9.4% 0.4%
TOTAL 100.0% 100.0%

All in all, we’re still in a pretty conservative posture and continue to have flexibility with cash levels if needed.

More to come in early July when I publish my Q2 portfolio review.

Brad’s updates to Steven Brown’s retirement forecaster tool are now available

Brad updated Steven Brown’s Retirement Forecaster Excel spreadsheet tool (version  2.7.2). The changes are as follows:

Version 2.7.2 provides support for defined benefit (DB) pension plans with a Bridge Benefit (such as the Fed Government or Ontario Teachers) and the accompanying DB Survivor pension. Detailed input instructions are provided on the Instructions sheet, under the Instructions section.

You may access the material on Brad’s page here.

Secular trends fantasy portfolio launch

I’ve launched a new fantasy portfolio on the money4retirement.ca website to track secular, or thematic trends for investors.

A secular trend is:

An investment trend associated with some characteristic or phenomenon that is not cyclical or seasonal but exists over a relatively long period.

The rationale for doing this and the initial portfolio structure is presented here.

The first secular trends fantasy portfolio tracking report (and its benchmark) is presented here.

I’ve also added a new menu option called “Secular trends and investing” on the site for quick access.