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Growing Your Wealth Your Way

We are able to provide a wide variety of investment choices including mutual funds, ETFs, stocks, and bonds.

We are an independent investment service. The investment decisions we develop with you are not tied to any directive or incentive to promote specific products. We assist you to design a portfolio that aligns with your objectives.

Back to School – Expand Your Investment Vocabulary

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Global innovation requires a whole new vocabulary. Take the quiz below to test your knowledge.

There’s an ETF for that!

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Our way of life is changing because of the pandemic. Investing is also evolving. As we win the battle against Covid-19, are there specific investment trends that interest you? Perhaps you want to capture the trends in travel or healthcare? Or robotics, clean energy, infrastructure? If you want to do so without the risk of owning individual stocks, it may be time for you to join the many investors who are moving money into exchange-traded funds (ETFs).

As of September 30, 2020, according to the Canadian ETF Association (CETFA) there were 833 ETFs available for purchase through 38 Sponsors. In October an additional 8 were launched to bring that total to 841. During the first 10 months of 2020 investors deposited a whopping $34 billion into Canadian-issued ETFs (source). If you include all of the US-issued ETFs also available to you, whatever trend you’re following, it is quite likely you’ll find an ETF for that.

What Is an Index? 

An index is a method to track the performance of some group of assets in a standardized way. An index typically measures the performance of a basket of securities intended to replicate a certain area of the market. An index may be broad-based to capture an entire market such as the S&P/TSX Composite Index, the Standard & Poor’s 500 (S&P 500) or the Dow Jones Industrial Average (DJIA), or it may be more specialized, sector-specific, such as an index that tracks a particular industry or segment (source).

Because you cannot invest directly in an index, the investment industry created the exchange-traded fund structure to capture index-like returns. Investors earn the performance of the index minus the small cost of operating the ETF.

What is an Exchange Traded Fund (ETF)?

An ETF is a basket of securities that is traded on a stock exchange. The securities may include stocks, bonds, commodities, precious metals, currencies, or other asset classes. ETFs are designed to replicate the performance of an index such as the S&P/TSX Composite or S&P 500. Most ETFs are traditional Index ETFs, created as either Passive or Smart Beta. Arriving on the scene more recently are ETFs that are not based on the performance of an index but rather on the performance of an actively managed basket of securities.

Index ETFs

  • A Passive ETF tracks a broad-based market index – it is simple and inexpensive; your investment will deliver the performance of the index minus a small cost for operating the ETF; volatility is similar to that of the index.
  • An ETF described as Smart Beta is created using rules (mathematical algorithms) to create a subset of a passive index, rules designed to include only securities that meet specific criteria. There is no portfolio manager picking individual stocks or bonds.

Actively Managed ETFs

  • ETFs described as Actively Managed mirror the performance of an actively managed basket of securities. Instead of replicating a passive index, some of these ETFs will replicate the behaviour of an existing mutual fund.

An ETF is more like a stock than a mutual fund. When you purchase an ETF you buy a specific number of units (shares). You can’t buy a piece of an ETF unit/share, so the total cost of the investment depends upon the price at which the ETF units were trading when the order was placed. This is in contrast with a mutual fund where you can specify the exact dollar amount to be invested. The mutual fund company handles the calculations and issues partial units as required.

As investors embrace ETFs the expectation is better long-term performance than mutual funds due to lower fees. Lower cost is one reason to select an ETF, but there are other considerations as well. The following chart explains the differences in further detail.

ETFs vs Mutual Funds chart

Click chart to enlarge.

Here are just a few of the ETFs available to Canadians

This list is not to be construed as our recommended picklist but rather a sampling to give you an idea of the range of ETFs available. Some are examples of ETFs that passively track a broad index whereas others apply specific rules to achieve a more focused basket of securities.


XCS – iShares S&P/TSX SmallCap Index ETF

“Small” and nimble (a smallcap company is valued between $300 million to $2 billion), Blackrock’s XCS ETF replicates the S&P/TSX Small Cap Index.

