Share and prosper™
I have completed my 2019 annual portfolio review. Results were very good, and well ahead of plan.
All asset classes rose in value and I took profits in late November on holdings returning over 20% in 2019.
Now I have cash to deploy in 2020.
More on the year in review here.
I once again broke my investing rule of trading only once per quarter (if at all). What to do when two rules conflict with each other? I tried to err on the side of lower risk. I re-balanced early as one asset class breached a target threshold.
More here.
I have completed and posted my Q2 2019 portfolio review. We’re up 9.8% so far and things are looking good notwithstanding some possibly growing headwinds.
Read my full review here.
I have to make a confession. I broke one of my investment rules. I traded in May instead of in June when I normally would.
I typically trade only quarterly, but this time was different. I only lasted two months.
What was the trigger? One of our stocks has been soaring past single-holding thresholds lately and I thought I’d like to re-balance on a high note.
Find out more here.
On Friday it was reported that the yield curve in the US inverted for the first time since the last (great) recession. This is supposed to be a reliable harbinger for a future recession in 12-18 months.
What does it mean when the yield curve inverts?
It means the US short-term interest rate (as measured by the 3 month Treasury Bill rate) is now higher than the long-term interest rate (as measured by the 10 year Treasury Bill rate). An inversion like this is generally regarded as a negative market/economic sentiment that can affect economic and market behaviour.
The yield curve inversion has sent some scurrying to make changes to their portfolios by raising cash, selling riskier stocks and becoming more defensive (buying utilities, telcos, REITS and consumer staples equities).
Why I am not scurrying to do anything on the news:
I am not saying a recession won’t happen in 2019-20. It may well.
What I am saying, as a long-term investor who buys, holds and monitors a portfolio of retirement assets designed for all markets, who relies primarily on asset allocation rules when making security weighting decisions, and who makes limited and selective trades intended to improve overall portfolio quality, I don’t react to news like this.
Do you?
I have posted a piece on my thoughts for trading in my Q1 trading window.
The main thing I plan is to sell one slow-growth US dividend payer and replace it with a fast-growth US ETF.
More here.
I’ve posted my annual portfolio review as well as an updated version of my household investment plan.
My annual review shows a small gain in our portfolio for 2018, well ahead of major North American indexes. More here.
The updates to my household investment plan feature continued focus on sequence of returns risk and asset allocations based on “buckets” along with a reduction in our target portfolio performance going forward as we start to glide into retirement. More here.
I’ve posted by September 2018 quarterly portfolio review. We’re behind on our total return target so far this year. Find our more here.
I’ve updated our household investment plan to reflect further progress on my thinking as we move closer to retirement.
More here.
I made pretty much all the trades I had discussed previously in my self-imposed quarterly trading window. One new addition to the portfolio (BIP) and two eliminations (EFV, EEM).
More here.
I have now written a brief piece on possible ways to mitigate the risk of sequence of returns.
Some of the approaches are not intuitive!
More here.
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.
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….
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.
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:
What I bought (all in our TFSAs):
I also bought some bonds:
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 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.
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.
I’ve completed my first quarter portfolio review.
Quite a difference from last year so far. Our household portfolio is flat so far this year. That’s a bit better than some of the major indexes, but not all.
I have a link in my review to some evidence that markets in the US might be soft until the mid-terms, and then could rebound a lot. So hopefully things will improve as the year progresses.
Find out more here.
I had some unexpected time available today to make my first quarter trades (normally made on the 15th of the month, so a day early).
I previously posted some considerations I had in mind for this cycle, and received some helpful feedback in reply to that earlier post (thank you FletcherLynd!). I also posted a related question to 5i Research. (All the feedback and discussion is contained in the replies to my earlier post if you wish to follow along.)
So, in the end I did the following to take advantage of utility stocks for sale at a relative market discount and to address some major holes in our bond ladder:
The net result is I’ve gone a bit overweight equities (I was slightly over-allocated already before trading). I sit at 49.5% versus 46% target, in part because equities, in spite of the correction last month, are still surging in my portfolio (tracking 17.3% on an annualized basis so far this year).
I’ll keep an eye on equity allocations as the year progresses and may trim a bit in technology if current trends persist. New cash should also help offset this imbalance a bit.
I will be doing my quarterly review at the end of the month and will post it along with my previous reviews here.
*Full disclosure – I’ve been a bit erratic with Valener. I bought it in September 2017 (just six months ago) as a long-term holding. At the time I wanted to buy Algonquin Power but thought it was too expensive. I have traded VNR for AQN opportunistically because of the sector rotation taking place in utilities that has made AQN’s price a more attractive entry point.
I have purposefully set a quarterly trading date for my buying and selling of securities to prevent over-trading and to provide time for reflection between trades.
Mid-March 2018 is my next trading window. What am I thinking?
I have accumulated a fair bit of cash/short-term bonds in our portfolio (almost 21% compared to our 9% target) that needs to be deployed. We are currently underweight bonds in our bond ladder (22% vs. 36% target), slightly overweight in stocks (48% vs. 46%) and about even in bullion at 9%.
