Issues

IF you have been even a casual reader of MoneySaver in the past few years, then you should know at least the basics of dollar cost averaging (DCA).

Dollar-cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on their portfolios. In effect, this strategy eliminates the effort required to attempt to time the market to buy at the best prices.

It is amazing how DCA works in real life. When I was a fund manager earlier this century, we were encouraged to put money into our own funds. In fact, at some of the investment companies I worked at we were not even allowed to have a personal stock account. So, every month part of my pay cheque simply went into units of the fund I was managing. Then, along came the 2008/2009 Great Financial Crisis. Stocks plummeted, companies
went bankrupt, and people lost their homes. Yet, still, every month, I was buying. In 2010, when it was safe to come out from under my desk, I was surprised at how unscathed my portfolio was. We had just come through a giant market crisis, and my portfolio was in good shape. Why? Because I kept buying constantly. My $600 per paycheque bought more and more fund units each month as the market declined.

So, I did some math on 2022, which was another horrible year in the market. Suppose an investor bought $1,000 worth of SPY, the S&P 500 Index ETF, every month on the 15th, or if the 15th was a weekend or holiday, then the 14th. For this exercise we will assume there were no commission charges, which is true at several brokerages these days, especially for ETFs. With a DCA strategy last year, an investor would have lost 5.9% for the year. But that compares to a 19.5% loss for the market overall. Certainly a much better performance.
Even better, those extra units bought when the market was down really help when the market recovers, as it did in the first six weeks of 2023. Today, at the time of writing, the 2022 DCA strategy would see an investor already UP about 1% in total. Think about this. A DCA strategy in the third-worst year in 30 years is already in positive territory, less than two months into the year.

If that doesn't convince you that the strategy works, then nothing will. Perhaps it's time to implement regular buying and forget about timing the market.

Sharing With You,

Peter Hodson, CFA

Featuring: Chris White, Ellen Roseman, Jason Heath, Ken Kivenko, Rita Silvan, Richard Morrison, Barbara...

View

A couple of disparate points this month:

We think all investors need to work hard to avoid 'anchoring' and 'recency' bias:
Anchoring is when an investor sets expectations based on 'old' news or an old price. Recency bias is when an investor looks at the recent past, and expects that to continue.

Both can be portfolio killers. On anchoring, be careful if you catch yourself saying, ever, "I
paid $XX for that stock". The stock does not know what you paid for it. The market doesn't care. The buyer of your stock doesn't care what you paid for it. Frankly, unless you are considering tax implications, the price you paid for a stock is completely irrelevant, once you own it. The only thing that matters now is the future. A stock down 50% can still decline ANOTHER 50%, infinitely (until delisting at least).

Recency bias is never good, but this year could be more harmful. After a horrible year, where both stocks and bonds declined sharply, you might want to 'go conservative', or 'go to cash'. There is nothing wrong with that, if that meets your goals. But we would caution against making major changes AFTER a decline. We do not know if the market is going to rise this year. But we do know that it has always risen, eventually, after every decline. Something to think about before you go stick your head in the sand and hide from the markets this year.

Peter Hodson, CFA

Featuring: Matt Poyner, Rita Silvan, Fred J Masters, Keith Richards, Wynn Quon, Richard Morrison

View

In case you hadn’t heard, the Tax Free Savings Account (TFSA) limit for 2023 has been
raised to $6,500, from $6,000 last year. That’s due to inflation, so there is at least one
benefit from the inflation problem that wrecked a lot of stocks last year.

We would strongly advise everyone to utilize their TFSA as much as possible. If you can’t
fund the maximum, put in what you can. Tax-free compounding is a wonderful thing.

Anyone over 18 can set up a TFSA and fund it with $6,500 in 2023. Someone who turned
18 in 2022 can put in $12,500 this year. The current lifetime contribution limit is now $88,000, assuming you have contributed the maximum since the TFSA’s inception in 2009.

TFSA withdrawals can be made any time, tax-free. All withdrawals can be put back into
account in the year after the withdrawal.

