Weekend Reading – 2022 Model Portfolio Returns edition

Weekend Reading – 2022 Model Portfolio Returns edition

Hi Everyone,

Welcome to a new Weekend Reading edition about 2022 model portfolio returns – I hope you enjoy it.

As usual, before we dive into that subject a bit more, some recent reads on my site as quick reminders:

These are some of our income needs and wants to fulfill in the coming years, including dividend and distribution income to fund budget basics. 

We hope to realize those needs and wants brick-by-brick; by accomplishing all these 2023 financial goals. 

Weekend Reading – 2022 Model Portfolio Returns edition

Did you say model???

via GIPHY

Ha. Zoolander.

Yes, model portfolio. 

Whether you decide to skim the index and hold a few individual stocks (like I do…) or strictly index invest for market-like returns, 2022 was an investing year for the ages – but not really in a good way for many. 

Officially, with 2022 in the rearview mirror, 2022 was the worst year for the S&P 500 in more than a decade – losing close to 20% in U.S. dollar terms. 

If you were an indexer, had a Canadian bias, and owned one of the more popular low-cost ETFs in Canada like XIU – you did far better. XIU as a proxy for large-cap Canadian stocks was only down about 6.4% for 2022. 

To put 2022 into some perspective, the S&P 500 itself hasn’t seen back-to-back down years since the bursting of the dot-com bubble between 2000 and 2002.

That makes 2023 time to be optimistic!

S&P 500

Source: @CharlieBilello – Chief Market Strategist @cpiwealth

Or does it???

With Canadian markets up about 5% for the year, already, you have to wonder if the U.S. history shared above from Charlie is right and folks pointing to a recession might be flat-out wrong in 2023. 

Prior to 2022, I was making a few minor adjustments to my portfolio on a hedge that some darker days were coming with borrowing costs going higher to combat rising inflation that was overdue from our Bank of Canada. I was preparing for a recession. So, I wasn’t surprised in 2022 that some experts were calling for a recession in 2023. 

Will recession that ever come?

Of course the proof will only be clear in hindsight so until my saving and investing plan tells me otherwise, I’m sticking to it. 

On that note, long-term indexers (even though I’m not one of them) got beaten quite up a bit in 2022 but on the flipside, as an asset accumulator of hundreds of stocks, you were probably cheering for lower stock market returns anyhow. Good on you. 

In fact, unless something drastically changes…equities have outperformed bonds, currency and inflation around the world over the last 120 years…so that should continue. Sure, we don’t have a 120-year investing timeline in us but the lesson is we can take from such statistics and market history to heart. If investing for the future is like anything of the past, staying invested in common stocks should be a path to wealth building over time. 

Especially when 2022 was a dud since you got many of your stocks – cheap!

To review some detailed 2022 model portfolio returns, look no further than Justin Bender’s site for these details. His post was excellent. 

Back to some 2023 predictions about where things could go for the U.S. stock market, here are some expert opinions on the S&P 500 value by the end of this year. Tom Lee is probably not correct but again, we’ll see!

S&P 500 2023 Predictions

Reference: https://www.investing.com/news/stock-market-news/top-wall-street-strategists-give-their-sp-500-forecast-for-2023-432SI-2970423

What I’ve been thinking about…

  • While interest rates will likely rise a bit more, in early 2023 despite peak inflation, has the forward looking stock market already hit rock-bottom yet?
  • Now into 2023, with many DIY and institutional investors are already anticipating lower inflation with rising interest rates to taper off, does this mean that smaller rate hikes, and eventually no interest rate hikes in the latter part of 2023 reduces the headwinds our economy faces as the year progresses? This makes now the time to load up on more equities including some more energy sector stocks?
  • It was a tough year for growth stocks, like those in the tech sector. Is 2023 tech climbs back?
  • Elevated inflation AND rising interest rates have hit some stock market sectors harder than others – but energy still seems to have room to run. Defensive market sectors (that have relatively stable earnings) like consumer staples, utilities and health care—are not down very much even from 2022 pricing. Does this mean we are going to see just a weak economy in 2023 overall?

As you know, the economy is not the stock market but I see relationships between the two. If I was a betting man (and I’m not, but I like predictions for fun all the same!) I would say:

  • We might have some stale economic growth in 2023 but not a full-blown recession thanks to very low and sustained unemployment rates.
  • Higher interest rates in the ranges they are now – are here to stay for many years ahead. 
  • The stock market, in terms of total returns for 2023, could have a double-digit year since it is forward looking. 
  • The energy sector could flourish again in 2023.
As always, it will be interesting to see how my portfolio with broader market forces play out!

What moves are you making in 2023? Or, are you simply staying your course whether that be indexed ETFs or individual stocks or a blend of both?

