Canadian investors are bananas, on the Sunday Reads. - Cut the Crap Investing (2024)

Canadians are not embracing passive low-cost ETFs and that’s just bananas offers Ian McGugan in the Globe & Mail. In the U.S., passive investing has surpassed inferior active investing (by fund managers), but in Canada not so much. The momentum is in the right direction but too many Canadian investors are still slipping up on their investment choice. They choose high-fee actively managed mutual funds that come attached to advisors also charging 1% on average. Too much money is going in the wrong pockets. You can create an ETF portfolio with fees in the 0.10-o.15% range. These superior investments can be life changing, potentially doubling your retirement nest egg (or more). Canadian investors are bananas, plus the Sunday Reads.

Here’s the bananas post (subscription). From Ian McGugan …

The best bet for most investors is simply to buy a fund that passively tracks a broad market index at the lowest possible cost. In short: If the market is so hard to beat, why not just own the market?

The research is extensive and always lands with the same observation. Inexpensive passive beats more expensive (and very expensive in Canada) active investing.

Ian also detailed that from mid-year 2023, more than 70 per cent of actively managed Canadian equity funds failed to keep up with the index over one year. For longer periods, the results were even worse for the active crowd. More than nine out of 10 actively managed Canadian equity funds lagged behind their market benchmark over the preceding five and 10 years. Go out longer, and it gets even worse.

How to build a simple ETF portfolio.

Net, net – don’t pay someone to create a smaller investment portfolio. That’s just bananas.

Canadian investors are moving out of mutual funds

Overall, mutual fund redemptions totalled $57.1 billion in 2023, compared to $43.7 billion in redemptions in 2022, IFIC said — an increase of 30.5%.

On the ETF side, net sales were $3.8 billion in December, compared to $5.1 billion in November and $2.9 billion in October.

Overall, ETF net sales were $37.6 billion in 2023, compared to $36.1 billion in 2022 — an increase of 4.2%.

Buy ETFs for free at Questrade

The inflows are moving in the right direction, but we need to pick up the pace. There’s still $1.9 trillion in mutual funds (mostly active) while ETF assets total $382 billion.

Please share the facts on high fee funds vs ETFs and building sensible stock portfolios. Friends don’t let friends pay high fees.

Soft landing support

And here’s a good thread on U.S. inflation. Looking at the short term trends, it is very much under control.

Things are more than lining up for the elusive economic soft landing in the U.S. with inflation under control, with solid economic growth and strong employment.

We can certainly go around in circles on the economic speculating, and by no surprise we end up in the same place –

Get a simple investment plan and stick to it.

Dale

Magnificent earnings week

It will be a busy week on the earnings front next week, so be prepared for lots of whipsawing and guesstimates shooting out of every orifice.

We have many of the Magnificent 7 stepping up to the earnings plate as well. Will they be home run kings or rally killers? This should be interesting.

More Sunday Reads

And given that earnings season is in full flight, we’ll first check in with Dividend Hawk.

A few of the companies in our U.S. stock portfolio reported this past week. And it was mostly good news, especially for our defensives such as Johnson & Johnson (JNJ) and Colgate-Palmolive (CL). We have been very patient with CL (as with all of our holdings) and that stock is making a case for getting some new monies over the next several months. I will build up that position

RTX Corporation (RTX) , Texas Instruments (TXN) and Canadian National Railway (CNR) also reported.

Tesla unplugged

Tesla got crushed this week thanks to poor earnings and the refusal to give any guidance (other than it sucks) for 2024. And Musk says, they’re all about to get crushed by the Chinese unless we tax the heck out of them.

For a year or more I’ve been “suggesting” that Tesla is undergoing the long and painful process of being priced as the car company that it is. Tesla’s stock price has been clipped by 55% from the peak in late 2021. The stock fell about 13% after the poor earnings release.

Your job and your investments

And while we’re on weekly wraps, we’ll next cruise on over to Banker on Wheels where a post asks if your job should affect your investments. I’d say, for sure. The author shares his own concentration risk in financial assets. Of course, the notion might apply to those whose career and compensation creates that concentration. Most of us are not in that camp. And if you hold a very well diversified global portfolio such as the asset allocation ETFs, you might ignore the above.

FiPhysician has a wonderful post looking at the 50/50 (stocks to bonds) portfolio for retirement. You’ll find a chart showing the returns and risk for U.S. portfolios from 0% to 100% stocks.

There’s no set rule for the risk level in retirement. In fact each portfolio should have a unique risk level that matches the overarching cash flow and finanical plan. And that cashflow plan is essential. You can head over to our friends at Cashflows & Portfolios.

Cashflow plans might show that the optimal retirement plan means leaving the TFSA to grow for decades (aggressive allocation), while the RRIF should be drawn down quickly in several years (defensive allocation).

That said, every cash flow plan will be unique and tailored to your money and life situation.

And staying in retirement, Jonathan Chevreau asks if GICs should be the bedrock of retirement portfolios.

Jon wraps up that post with …

So are GICs worth it, despite some of the drawbacks? As I conclude in the fullMoneySensecolumn, “Unless you’re a retiree with a generous employer-sponsored Defined Benefit pension plan (increasingly rare these days), I believe GICs should make up a good chunk of one’s fixed-income assets. So if your asset allocation is roughly 50/50 stocks to fixed income, I’d be comfortable putting at least half of the fixed-income portion in GICs.”

Dividend Daddy is up a quarter mil over the last quarter. That’s “pretty good”. 😉

And I may have missed Rob’s year-end update at Passive Canadian Income. I wish Rob continued success on his financial freedom journey.

And here’s the year-end post from Bob at Tawcan. And while Bob keeps track of his dividends …

… he has a very good portfolio and often states that it’s “total return for the win”. Of course the portfolio value comes into play for retirement and financial freedom planning.

Here’s more on the financial independence movement in Canada from stocktrades.ca.

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