  • top holdings: Great Canadian Gaming Corp – Hudbay Minerals Inc – Whitecap Resources Inc – North West Company Inc – Trillium Therapeutics Inc (as of Nov 24, 2020)
  • medium to high-risk
  • management expense ratio (MER): 0.60%
  • considered a “passive” ETF


ESG – Invesco SP 500 ESG Index ETF

ESG (Environmental, Social, and Governance) investing has been an emerging trend for several years but under the current circumstances may be more relevant than ever before. The acronym ESG is defined as a measuring stick for evaluating companies on their sustainability and ethical impact. The ESG ETF integrates the core principles of ESG and seeks to replicate the S&P 500 ESG Index.

  • top 5 holdings: Apple Inc – Microsoft Corp – Amazon.com Inc – Facebook Inc – Alphabet Inc (as of Nov 24, 2020)
  • provides primarily US exposure
  • low to medium risk
  • management expense ratio (MER): 0.15%.
  • considered a “passive” ETF


JETS – US Global JETS ETF

Did we catch you thinking “he shoots, he scores!”? Oh, how we miss our Winnipeg Jets! This global ETF however isn’t concerned with hockey – it provides exposure to the hard-hit airline industry. Maybe you want to be in a position to “take off’ when the airlines are back in full force. Did we mention that we have access to purchase US ETFs in US dollars? We can, and JETS is one of those ETFs.

  • top holdings: Delta Air Lines Inc Del – Southwest Airlines Co – Air Canada – Air France-KLM – Singapore Airlines (as of Nov 24, 2020)
  • high-risk
  • management expense ratio (MER): 0.60%.
  • uses a smart beta strategy to track the global airline industry


CARS – Evolve Automobile Innovation Index Fund

If you want to “ride” emerging trends in the automotive sector, CARS will provide exposure to companies in the business of electric drivetrains, autonomous driving, or network connected services for automobiles. CARS seeks to replicate the Solactive Future Cars Index.

  • top 5 holdings: FuelCell Energy Inc – NIO Inc – Kandi Technologies Group Inc – Visteon Corp – Plug Power Inc (as of Nov 24, 2020)
  • global equity exposure
  • high-risk
  • management fee: 0.40% (plus applicable taxes)
  • considered a “passive” ETF


COW – iShares Global Agriculture Index ETF

Are you a little bit Country or are you a little bit Rock n’ Roll? This ETF provides exposure to agricultural companies that produce things like fertilizer, farm machinery, and packaged meats.

COW replicates the Manulife Investment Management Global Agriculture Index.

  • top holdings: Corteva Inc – Deere – Tractor Supply Ltd – Bunge Ltd – Scotts Miracle Gro (as of November 24, 2020)
  • 85% exposure to the US
  • medium risk
  • management expense ratio (MER): 0.71%.
  • considered a “passive” ETF


RBOT – Horizons Robotics and Automation Index ETF

Remember the Jetsons robotic housekeeper Rosie? They knew back in 1962 that robotics was the way of the future. This ETF provides exposure to robotics and artificial intelligence. RBOT seeks to replicate Indxx Global Robotics & Artificial Intelligence Thematic Index.

  • top holdings: Nvidia Corp – Fanuc Corp – Intuitive Surgical Inc – Abb Ltd – Keyence Corp (as of November 24, 2020)
  • medium to high risk
  • management expense ratio (MER): 0.60%.
  • passive strategy

Other ETF examples include:

CWW – iShares Global Water Index ETF

EDGE – Evolve Innovation Index Fund

CYBR – Evolve Cyber Security Index Fund

HBLK – Blockchain Technologies ETF

DISC – BMO Global Consumer Discretionary Hedged to CAD Index ETF

XEM – iShares MSCI Emerging Markets Index ETF

CHNA.B – CI ICBCCS S&P China 500 Index ETF

XGD – iShares S&P/TSX Global Gold Index ETF

XFIN – iShares S&P/TSX Capped Financials Index ETF

XRE – iShares S&P/TSX Capped REIT Index ETF

XIT – iShares S&P/TSX Capped Information Technology Index ETF

What kind of ETF is right for you?

ETFs need to be selected on the basis of your investment objectives and time horizon. If you have not yet explored the addition of ETFs to your portfolio, please schedule a review of your investment strategy.

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

It’s a “K”! – Economic Recovery Re-Envisioned

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In the last blog, we talked about the “Shape of the economic recovery and what’s next for investors”. We reviewed the L, U, V, W, square root, and swoosh shapes.