More Weekend Reading…

Related to what might flourish in 2023 and lessons learned from 2022, Ben Carlson shared 5 lessons from an awful investing year. The punchline, as always, for me is: save and invest a bit like a pessimist but be optimistic long-term. From Ben:

“Last year is a good reminder that downturns are never fun to deal with in the moment, but if you are able to zoom out and keep a long-term mindset, eventually the gains outweigh the losses.”

I enjoyed Dale’s recent Sunday Reads, which said to ‘hold the recession’ in 2023. 

I enjoyed the week in review courtesy of Dividend Hawk as well, including various dividend increases by some U.S. and Canadian stocks. 

Millennial Revolution offered some tips to squeeze more income from their portfolio for a couple of early retirees. The key approach they took was less bond ETFs, less balanced ETFs and owning more equity-related ETFs that generate meaningful income. 

ETFs to generate retirement income - Millennial Revolution Jan. 2023

Source: see link above.

ZPR is not great….instead I have a great, recent post that highlights some stellar Canadian, U.S. and international ETFs to generate retirement income here.

ETFs to generate retirement income

Check out this Globe & Mail article this week: why your dividend stocks could use another look. (Paywall). This article is not what you think – it’s very pro dividend stocks for many reasons. From the article:

“The popularity of dividend investing in Canada is well-earned – this segment of the market tends to protect investors’ capital fairly well in a market downturn, while capturing most of the upside of a bullish run. Dividend payments are also generally taxed at a lower rate than other forms of income in Canada. And the Toronto Stock Exchange is skewed much more toward income rather than growth, especially when compared with the U.S. market.”

Of course, many pure indexers won’t like that statement but I didn’t make it! 😉

Dividend Growth Investor included a phenomenal list of Peter Lynch quotes. A few of my favourites, as it applies to my journey:

“15. This is one of the keys to successful investing: focus on the companies, not on the stocks.”

and…

“33. If you invest $1,000 in a stock, all you can lose is $1,000. But you stand to gain $10,000 or even $50,000 over time if you are patient.”

Last but not least, mixing the life of frugality and luxury, A Purple Lifeshares how she lived on just….drum roll…$16,929.93 as a global nomad in 2022. Incredible. She even travelled business class during the year by using various travel rewards. Well played.

As always, check out my Deals page for my current list of partnerships and massive discounts off any stock or ETF-based newsletters from the investment community. 

Have a great weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

12 Responses to "Weekend Reading – 2022 Model Portfolio Returns edition"

  1. Hi Mark: AX.UN was taken over by Sandpiper of Vancouver. As mentioned they are activist investors and apparently they don’t like the way the company, First City, is run and are trying to remove management ( the board of directors). They would like to put some of their own people on the board. If they get their way maybe some money will flow to AX.UN. Maybe this is why they gave the special dividend as they said they had excess cash at the end of the year. They did the same thing with Crombie REIT as they took a run at it with another activist investor and were successful. As I mentioned before I find the market fascinating. Most companies are doing something all the time to improve themselves. One who didn’t was Transalta Corp. which I found strange. The CEO at the time I knew as he had come from GE and I had seen lots of mail going to him and his CFO. He said they had done enough for a while and were going to sit back. I found this ludicrous so I wrote them an email telling them so. Well maybe in kinder language, but my point was that if you snooze you lose. All the other companies around them had new projects on the go like CU, ENB, TRP, PPL, and IPL but TA was just going to sit there. When they hired Dawn Farrell as the new CEO then things started to move. Steve Snyder retired and Ian Bourne got jobs as a director on other boards. Both these men worked for GE in Meadowvale in Mississauga.

    Reply
  2. Hi Mark: As stated before I had around $400000.00 when I was laid off on the 17 JAN./ ’92 and contrary to some analysts views as you can see from Charlies chart that the ’90’s were very good. My portfolio increased substantially through the decade except for ’94 in which I still operated and lived but the portfolio at the end of the year was only up $3443.00 so flat. By the second week of Sept. of ’97 I went over the 7 figure mark. My nephew pointed out that he had bought BPYP.UN per. A so I looked it up. Being a preferred it will not move much but it has a dividend in the 9% range which isn’t bad if you already have a lot of dividend growth stocks like banks, pipelines and utilities, etc. I have a bone to pick with the firm that the Globe and Mail get to do their analytics for the portfolio section. There are a lot of Canadian companies that are global in nature but according to the analytics my portfolio is 55%. Fortis is more in the states than in Canada, while CU is in Canada, Mexico and Puerto Rico. BN is global as is Telus with its subsidiary TIXT. A lot of Canadian corps. are Global in nature so why the low score. Another thing that has me puzzled is AX.UN. They gave a special $.40 dividend at the end of the year. According to the wording shareholders would receive $.05 in cash and $.35 in new shares and after the distribution the new shares would be merged with the other shares so that shareholders would have the same number of shares afterward as they had before. I received the two distributions but the share part is this what they call phantom shares and this year or next I will see a large capital gain on my T3. They also slightly raised the dividend which is okay with me. They are activists and are now making a disturbance at First City REIT.

