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.
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’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.
Brad has made some updates to Steven Brown’s Retirement Forecaster Excel spreadsheet tool (version 2.7.3).
The changes he’s made are improved accuracy with the calculations for CPP Survivor Benefits and CPP Death Benefit.
See Brad’s member page here for more..
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.
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.
See Brad and Peter’s deck on financial independence / retire early (FIRE) presented at the May 8, 2018 Ottawa Share Club meeting is available here.
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.
Visit my OSC member page to obtain a PDF copy of my deck presented January 9, 2017 at the OSC meeting. It features the second annual review of the Ottawa Share Club fantasy and income portfolios.
Topics include:
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.
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.
I have posted my first-ever analysis about how to “evolve” our retirement portfolio away from the accumulation phase to the distribution phase. There are a surprising number of considerations!
More here.
When I think of a bucket list I think about things I want to see and do before I die.
Recently I read about another type of bucket list on Seeking Alpha. In his article called: “The Changing Logic Of Asset Allocation In Retirement,” Michael Lonier discusses a very interesting way to think about your retirement assets.
He explores a way to compose a retirement portfolio (or more accurately four retirement portfolios) to address four sets of needs in retirement:
Please note that I am not endorsing this approach (at least not yet); rather I am presenting it for the perspective it brings to the discussion of how to manage a retirement portfolio.
My take on this approach
I like the idea of bucketing our retirement portfolio so that our basic needs (floor), discretionary spending (upside), longevity risk and reserves are accounted for.
To calculate our basic needs bucket I first look at our expected cash flow from Canada Pension and Old Age Security. I then compare that to our current budget for essentials (housing, food, clothing, and so on). The difference needs to be made up by one bucket of our portfolio. I will then assume a 3.5% rate of return (adjusted for inflation) for this bucket (presumably made up of real return bonds or a short-term bond ladder of standard corporate or government bonds).
I then look at our discretionary wants by taking our current budget, subtract the amount needed for essentials and subtract anything we won’t spend on in retirement (e.g., work-related expenses, disability insurance, life insurance, etc.). That gives me the amount needed to be funded by the discretionary (upside) bucket. I will then assume a 6.0% total rate of return (adjusted for inflation) for this bucket (presumably made up of mix of dividend paying and dividend growing companies).
I then look at our longevity probabilities based on actuarial tables and add seven years to the expected lifespans for the two of us for good measure. That defines the third bucket. I will then assume a 7.5% total rate of return (adjusted for inflation) for this bucket (presumably made up of growth stocks – I am not yet sold on annuities, but may be convinced otherwise in future).
Finally, I look at how much I want us to have in reserves and figure around two years of income should do it. That defines the fourth bucket. I will assume no return (just inflation) for this bucket (presumably made up of short-term bonds, GICs and/or money market funds).
Here’s what our buckets look like in percentage terms of our portfolio:
One surprising takeaway from this analysis is that we’d actually need to increase our stock holdings from our current 50% to 60% (assuming no purchase of an annuity). I’ll have to give that some more thought as I think sequence of return risks will temper that a bit in the early years of retirement. Longevity risk may have to be funded more conservatively for the first few years of retirement if I don’t buy an annuity.
I find it’s an interesting way to look at a retirement portfolio. My calculations are pretty “back of napkin” right now, and I make broad assumptions about tax rates and total rates of return by asset class. Nevertheless, it is a useful exercise to think through how much or how little risk is needed to fund a retirement.
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