Weekend Reading – All-Weather Portfolio edition
Welcome to a new Weekend Reading edition: my All-Weather Portfolio edition.
Before that deeper dive, here are some other recent editions and past popular articles below:
I’ve suggested more stock market volatility is on the way for a few reasons – and what you can do about it….
“Tax season” is officially here so I’m offering a TurboTax Canada giveaway AND a juicy 15% discount on TurboTax Canada tax preparation software this year:
and….don’t forget about my interview and review of Balance, with speaker and author Andrew Hallam. I will be drawing the winning names for that book giveaway soon!
Have a great weekend and enjoy!
Mark
All-Weather Portfolio reading – is this approach right for you?
I’ve actually considered this portfolio model over the years but haven’t gravitated to it yet for a few reasons that I’ll get to.
First, a primer and some links related to this subject:
On Jon Chevreau’s Financial Independence Hub, he underscored investors’ need for “super diversification” including consideration for the All-Weather Portfolio.
On Cashflows & Portfolios we discussed this subject and why it could make sense for some investors along with some caution if you choose to invest this way.
Reference and further reading: http://www.lazyportfolioetf.com/
The idea behind the All-Weather Portfolio is interesting and seems sound: it is designed for all changing market conditions. The concept was popularized by Ray Dalio, a billionaire investor and founder of Bridgewater Associates, I believe still one of the largest hedge funds in the world.
Specifically, this portfolio strategy is designed to help investors ride out four specific types of events:
- Inflationary periods marked by rising prices
- Deflationary periods marked by falling prices
- Bull market periods when the economy is growing
- Bear market periods when economic growth begins to slow down
Does it work? What would I do?
You’ll need to read those links above for more details, including All-Weather Portfolio performance, but I think in short while this approach is sound I’m like Jon Chevreau and prefer simplicity for investors “when in doubt”. From Jon’s article:
“Historically, I’ve always respected the classic pension fund and retail balanced fund mix of 60% stocks to 40% bonds. These days, a big chunk of global diversification of stocks and bonds can be implemented through Asset Allocation ETFs like VBAL, XBAL and ZBAL.”
On that note, you can build a core and explore portfolio with just one ETF!
In theory and in practice, the stock portion of this All-Weather Portfolio has done well in historical bull markets when stock prices are rising. In a bull market that’s characterized by rising inflation (as in now), investors would be bolstered by their intermediate-term bond and commodities holdings. Equities and bonds not liked to inflation can also be a winner for investors during periods of falling prices.
I happen to hold no bonds in my portfolio.
I much prefer any cash wedge to ride out market volatility.
That, and owning energy and commodity stocks for inflation. In fact, I just got a 28% raise from Canadian Natural Resources (CNQ) this week!
That should bolster my dividend income!
At the end of the day, all investors (myself included) need to consider “it depends” in their answers to any financial questions.
It depends on an investors’ tolerance for risk. It depends on their need to take on investing risk for any potential reward.
It depends on your income goals or wealth preservation goals.
It depends on your investment timeline.
And more.
What do you make of the All-Weather Portfolio? Do you think those results may continue going forward? Why or why not?
Other Weekend Reading…
MapleMoney shared how anyone can start investing.
As always, a gem of a shareholder letter from Warren Buffett. Don’t mind the website designed from 1985. It is legit from Berkshire!
Buffett on what to own in bulk...infrastructure:
“Many people perceive Berkshire as a large and somewhat strange collection of financial assets. In truth,
Berkshire owns and operates more U.S.-based “infrastructure” assets – classified on our balance sheet as
property, plant and equipment – than are owned and operated by any other American corporation. That
supremacy has never been our goal. It has, however, become a fact.”
Buffett on cash and why to hold it….regardless….to be financially impregnable:
“Berkshire’s balance sheet includes $144 billion of cash and cash equivalents (excluding the holdings of
BNSF and BHE). Of this sum, $120 billion is held in U.S. Treasury bills, all maturing in less than a year. That stake leaves Berkshire financing about 1⁄2 of 1% of the publicly-held national debt. Charlie and I have pledged that Berkshire (along with our subsidiaries other than BNSF and BHE) will always hold more than $30 billion of cash and equivalents. We want your company to be financially impregnable and never dependent on the kindness of strangers (or even that of friends). Both of us like to sleep soundly, and we want our creditors, insurance claimants and you to do so as well.”
Nice stuff on Passive Prairie Fire blog with some incredible year-over-year income:
“As for February income, I received $877.05 in dividend income between my TFSA and RRSP accounts. This represents a 229.3% increase in income from February 2021!”
I hope to report my latest dividend income soon…
On Dividend Strategy, stock prices have dropped of late. So, now what?
Dale Roberts highlighted the energy plays to be considered for your portfolio in his last Sunday Reads article. Some good stuff there.