If you have children, and the means, we think the following is a good idea, to help your
childrens’ futures: Once they turn 18, tell them you will fund all, or half, of their TFSA
contribution every year. But, once they take ANY money out, that gift program stops. Sure, it is a bit of a bribe....but it will help show your kids that time is the most important factor when investing.

Sharing With You
Peter Hodson, CFA

Featuring: Brian Quinlan, Richard Morrison, Ed Arbuckle, Julie Petrera, Steve Benmor, Giles Jordan, Caitlian...

View

Well, it is hard to believe, but 2022 is soon coming to a close. After the pandemic
years of 2020 and 2021, most people expected better things from 2022.

But alas, it was not meant to be. While the Covid situation certainly eased, and we can now
all go out to dinner again, the year was not great in other areas. Of course the Ukraine War
was devastating, inflation bit into consumers’ budgets, and the stock market seemed to go
down every day. Fixed income investors were crushed as bond prices plunged for their worst
performance in 100 years.

For investors, bad years happen. It is part of the game, and that’s why there is a risk premium
for owning stocks and bonds. If GICs could get you compounded giant returns, there would be no stock market. But no GIC is going to give you a 1,000% return, as many stocks have done.

2023 could be bad, or it could be good. We don’t know. And anyone who tells you they
know (especially the doom-sayers) doesn’t know either. If they say they do, they are probably just selling something.

So, don’t anchor expectations. Bad now does not mean bad in the future. It may, or may not.

In World War Two, markets fell for three years in a row. But then they went on a tear. If your
timeframe is appropriate, there will be some good times ahead, one day.

Best wishes for the season and the New Year.

Peter
Peter Hodson, CFA

Featuring: Norm Rothery, Chris White, Rita Silvan, Richard Morrison, John De Goes, Milan Topolovec, Warren...

View

Interest rates continue to rise in Canada, finally offering a break for savers.
GIC rates of nearly 5% can now be found at smaller trust companies, for 5-year terms,
and fully guaranteed up to $100,000.

When I bought Canadian MoneySaver magazine back in 2011, I really never thought I
would ever talk about GICs. After all, I love stocks, and they provide solid long-term returns,
if you can handle volatility.

But as investors get older (like me!) GICs paying 5% start to look more attractive compared
with a near-20% loss on stocks this year (referencing the S&P 500, as I can only buy US stocks because of my role at Canadian-research firm 5i Research).

GICs are taxed at the highest rate, will never provide ‘more’ interest than stated, and are still below today’s inflation rate. In real dollar terms, even at 5% you are still losing money. They clearly
are not perfect. But then again, neither are stocks. Sometimes, after a tough year, investors just might want to sleep, and not have to worry about part of their investment portfolios.

GICs can offer you more sleep and can help stabilize an overall portfolio. For some investors,
it is probably time to start looking at them again.

Peter Hodson, CFA
Editor

Featuring: Ryan Modesto, Matt Poyner, Colin Ritchie, Rita Silvan, Julie Petrera, Richard Morrison, Barbara...

View

Long-term MoneySavers will know that we never think it is wise to try to time the
market. The market dances to its own beat, and is the collective bet from billions
of investors. No one has shown consistency in predicting the market for more
than a quarter or two.

That being said, we are pretty sure we reached ‘maximum pessimism’ in the market in late June. After a horrible start to the year, investors were simply fed up. They hated everything: Stocks were down, bonds were down, cryptocurrencies were down, utilities were down, real estate was declining, small caps were destroyed, the Canadian dollar was down, and even gold--the asset that is supposed to offer ‘insurance’ in such times--was struggling.

When everyone is negative, by default the market has priced in the worst.Theoretically, at least, the market should go up when ‘all the selling is done’. We will see. Certainly July showed some positive market signs, but one or two months does not make a trend. Talk to us in December.

But, based on our experience, the worst is likely over, or close to it. Inflation will likely peak
this year. Interest rates have risen sharply, but the bond market is already predicting lower rates next year. Corporate earnings, so far, have not been as bad as feared.

It is probably safe to go back in the water. But maybe make sure there is a lifeguard in sight,
just to be sure.

