In March we experienced the quickest 30% market correction in history. Of course stocks went on to fall more than that 30% figure. And during that period the bond markets also started to fail. We had swings of 7% or more on a daily basis, for both stock and bond ETFs. It was enough to make your head spin. Rebalancing your portfolio during periods of extreme volatility can be more than trying. Perhaps the key is to step back and take your hand off of the rebalancing wheel.
This week I had the pleasure of chatting with our friends at Questrade. Of course Questrade is one of Canada’s leading discount brokerages. It often gets the nod as Canada’s top-rated discount brokerage.
Questrade also offers the wonderful ‘Robo Advisor’ option with the Questwealth Portfolios. Here’s my review of the Questwealth Portfolios. That is the lowest fee Robo option in Canada. After a certain dollar value threshold Nest Wealth becomes the lowest fee Robo option. Nest Wealth offers a subscription-based model that is capped at $80 per month. I kid you not.
Of course we should keep that word ‘Robo’ in quotes. They are all quite human with investment advisors, and financial planning available at a few of the shops. At Questwealth the advisors all have designations that allow them to offer more detailed financial planning, including retirement planning. There is no additional cost for the advice.
How active was the active asset allocation?
I wanted to check in with friends at Questwealth due to the fact that the portfolios employ active asset allocation. Portfolio allocations can be arranged and shifted in response to a read on developing economic and market conditions.
Of course March delivered a portfolio manager’s worst nightmare. There were incredible swings in asset prices. And then assets started to move together. We had positive correlation between many asset classes. We expect bonds to do their thing. They stopped working. The bond markets froze. Stock and bond markets were both broken, for a while.
From mid March, what the heck is going on with Canadian bonds and bond funds?
Take your hands off of the wheel.
It turns out that the active asset allocation was quite passive. The strategy is not reactionary. There are thoughtful shifts in asset allocation based on intensive study and careful consideration. And for the shops that employ active asset allocation the shifts and moves can be quite subtle compared to traditional couch potato ETF portfolio models.
While March was more than unique the folks at Questrade (and their portfolio sub advisor) knew quite quickly to take their hands off of the wheel. Any quick reactions could engage a series of ‘buy high and sell low’ situations. Rebalancing thresholds could be surpassed on a daily basis.
Sometimes doing nothing is the best course of action, er make that inaction.
Even today the managers of the Questwealth portfolios are being very cautious and measured. They’ll evaluate the risks and investment landscape in the new normal considering the economic recovery stage, and post pandemic.
Again, any portfolio shifts are likely to more subtle than drastic. I will be back with a dedicated post on Questwealth through the recent market correction. We’ll look at that transition to the post pandemic world as well.
Don’t just sit there do nothing.
One year ago on Seeking Alpha I had suggested that you might not worry too much about portfolio rebalancing. But of course you do not want to let your portfolio risk level drift outside of your risk tolerance level. You might simply look for more considerable swings in your stock to bond ratio. You may be able to largely keep your asset allocation allocation in check by adding new monies and portfolio income to the ‘asset in need’ of new monies.
When rebalancing your portfolio, you might rebalance on the fly. Keep in mind that rebalancing can create capital gains in your taxable accounts. We need to be mindful of the tax consequences.
On Tawcan, an interview with an investor who has created a dividend powerhouse and has found that financial freedom.
The very well-read Jonathan Chevreau offers his summer reads list.
It starts with the everything bubble.
The phenomenon of a few stocks driving the S&P 500 cap weighted index (aka the market) is not new. Here’s a great post on The Evidence Based Investor.
That said, critics will point to the late 90’s right before the dot-com bust.
Last week my post suggested that the large cap index funds were well positioned for the first modern pandemic. Here’s why index investing works.
In the Globe and Mail Clare O’Hare looks at mutual fund flows in Canada for May. The numbers slightly bested ETF flows. Mutual fund investors are being cautious, whereas the ETF’ers are buying stocks.
And here’s a topic that is getting a lot of attention. Is the coronavirus weakening?
Yes, I still read too much on the topic and it appears that we humans are changing more than the virus. We are acting much different (of course) in response to the virus.
And more on the virus, this Seeking Alpha article suggests that in the end, vaccines will underwhelm.
What to do with that dividend cut?
On My Own Advisor Mark Seed chats with Mat Litalien on what to do after experiencing a dividend cut.
OK, just to be cheeky and to jinx myself one more time, I don’t know what that feels like. Of my 24 Canadian and US dividend companies we’ve had no dividend cuts and 8 dividend increases from March.
And speaking of dividends, here are the recent moves by The Dividend Guy. He sold one of my killer US dividend stocks – Lowe’s. And he had to sell some Apple, as the tree needed some pruning. I’ve been there done that; creating my own homemade Apple dividends.
The Dividend Athlete offers his May portfolio update.
At Passive Canadian Income Rob ordered up more Restaurant Brands International. That’s the company that holds Tim Hortons, Burger King and Popeye’s. As a pick I had owned Tim Horton’s after the spin off from Wendy’s. The stock destroyed the market for us. I sold all when 3G took over. I did not think that outsiders would understand the Tim Horton’s brand.
Here’s the new purchases from Matt at All About The Dividends.
On eatsleepbreathefi Chrissy asks if their emergency plan could stand up to the COVID-19 crisis.
And if you’re looking for a host of great links, once again check out Ten Sunday Reads from Barry Ritholtz. That’s a great mix of economic, investing and virus content.
Thanks for reading. Happy Sunday and Happy Father’s Day.
That is my number one job, as per my Twitter bio.
You can follow me on Twitter here.
Canada’s top-ranked discount brokerage.
Cut The Crap Investing readers can sign up with Questrade (Canada’s top-ranked discount brokerage) through this partnership link. You can buy ETFs for free, including the wonderful one ticket options.
While I do not accept monies for feature blogs please click here on the mission and ‘how I might get paid’ disclosures.