Never, never, never judge the thinking that went into your investment portfolio at the worst point in a stock market plunge.
Unless you hold cash or guaranteed investment certificates, your portfolio almost certainly looked like dog food in early April. “What was I thinking?,” you probably asked yourself a hundred times over.
Investing results to May 31 offer vindication to all well-diversified investors who thought they somehow blew it because their portfolio was so badly mauled in the worst of the pandemic-driven stock market crash. As a proxy for the generic balanced portfolio, let’s look at a pair of balanced exchange-traded funds:
- The iShares Core Balanced ETF Portfolio (XBAL) was down just 1.1 per cent for the year through May 31, and was up a tidy 5.8 per cent for the previous 12 months on a total return basis. As of March 31, the year-to-date result for this fund was a loss of 10 per cent.
- The Vanguard Balanced ETF Portfolio (VBAL) was down 1.3 per cent year-to-date and up 5.4 per cent for the past 12 months. The loss for the year to March 31 was 10.4 per cent.
Both of these ETFs offer a cheap way to buy a portfolio with that most traditional of diversification formulas: 60-per-cent stocks, 40-per-cent bonds.
Did you think a portfolio like this wasn’t smart enough for the complexities of today’s financial market conditions? You might have, given all the market gyrations in the market crash.
Diversified bond ETFs actually fell in the very early going. But for the five months to May 31, the benchmark FTSE Canada Universe Bond Index gained a decent 5.7 per cent on a total return basis (interest plus changes in bond prices). The S&P/TSX Composite Index was still down 9.7 per cent for the year as of May 31, but that’s half the loss for the first quarter of the year.
We could see another downturn for stocks if the economy is slow to rebound from the pandemic lockdown. If those self-doubts you experienced about your portfolio in March resurface, relax. You will be vindicated.
-- Rob Carrick
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Daniel Defoe wrote Robinson Crusoe to forget about his disastrous investments
Before Daniel Defoe (1660-1731) wrote Robinson Crusoe, Moll Flanders, A Journal of the Plague Year and other great literary works, he tried his hand at business and investing. There isn’t much to learn from his endeavours, except perhaps some lessons on what not to do – and the importance of keeping one’s money at a safe distance from scoundrels of the likes of Defoe. Larry MacDonald tells us the tale. (for subscribers)
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Investors expecting a sudden surge in bitcoin’s price, after it underwent a technical adjustment three weeks ago that reduced the rate at which new coins are generated, may have to wait a few months, or perhaps a few years. Gertrude Chavez-Dreyfuss of Reuters reports. (for subscribers)
Others (for subscribers)
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Friday’s analyst upgrades and downgrades
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Globe Advisor
Six dividend-paying tech stocks for growth and income
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Ask Globe Investor
Question: Having followed your model Yield Hog Dividend Growth Portfolio over the last couple of years, I have searched for but not found what sort of portfolio you would create today in light of COVID-19. I will have an inheritance coming up that I am hoping to layer in to dividend investments with a view to one day retiring.
Answer: I have not created a new portfolio and don’t plan to. The securities in my model portfolio (tgam.ca/dividendporfolio) are all strong businesses that I am confident will survive the current economic slump and continue to prosper in the years ahead.
I did recently sell one of the portfolio’s holdings – A&W Revenue Royalties Income Fund (AW.UN) – because it temporarily suspended distributions and no longer fits the criteria for inclusion in a dividend growth portfolio. But unless another company cuts its dividend, I don’t expect to make any other major changes.
I have, however, been reducing the portfolio’s risk by reinvesting dividends into stocks that I believe offer the highest degree of safety and potential for dividend growth in this highly uncertain environment. In May, for example, I increased my position in two largely regulated utilities – Fortis Inc. (FTS) and Emera Inc. (EMA).
Many of the portfolio’s other holdings – such as Algonquin Power & Utilities Corp. (AQN), Brookfield Infrastructure Partners LP (BIP.UN), Capital Power Corp. (CPX) and TC Energy Corp. (TRP) – will also likely continue to raise their dividends, according to analysts.
Some companies, such as the banks, won’t be in a rush to raise their payouts. But I’m willing to give them some slack as long as they maintain their dividends at current levels. Given the strong capital levels of the banks even after sharply higher loan-loss provisions in the second quarter, I don’t see any of the big banks’ dividends being at risk. That said, Laurentian Bank’s (LB) 40-per-cent dividend cut in May is a reminder that not all banks are immune.
Finally, to reiterate what I have said many times, the model portfolio is not intended as a template to be copied exactly. Rather, it is meant to be a source of ideas and to provide a real-time illustration of dividend investing in action. If you are planning to invest your inheritance, be sure to do your own research and consult other sources of information. You may also wish to explore other strategies such as index investing, which is a worthy approach on its own or in combination with a dividend growth strategy.
--John Heinzl
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What’s up in the days ahead
The last time the stock markets plunged, many investment advisers lowered their fees. This time around, don’t expect the same. Rob Carrick will explain this weekend.
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Compiled by Globe Investor Staff