We hope you had a happy and safe Summer.

Peter Hodson, CFA

Featuring: Ellen Roseman, Ken Kivenko, Keith Richards, Steve Benmore, Rita Silvan, Jason Heath, Richard...

View

Well, GIC investors are finally getting what they wished for: interest rates
are rising and GIC (Guaranteed Investment Certificates) rates are finally
bumping up.

With market uncertainty, the GUARANTEED part of a GIC is what investors want. There
is no guarantee in the stock market, of course, and a 3.5% yield is starting to look good to some investors, after a 15% stock market decline this year (S&P 500 Index).
But if buying GICs, keep in mind that CDIC insurance only covers $100,000, per account.
Also, GIC interest is taxed as income: there is no dividend tax credit or capital gains tax break.

When talking to equity investors, GICs often get no respect. Most stock investors would
rather ‘take a chance’ on stocks than receive a ‘paltry’ 3.5% (and last year it was barely 2%).
Of course, sometimes the stock market goes up 3.5% IN A SINGLE DAY. That will never
happen with a GIC.

But, MoneySavers, don’t let others dictate what you should do. If you sleep better at night
with a guaranteed investment, who are others to tell you that’s wrong?

Sharing With You
Peter Hodson,
CFA

Featuring: Lisa MacColl, Richard Morrison, Rita Silvan, John DeGoey, Julie Petrera, Isabelle Beaudoin

View

This year is beginning to look like GroundHog Day. Every week, there is something to worry about, and it is often the same worry as the prior week, only in a new cover.

April was the worst month for stocks in many years. Bonds, supposed to be a safe harbour in rough markets, have done nothing but lose money for a while now. Even inflation-linked bond ETFs are down this year, even though inflation is one of the main worries for investors.

The only people happy are savers. GIC rates are moving up, but their rates are still not one might call at a ‘livable’ rate.

What to do? Well, we would just hang in there. All these troubles will pass, one day. At some point, this section of your MoneySaver will be filled with comments about how well investors are doing. Trust us. We can’t tell you when, but we promise the market mood is going to improve, and the first part of 2022 will be one of those times when investors look back and say, ‘I wish I had invested back in the Spring of ‘22.

Sharing with You,
Peter Hodson, CFA

Featuring: Becky Wong, Russell Morrison, Janet Gray, Barbara Stewart, James Gauthier, Nora Dunn, Richard...

View

Well, between Covid outbreaks and new variants, higher interest rates, higher inflation and other issues, 2022 did not start out well. Now, to make things worse, we have a horrible war to deal with. Our thoughts go out to all thoseimpacted by this completely unnecessary aggression. But we will have to leave the political debate to others; we have to focus on the impacts to North America.

First, inflation may rise much more than expected. Russian supplies of just about everything have been curtailed. Ukraine supplies are also of course impacted. The best approach is to assume everything is about to rise in price, except perhaps your stocks for a while. We would encourage investors to have some materials and energy exposure and gold in your portfolios. Amounts need to be personal, but some ‘insurance’ against inflation is likely a good thing right now.

Two, interest rates are going higher. This should cool the housing market a bit, and finally give ‘savers’ a break from 0.75% GIC rates. We don’t know how high rates will go, and the magnitude of any change will largely depend on inflation rates. Right now, governments are worried, and rates could also go higher than expected.

The fall out of all this? Well, we are going to see a lot of ‘recession’ talk. When rates rise and costs go up, demand falters. An economic contraction could be relatively quick, as well, as uncertainty is the only certainty these days.

But don’t panic. There have been 48 recessions in the last 100 years. They are part of the cycle. They are of course not good for workers who could be laid off, or over-leveraged real estate investors. But, for diversified investors, they are not so bad. Recessions get a lot of press, but if you own quality companies and have a diversified portfolio, you’ll survive.

Sharing With You,
Peter Hodson, CFA

Featuring: Richard Morriison, Rino Ravanelli, Philip Mackellar, Jason Heath, Rita Silvan, ellen Roseman,...

View