I intend to purchase 1/4 of our underweight amount in bonds and will continue along the same path for the remaining three quarters. Yield to maturity in the retail, investment grade bond market, available via my discount brokers is now sitting at about 3.4% on five to six year maturities. So I will seek out positions of that nature. I also need to top up a bit in the three-year and four-year timeframes. So, as March 15 approaches, I will start filling those gaps.
The only other trade I am contemplating is to take advantage of the market’s current lack of interest in dividend paying stocks like utilities. I have been wanting to purchase Algonquin Power (TSX: AQN) for some time, and it now sits at a forward P/E of 16.47 and a growing dividend of 4.67%, rising steadily since 2009, which is pretty good for this “growthy” dividend payer.
FASTGraphs shows a total annual rate of return since January 2010 of 18.5%. YCharts shows it at a cumulative return of 370% in that same time period and StockRover shows a 102% cumulative five-year total return.
According to YCharts, it is 8.5% under value, and according to FASTGraphs it is 7.9% under value on a P/E basis. FASTGraphs has it at a 16% discount using historical price/operating cash flow measures. It is nearly 10% off its 52 week high.
So, even though this stock will push our equity allocation even a bit more over target, I believe it is a good addition to our portfolio, especially as we get a little closer to retirement. I may look to trim technology stocks again later this year to re-balance down a bit, since they seem to be making the fastest gains again so far this year (buy low, sell high is my thinking). As our savings, dividends and interest payments accumulate over the course of the year, the equity allocation will trend down slightly in relative terms (all things being equal).
I don’t really want to add another position (going to 34 equity holdings from 33), but I can’t see anything else to sell outright at the present time. And I do like AQN.TO, as does 5i Research (“one of our favourites”) who I follow. The latest commentary from 5i on the March 2 quarterly report suggests fundamentals are good (especially earnings). AQN’s recent acquisition seems to be working out fine as well.
Our portfolio beat it’s own target return objective in 2017: 7.82% vs. 7.00%, (or about 12% better than planned), and our asset allocations ended up mostly in line with what I expected.
We also beat our benchmark: 7.82% vs. 6.37% (or about 23% better than our benchmark).
See how it worked out in more detail here.
My latest version of our household investment plan is now published (as of December 31, 2017).
As I describe it: “For the first time, this investment plan update includes refining our objectives based on explicitly creating portfolio “buckets” that will guide our target asset allocations and serve to fund our retirement.”
It is not a radical change from previous plans. My rationale for choosing asset allocation targets is evolving though.
This plan and previous versions are all available here.
As is my practice I only trade securities four times a year after reviewing our household portfolio performance, asset allocations, and any new ideas that I wish to act upon.
This quarter was a bit of a watershed. Today was my trading day and guess what? I did not make a single trade.
Performance is ahead of our targeted 7% annual rate of return. Asset allocations are all close to plan. No new ideas emerged that seemed any better than those I have had before.
As I said before, it may sound boring, but I am pretty excited to be doing what I set out to do and, at least for now, being rewarded for it.
I do think sometimes the best move is no move at all.
I will do a full update on the quarter and year and post it here at money4retirement.ca in early January. Some of my ideas regarding asset allocation are evolving as we get closer to the distribution stage of our portfolio (i.e., retiring from full-time employment in the next couple of years).
I have posted my third quarter 2017 portfolio review.
We’re pretty much firing on all cylinders, and year-to-date we are on track to hit our 7% total return goal for 2017.
In a reply to an email from friends today about Shopify’s stock pullback due to the recent short report issued by Citron, and a related article in the Globe and Mail about SHOP’s future prospects (paywall), I pointed out the following considerations that I consider relevant (at least from my point of view):
Maybe the stock price rises are over. Maybe not. Certainly caution is warranted. Keep allocations reasonable if holding. I sold half my position last month. I am watching it closely now and may sell more in December when I next trade (I only trade four times a year). I am still up 167%.
I note the stock, after the big pullback Wednesday, has remained weak, but it’s not collapsing. It is now (this morning) back where it was August 22. I expect the November 2nd earnings report will be very significant for its short-term future price behaviour. So far it has beaten estimates every time. We’ll see if that continues. Also, guidance towards profitability will likely be scrutinized closely. It’s expected to be profitable in 2018.
I personally believe the short report is exaggerated. Aside from that, this stock has had a meteoric rise this year (not likely to be repeated next year) and it remains vulnerable to any shock – shorting, earnings miss or market correction. That doesn’t necessarily mean this stock must be sold provided weightings are reasonable and a long-term position is the game plan.
I also note that Shopify has defended its marketing practices and business model.
Having said all this, SHOP is possibly going to breach one of my sell rules I’ve identified in our household portfolio plan: consider selling any security if its fundamentals change negatively such as chronic negative sentiment among investors (including short-attacks).
I know sentiment changes are *not* (corrected) truly fundamental. But in some cases sentiment can be far more important than fundamentals.
I’ll watch SHOP closely over the next few weeks to see how to proceed. As implied, November 2nd’s earnings report will be very important for short-term sentiment beyond the short report. I will try to look past it.
My current stance: hold.
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