Congrats to Rommel and maxing out his TFSA for juicy income.
“This brings to a combined projected annual TFSA dividend income of $10,321.34 (at the time of this update). That’s about $860.11 monthly or $28.27 a day of passive income while we sleep from our TFSA accounts alone.”
That sounds about right if you have x2 TFSAs maxed out. Well done!!
Finally, last but not least, check out the deep dive on Early Retirement Now (ERN) associated with managing your retirement during higher-inflation.
Also, I can’t wait to get back to the rink to watch some Ottawa 67s hockey next weekend…see you soon!
More income and retirement content
From the retirement files:
Does this couple have enough to retire early, for real, at age 52 with $800k invested?
How I invest in dividend paying stocks is always found here.
Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here.
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here.
Have a great weekend!
Mark
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.
Hi Mark,
There is so much on your web site that I hope I am not repeating a request that has been addressed. With more volatility predicted as well as inflation, I am wondering about the best stocks to keep purchasing to stay invested. I was thinking that a brief report that compares your earlier posts on what stocks you hope to purchase in 2022 to what stocks you would consider now, given we are almost 4 months into the year.
Thanks for keeping us so informed about your journey.
Cheers,
Clyde
You’ve provided some good ideas Clyde for a future post 🙂 I will see what I can do.
Thanks for the kind words.
Mark
About 15% ETF bonds (mostly in the red) in my RRIF that pay 3% to 5% is the only reason I bought them many years ago. I sell them first if I need to build up my cash. Not a big fan. With good equity diversity, the portfolio rides through various market conditions with little effort on my part.
I’ll be checking out your talk with Mike (Dividend Rock).
Take care,
Paul
Thanks Paul.
I would agree, if you can stomach the ride: with good equity diversity, a higher equity portfolio should be able to ride through various market conditions. That challenge becomes a prolonged bearish market. That’s my biggest fear.
I hope to cover that with some part-time work in semi-retirement just in case + keeping ~ 1-years’ worth in cash. That might make the withdrawal rate on my side closer to 2% in some grim years but that’s likely pretty safe I think.
Mark
Do you think enough dividends income is good enough for getting through prolonged bear market or it’s still not enough as dividends can be cut or cancelled?
2%, wow, in normal circumstances, that would be considered as too conservative I believe.
Anyway, with what’s going on in the world, I feel it’s good decisions we didn’t retire yet. Continue to work somehow makes me feeling safer. But of course, if there will be WW III, or nuclear weapons being deployed, nothing can be considered safe.
Well, aside from something going nuclear, yes. Dividend cuts remember can be good. Have you seen RioCan and Suncor of late? Those are two stocks that cut their dividends a couple of years ago but I held on and bought more. Now, being rewarded.
For the most part, if you own dividend stocks in various sectors – I don’t think there is too much worry to be honest.
The biggest downside I see for some following a dividend investing approach is they don’t keep up with a total return approach long-term even if they earn meaningful income. Then again, if you own BTSX stocks that worry should be even less.
https://www.myownadvisor.ca/beat-the-tsx/
“Anyway, with what’s going on in the world, I feel it’s good decisions we didn’t retire yet. Continue to work somehow makes me feeling safer.”
Yes, but life is short too and make sure you enjoy every bit of it 🙂
Semi-retiring in 2-3 years here – that’s the plan anyhow!
Stay well and thanks for your detailed comments.
Mark
Thank you Mark for this post.
I think the only All Weather product that I have is the tires on my car 🙂 I’m no expert by all mean but I’ve ditched my bonds couple years ago and went all in equity ETFS because Bond provided no protection at all when market went down so did my bond etf and the income i was getting from them was miserable so I can only imagine keep holding bonds with this high inflation period that we live in beside I consider my CPP and OAS as a bond and then let my stocks do the hard work.
I also happy to say that I’m 100% invested in Canadian dividend growth stocks after selling my last etf last week ( VUN ) I came to conclusion that what I want in retirement is a growing income not capital gain and since investing in those stalwart Canadian companies provides me with now only growing dividends but also capital gain in share price and a bonus of diversification since a lot of them generate income from all over the place .
so yeah I hold now 26 stocks in my portfolio the income has more then doubled and I get my share price gain as well , I looked at what VUN has in about 3000 stocks but the top 10 makes like 20% of it and the rest is less then 1% .
Yeah I can’t believe that I’ve gone from a 100% index to 100% individual stocks but I’m glad that I’ve done it in steps in order to see how comfortable I’m with it and the 2020 short crash proved it that in time like this index or not everything will crash at least you still get your income coming of course with a chance of some companies cutting theirs.
Ha. All-Weather on your car.
I like the ideas behind this portfolio approach but I can convincingly say that I won’t adopt it.
