US and Canadian stock markets have hit new highs. What is an investor to do? While choppy and volatile markets can cause investor paralysis, so can robust markets. My moves? I’ve started to trim some of our US stocks. I’ve added some US bonds to help protect our US stock assets.
It seems that investors will find just about any reason to tie themselves in knots. Stocks are falling. They are at an all-time high. Stocks haven’t done much over the last few years. Not one of the above is a good reason to not be fully invested.
Canadians are cashing out.
Canadians are hoarding cash at record levels. And certainly cash can be a component of your ‘safety’ bucket. But we should be careful recognizing that cash goes backwards when we factor in inflation. Even ETF investors have embraced cash. In a recent CETFA report on October ETF flows two savings vehicles were top of the heap.
We see CI First Asset and Purpose Investments’ high interest savings ETFs in the top 5 with CI leading the way in October.
There can be valid reasons for holding cash. A retiree or near retiree might build up that cash pile in anticipation of current or fast-approaching spending needs . And if you need that cash as a safety blanket sobeit. Some investors will feel more comfortable holding cash ready to pounce on the next market correction. Of course that has been a fool’s game for the last decade. Well, it’s been a fool’s game forever. We can’t time the stock markets.
If you’re investing in a Balanced Portfolio, consider adding monies on a regular schedule. Those bonds work as shock absorbers. Use those bonds as the risk managers compared to using cash. When we invest within our risk tolerance level we can ignore everything and everyone. In the accumulation stage we can ignore the markets as well.
Our portfolio moves.
Cut The Crap Investing is certainly not about my personal investments or my personal financial journey. But I will go over some recent moves. I may offer up an idea or two. Please do not take this as investment advice.
I recently added some US bonds to my wife’s US dollar RRSP account. Many portfolio managers and will suggest that we include US and International bonds. The investment core or main building blocks usually look like this.
It’s been suggested to me that developing market bonds offer up even greater diversification benefits compared to US bonds or core International bond funds. We are happy to protect out US stock funds with US bonds.
Treasuries, some of the best market insurance?
US treasuries has been a favourite topic of mine for quite some time. From 2014 here’s Portfolio Keeping You Up At Night? Take One Of These.
So you might say I’m ‘eating my own cooking’. I added iShares long term treasuries ETF ticker TLT. That invests in US treasuries with remaining maturities greater than 20 years. iShares also offers an ETF that invests in intermediate term treasuries, ticker IEF.
They punch above their weight.
US treasuries historically have offered greater inverse relationship to the stock markets compared to a broad based bond index fund. And the longer the duration the greater the inverse relationship. They punch above their weight as risk managers. Given that, we might be able to use less of them, compared to the weight that we might give to a broad based bond fund.
You have to trust that potential for that inverse relationship between those treasuries and those stocks. The irony is, I am using the bond fund that holds greater risk. Longer dated bonds will (typically) drop in price to a greater degree in a rising rate environment. I don’t look at stocks and bonds in isolation. It’s about that stock and bond teamwork.
Selling Canadian bonds, moving funds to VDY.
Given that the portfolio risk management is now shared between the Canadian and US dollar accounts, I sold some of the Canadian bonds. Those proceeds plus a few $1000’s of portfolio income that had collected were moved to the Vanguard Canadian High Dividend Yield ETF. I had contemplated selling the full ETF proceeds and instead skimming enough of the holdings to remove the MER. But I decided to not expose my wife’s accounts to that concentration risk. More on that later in a future post.
Where to find those Treasuries?
I will also move forward adding a very modest weighting of US bonds to my personal RRSP portfolio. BMO has a wonderful suite of US and International bonds. You might also look to Horizons who offer the Intermediate US Treasuries withing their tax-efficient total return structure. They both offer options for Canadian dollar accounts. You can also go directly to US ETF providers for your US dollar accounts.
I am also rebalancing. I am in a semi-retirement stage. My wife will likely retire within 3-5 years. I’ll continue to set sell targets. If the markets want to keep on keepin’ on, I’m happy to take those gains. Stock proceeds meet those bonds.
Mike The Dividend Guy is getting ready to take his family to Vietnam for a one month trip. Ahhh, lifestyle by design.
Given that this is financial literacy month Robb Engen of Boomer and Echo asks can we trust the big Canadian banks to deliver financial literacy education? You can put my X in that NO box.
On Findependencehub the trouble with preferred shares.
What are the big banks up to?
GenYMoney offers some tips on how to not write big cheques to the big banks when writing cheques.
More on the banking front as Questrade applies for national bank status as Royal Bank looks to launch a bitcoin trading and payment platform. Add that to Apple and Google wanting to be your digital wallet.
I am very proud of this co-production guest post on CTCI. Why have Canadians given the Robo Advisors the cold shoulder? Thanks to Josh Book of Parameter Insights.
Are you making any moves as US and Canadian markets hit new highs?
Have a great weekend, Dale