    Reply
    1. Great stuff, and yes, Ronald for sure that many Canadian companies are more global than some realize.

      You cited some good examples: FTS, BN/BEPC/BIPC, and more.

      I don’t own AX.UN but special dividends are nice too. I wish more compaines would consider that actually vs. committing to long-term dividend increases since sometimes the latter, doesn’t make financial sense, depending on the market climate of the day. See AQN.

      What’s going on with First City REIT – takeover?
      Mark

      Reply
  3. Something I’m looking at in 2023:
    Once in retirement, having benefitted already from the tax bracket differential between contributing to an RRSP and now withdrawing from the RRIF, in our case 43.4% vs 27.75%, I’m wondering if it’s best to hold investments, above what’s needed for expenses, in the RRIF or to transfer them to a non-registered account where only half the capital gains are taxed and Canadian dividends are, in our case, taxed at only 6.5%. I should add that our TFSAs are maxed out, so no room there. I’ll have to keep an eye on the taxes due on the RRIF withdrawals.

    Reply
    1. We see lots of clients at Cashflows & Portfolios Bob, considering the same…
      https://www.cashflowsandportfolios.com/

      I mean, the math is different for everyone based on various factors (desired spend/income needs, asset values, taxation, rates of return, etc.) but generally, we/clients find out they see advantages of slowly turning on RRSP to RRIF taps at age 65 (an example) for income splitting and to start moving any $$ they don’t need to live from from RRIF to TFSAs, first, then to non-reg. for those tax-efficient Canadian dividends and/or capital gains.

      Does that answers/validate some ideas?

      Smart: definitely keep an eye on RRIF withdrawals as to avoid moving too much higher into any next tax band.

      Cheers,
      Mark

      Reply
      1. Thanks Mark, that provided some validation. I’ll have to do some rearranging of our portfolio, but I can see how this change could net us some more cash.

        We converted our RRSPs to RRIFs as soon as we discovered that a fee was charged for making RRSP withdrawals, yet there was no fee for RRIF withdrawals (this is how it works at Questrade). We have four RRIFs between us, and we pull a portion of what we need from each to keep the withholding taxes to a minimum. Also, as each account is a RRIF, each has no withholding tax on the mandated minimum withdrawal, further reducing the withholding tax – we even set my wife’s LIF minimum on my age, and with me being two years older, she has a higher mandated minimum on that account – even less withholding tax. Sure, come tax time we owe CRA thousands of dollars, but provided we individually don’t let it go over $3K for three consecutive years, we don’t have to make quarterly installments, giving us the opportunity of making some money on CRAs cut. If the markets crash, we’ll be fine because we have our cash bucket to pay the bill.

        Reply
        1. Great to know Bob, and not uncommon whereby there is a small $25 or more (?) by some brokerages charged with RRSP withdrawals vs. RRIF. As you know, no withholding tax on RRIF withdrawal mins. so at least you get all your income, right away, until tax time that is. 🙂

          Smart on the cash bucket!
          Mark

          Reply
  4. Hi Mark,
    I would have thought your favorite Peter Lynch quotes would have been number 65, 66 and 67. I know they are mine, but in my case I stick to the amazing list of Canadian dividend all star stocks you find for free on the DGI&R excel spreadsheet!
    Howard

    Reply
  5. Millennial Revolution mentioned the ZPR ETF. At first glance it offers nice dividends, but at a closer look I have some questions that maybe someone can answer.

    Net of fees and with dividends reinvested the annualized performance has been:
    1Y: -17.39% 2Y: 1.01% 3Y: 2.66% 5Y: -0.05% 10Y: -0.17% Since inception: -0.11%

    (Source https://www.bmogam.com/ca-en/investors/investment-solutions/etf/bmo-laddered-preferred-share-index-etf-zpr/)

    These annualized returns are with dividends reinvested and they are still lower than the advertised ~5% yield. This suggests that the ETF was losing value while throwing off dividends. Even if dividends were lower in the past (like 3%), the annualized returns should have been in the 3+% range at least. The ETF never achieved that. Am I looking at this correctly?

    I also noticed that 1/5th of the dividend is classified as Return of Capital. Return on Capital is unsustainable and not a proper source of income. It inflates the dividends quoted for the ETF and this seems misleading to me.

    To me, ZPR looks like a way to lose money. What do you think?

    Reply
    1. I’m not a huge fan of ZPR, myself.
      ZPR is down 20% for the last 5-years and WAY down from 2013 in one of the biggest bull markets in history.
      Do with that information what you will 😉

      I would much prefer the upside that dividends/distributions provide with capital gains. See XIU as a fine Canadian example, or XEI.
      Mark

      Reply

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