I will eventually let all my equities do the work and yes, of course, keep considering my CPP and OAS as bond-like with a plus – at least they offer built-in inflation protection!
https://www.myownadvisor.ca/overlooked-retirement-income-and-planning-considerations/
I see many investors gravitating/moving towards retirement focused on income and income growth stocks. Sure, maybe not the best always for total return but then again, if you’ve “won the game” why bother? Price appreciation is speculative at best and not always guaranteed as you know….
I suspect we own very similar stocks (your 26). I don’t disclose my entire portfolio nor value for privacy reasons but I do share a bunch as you know:
https://www.myownadvisor.ca/dividends/
Onwards and upwards and thanks for your readership.
Mark
Hey Gus
Excellent stuff and welcome to the “Growing Income” club. We ditched all our bonds back in 2013 and have been 100% TSX listed dividend income/growth stocks/ETFs for quite a while. From 2016-2019 we had 26-28 different holdings. That has now been reduced to 17 total because of take-overs and a little house cleaning (like selling our 2 pure renewables back in late 2020/early 2021, selling GRT when the yield got below 3%, etc). Of the 17, 1 is the ZWB ETF (love that extra income from the covered calls) and the other 16 are stocks in 5 sectors – 4 banks, 4 utilities, 4 midstream, 2 telcos, and 2 REITs.
So very similar type holdings to you and the identical strategy.
Take her easy
Don G
Thank you Don,
I’m sure we share a lot of similar holdings and yes the strategy is clear and the goal is growing income 🙂
Others might argue about the lack of diversifications but we could argue about diworsification so at the end of the day there is no right or wrong just do what makes you feel secured and happy.
All the best
Gus
You would have done very well Don since 2013 in many TSX dividend paying stocks!
With 4 banks, 4 utilities, 4 midstream, 2 telcos, and 2 REITs you’ll be doing more than fine 🙂
Well done!
Mark
Hey Mark
Thanks. “More than fine” is very accurate. I just did some calcs and since retirement in mid-2013, our portfolio value has increased by just over 150% and our dividend income by just over 110%. (I’m even surprised by those numbers – it’s sure been a heck of a run with more to come!!).
Just an aside, I was doing a little reading this morning and I’m shocked at all the articles and posts on what to do with your portfolio because of inflation, rising interest rates, Russia-Ukraine situation, etc, etc. As Henry, Gus, me and others would say: “build a growing income portfolio and do nothing”.
As a second aside, we hit a new all time high in total portfolio value this week on Weds, then Thurs, and then Fri (not that it really matters given we mainly care about dividend income but it is interesting especially for all those total returns people 🙂 )
Take her easy
Don G
Ha, well, I don’t really change my portfolio at all Don even though I write about All-Weather Portfolios, inflation, sequence of returns risk, etc. The reality is, my portfolio is largely on autopilot 🙂
Like you I suspect, you and I own similar stocks. I have:
“I own many of the same stocks, some examples:
Banks (Royal Bank (RY), TD Bank (TD), and others).
Insurance companies (such as Manulife (MFC)).
Pipeline companies (Enbridge (ENB) and TC Energy (TRP)).
Telecommunications companies (Telus (T)).
Energy companies (Suncor (SU)).
Utilities (Fortis (FTS), Algonquin Power (AQN)).
There are also industrial and material companies in my/our portfolio (like Canadian National Railway (CNR) and Nutrien (NTR)).
Basically, I buy companies that people need.”
https://www.myownadvisor.ca/dividends/
So, while I write a fair bit about portfolios, etc. I don’t really change my mine very much for all the reasons you already know: essentially ever-growing income. 🙂
All the best and always love your comments.
Mark
Hey Mark
I actually wasn’t really thinking of you when I made the comment on the stuff I was reading about portfolio adjustments. It was actually some other people and they were quite adamant about having to do something – which I totally disagree with. Sorry about that as I know you are mainly buy & hold and have a very good plan.
I also agree that you probably hold most of the stocks my wife & I hold. The biggest difference is that you have a lot more holdings than we do and are way more diversified, both by sector and with you USA holdings.
Take care
Don
Ha, all good, I didn’t think so and was just joking a bit given I know you know most of my portfolio anyhow!
I’m up to what, about 25 CDN holdings and about 6 U.S. stocks and the rest is low-cost ETFs right now.
I’m sure I will consolidate more over time but I can’t see myself selling any QQQ for example, it’s nice to own some tech in that fund if/when the next rally comes. Tech is beaten up and I’m likely to buy some this summer once I get more $$ 🙂
My best back,
Mark
“All Weather Portfolio”. I gave up long ago trying to out guess the market or protect my investments from things which our outside my control. In fact I don’t worry about the market at all. Receiving an ever growing income makes investing fun in all weather.
Yes, ever growing income is an all-weather portfolio. I know that well, myself. 🙂
Have a great weekend,
Mark