My 2019 annual portfolio review has been posted

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 broke the same investment rule again….

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.

My second quarter 2019 portfolio review is posted

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.

Why I am not changing my portfolio even though the yield curve has inverted

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:

  1. I already have some cash (about 10% of my portfolio, including high-interest savings and short-duration bonds maturing later this year)
  2. I already have good exposure to defensive equities: ~18% utilities + ~11% consumer defensive + ~6.5% communications services + ~3.5% real estate = ~39.0% defensive
  3. I have less than 50% of our total portfolio in equities so a market downturn should be offset somewhat by non-correlated holdings in fixed income, cash and bullion (this was true in 2018, when my portfolio returned ~+1% in spite of equity drawdowns in Canada and the US)
  4. If I sell something to raise cash there could be tax consequences in our non-registered accounts, due to potential capital gains being taxed
  5. I don’t know which non-defensive equities to sell to raise cash – I like all my holdings for the long haul or I wouldn’t own them
  6. Recessions tend to be short and I believe my long-term portfolio is structured well for riding out short-term events
  7. An inverted yield curve has reportedly accurately predicted upcoming recessions eight times (by some sources) since 1968 but, if on January 1, 1968, I bought and held the S&P 500 (^SPX) I would have made a return of 2.81K% in spite of the eight recessions (including the Great Recession of 2008-09)
  8. According to Forbes, the chance of a recession in the next year is always about 27% (based on their data pointing to 16 recessions since 1960) and today the chance is 30%, hardly more than average
  9. If the chance of recession is 30% next year there is also a 70% chance there won’t be a recession next year which means, based on probabilities alone, I should be buying risk-on stocks
  10. If the US Fed surprises by lowering interest rates, that could change the situation immediately
  11. I don’t know how to time when to start re-buying the risk-on equities I am supposed to sell now – presumably when the yield curve corrects to non-inversion

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?




My annual portfolio review and updated household investment plan are now posted

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.

OSC Executive Member Brad has updated the Steven Brown Retirement Forecaster tool

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..

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.

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.

My 2018 first quarter portfolio review is now published

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.

The deck reviewing 2017’s performance of the OSC fantasy growth and income portfolios is available

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:

  • —Performance vs. portfolios’ own objectives and benchmarks
  • —Asset allocation review
    • —Asset type
    • —Geography
    • —Sector
    • —Single security
  • —Best and worst performers
  • —Trades made to date and how they’ve worked out
  • Conclusion and discussion

I’ve updated our household investment plan with some refined objectives

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.

Gradually “evolving” our retirement portfolio towards the distribution stage – my initial thoughts

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.

What does your retirement bucket list look like?

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:

  • floor (or what you must have to live on year-to-year)
  • longevity (how long you need your funds to tide you over for)
  • reserves (for coping with emergencies and the unplanned)
  • upside (where you take some risk so you can enjoy some of the finer things in life without imperilling the three other needs)

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:

  • Basic needs – beyond Canada Pension and Old Age Security (floor): 30.5%
  • Discretionary (upside): 40.2%
  • Longevity: 19.7%
  • Reserves: 9.7%

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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