INVESTING 101

I'm often asked if I will manage my clients' money. The answer is no, for a number of reasons:

I believe strongly in the entire financial plan. History shows that the actual selection of individual stocks and bonds is not nearly as important as asset allocation and how the entire plan works together - income, investment, and spending. We won't invest for you directly, but we will figure out your best asset allocation.

There are many ways to successfully invest and build a portfolio. I am a very strong believer in just one method, which I detail below. I'm not sure I'd be acting in the best interests of all my clients if I only used this one technique (even if it has been very successful).

As my senior citizenship looms, I don't have a yearning for hundreds of panicked phone calls from clients when the market is down. (If you're currently freaking out about the market, read this.)

I'm not a licensed broker, so while I can give advice, I cannot actually take over the funds and invest them.

That being said, I have a long history of successful investment management and a solid philosophy of what works and what doesn't (backed by empirical evidence). Under the heading of "putting my mouth where my money is", I will share these theories and actual practices with you in the posts below. These are not necessarily recommendations on my part, but it is an overview of the process that I do use for managing my own and my family's investments.

I follow a simple and very rigid asset allocation model. A fairly long but readable introduction to asset allocation can be found here. Based on my own tolerance for risk along with my needs for income and capital growth, I have set a specific allocation as follows:

  Fixed Income48% 
US Equity24%
Canadian Equity18%
Foreign Equity - EAFE3%
Foreign Equity - Emerging Markets2%
Real Estate5%
    
  

I rebalance each quarter to these exact numbers. I do not time the market. Within a few days of the quarter-end, I re-calculate my asset allocation and promptly rebalance.

If I purchase a stock during a quarter, I sell an equal amount of another stock to keep the allocation intact.

The fixed income portion of the portfolio is simply a ten year laddered bond portfolio, with 10% of the portfolio reaching maturity in each of the next ten years. When a bond reaches maturity, subject to rebalancing the entire portfolio, the proceeds are simply re-invested in a new bond maturing in 10 years. I tend to hold all bonds to maturity unless I have to sell in order to maintain my asset allocation. This way, I really am not subject to fluctuations in bond prices, and also get to average my fixed income investments at differing interest rates. I tend to purchase mainly provincial and municipal bonds, with some high grade corporate bonds also in the mix.

The equity portion of the portfolio is invested in conservative, generally dividend paying stocks. About half are U.S. stocks. My detailed equity portfolio is outlined below.

The real estate portion refers to liquid real estate holdings, generally Real Estate Investment Trusts.

The foreign stock portion are generally ETFs focusing on a particular non-North American region.

I attribute 80% or more of my investment return to this rigorous rebalancing. It has not always been easy (1987 market crash, 1997 Asian crisis, 2000 internet crash, September 11th, 2008 financial crisis, 2020 Covid-19 pandemic), but it has always turned out well (in the longer run).

Investing 101

INVESTING 101

I'm often asked if I will manage my clients' money. The answer is no, for a number of reasons:

The Foundation - Asset Allocation