Investment

Why experts are abandoning the traditional investment portfolio – Financial Post

Published

3 years ago

December 17, 2021

Harry Miller

Low interest rates and new financial tech are changing the game for investors

Author of the article:

MoneyWise

Sigrid Forberg

Africa Studio / Shutterstock

For years, a simple benchmark guided investing advice: Find a “60/40 balance” in your portfolio and keep it forever.

This principle was championed by the investing pioneer Jack Bogle, who founded industry heavyweight Vanguard Group and popularized index funds. According to Vanguard , the 60/40 portfolio has offered the best returns for nearly a century for people who can tolerate moderate fluctuations with their money.

But in the decades since Bogle made this portfolio famous, rules of thumb like the 60/40 portfolio have started to fall out of favour with many financial advisors.

“If you’re doing a good job for your client, you should be probing deeply into their situation,” says Tina Tehranchian, a senior wealth advisor and certified financial planner with Assante Capital Management Ltd. in Richmond Hill, Ont.

“And a lot of times [the right balance] may not be the 60/40 portfolio.”

Breaking down the 60/40 portfolio

The percentages in a 60/40 portfolio refer to the investor’s asset allocation: Investors put 60 per cent of their money into riskier investments, like stocks. The other 40 per cent goes into traditionally safe investments, like government bonds.

This division of assets was originally designed to help investors protect their portfolios from the market’s volatility, while putting them in a good position to grow their money at a rate faster than inflation.

Advisors suggested over the years that investors rebalance their portfolios every year to maintain the 60/40 split. Say bonds went up in value the year before — individual investors should reallocate some of their money into stocks to ensure they’re back to the right mix.

Diminishing returns

For decades, financial advisors pushed this as the perfect balance, especially for a retirement portfolio.

However, current market conditions may actually slow your portfolio’s growth right now. With interest rates set to remain historically low for the next few years, a 40 per cent investment in bonds is unlikely to outpace rising inflation — which means those bonds will drag down a portfolio’s overall performance.

That’s not to say bonds can’t be a valuable addition for a certain investor’s portfolio. In fact, Vanguard Canada released a report this fall suggesting analysts aren’t keen to give up the balanced portfolio just yet. Even with inflation as a growing concern, they’re loath to throw out this time-tested strategy.

But many advisors argue bonds should no longer account for nearly half of the everyday investor’s portfolio. They argue investors can look to other relatively safe bets, like blue-chip stocks and low-volatility exchange-traded funds, or ETFs. What really matters, experts say, is your financial goals.

New strategies

It’s not just the 60/40 portfolio that’s going out of fashion. Advisors are increasingly steering clear of following hard-and-fast rules in general.

With more sophisticated tools to analyze a client’s risk tolerance and to allocate a customized portfolio, Tehranchian says those rules of thumb simply aren’t necessary anymore.

“These days, we have the technology and the tools available to do a much more detailed analysis for each client,” she says. “And then based on that more detailed analysis, we’re able to provide a customized portfolio that is not a cookie cutter portfolio like it used to be.”

These more personalized approaches mean clients walk away with a portfolio that reflects their reality rather than some idea of what their planner thinks their life should look like.

Which is much more effective, given that not everyone fits the mould or expectations of their age or income bracket.

Tehranchian says she works with financially conservative 20-somethings and 85-year-olds who forcefully reject investing in fixed income like bonds. Portfolios should reflect more than just someone’s age — other factors like their family situation, liquidity needs, estate plans, tax liabilities, income and financial goals must be considered as well.

“When you go to a financial planner, they need to know the full picture, because all of these things impact each other,” says Tehranchian. “It has to be holistic to work.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

Published

4 days ago

September 13, 2024

Anne Joseph

TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

2 weeks ago

September 6, 2024

Anne Joseph

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

3 weeks ago

August 29, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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