In reality, for investors the recovery in North America is proving to be K-shaped. After the downward plunge in March, recovery came fast and furious for select sectors of the economy including:

  • Technology (e.g. Shopify, Apple, Microsoft, Alphabet/Google),
  • Consumer Discretionary (e.g. Amazon, Etsy, Home Depot),
  • Communications and Entertainment (e.g. Zoom, DocuSign, Netflix),
  • Healthcare (e.g. Abbott Laboratories, CRISPR Therapeutics, Trillium Therapeutics, Moderna)

The remaining sectors have been on a downward path since the pandemic was declared. The downward line in the “K” represents all other sectors with the hardest hit being:

  • Industrials (e.g. Caterpillar, Boeing, Lockheed Martin, General Electric),
  • Financials (e.g. Bank of Nova Scotia, JP Morgan Chase),
  • Energy (e.g. Suncor, Canadian Natural Resources)

Most importantly, what the following diagram illustrates is that there are opportunities – not necessarily in what’s currently booming, and maybe not yet in the sectors that are struggling most, but those diamonds in the rough – individual companies or sectors that are priced attractively and ready for growth.

Your Next Step…

It’s time to be really very clear on what you own, to understand the unusual risks of the pandemic and its economic consequences, as well as the unusual investment opportunities it is presenting. Understand your current position, rebalance and diversify as warranted. The future is bright on the other side of the pandemic. We just need to proceed wisely.

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

Shape of the economic recovery and what’s next for investors

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Results from April 21, 2020 survey. Click image to enlarge.

Last month we asked you to participate in our survey on the Shape of the Recovery. Thanks for taking the time to give us your prediction. The results are displayed in the bar chart to the right. You look like experts!

For months before Covid-19 hit, valuations and earnings expectations were getting very high. By the end of December 2019 many portfolio managers had become more defensive, increasing their allocations to more conservative assets. Then Covid-19 arrived, triggering a global recession.

L-Shaped Recovery

From their enthusiastic highs in mid-February 2020, global equity markets plunged and by March 23 had declined over 30 percent in some markets including the TSX. The massive selloff and liquidity crunch in March also affected fixed income. Bond markets were totally chaotic. The reality of a global pandemic had registered! During this period the price of oil collapsed, with Saudi Arabia and Russia clashing over production quotas. At that point, the markets were pricing in a dire scenario with an L-shaped recovery – basically a recessionary collapse with little economic activity expected for the next 12 to 18 months.

U-Shaped Recovery

As the indiscriminate panic selling subsided, the equity markets started to stabilize and move off the March lows. Share prices for the top ten technology companies surged. Many of the remaining stock prices oscillated, in some cases declining again to retest their March lows. Supported by unparalleled central bank interventions and government relief programs, by the end of April it seemed that the markets were pricing in more of a U-shaped recovery.

V, W or Square Root-Shaped Recovery

There is still hope for the best-case scenario, the V-shaped recovery. Sentiment rises on reports of successful vaccine research and then recedes quickly with announcements of bankruptcies and escalating US-China trade tensions. Some are hopeful but question the near-term sustainability of the April gains in equities and believe the recovery will take the shape of a W. (I’m in that camp.) Others see a recovery followed by a period of slow growth, in the shape of the square root symbol. Still many unknown unknowns!

Swoosh-Shaped Recovery

Although opinions vary widely as the story unfolds, the predominant view is that the recovery will take the path of the Nike swoosh. Canadian economist David Rosenberg pictures it as a Swoosh interspersed with numerous small Ws along the way. He is suggesting the economic recovery will be slow, marked by frequent periods of high volatility. (His nickname is “Rosie”, but his predictions rarely are!) His timeframe for recovery is at least one year, maybe 2. He expects low interest rates and deflation for the next two years followed by inflation, noting that in the Great Depression inflation rose to 5%.

Whatever the time frame for the recovery, there are reasons to be optimistic. Economies are reopening and with each day there is more clarity regarding the nature of the virus and the depth and severity of the recession. The narrative in the media is turning from the virus to speculation about the new normal – what will it look like and what will really change. No one knows yet. Trends underway before Covid-19 are likely to continue but at a more rapid pace and with some new and unexpected twists. For the markets there is an estimated $4.7 trillion USD in cash on the sidelines. When this cash is invested, it will propel equity prices higher.

Factor-Based Investing

Last fall as we explored “Investing for the Next Decade” we looked at the factors that contribute to investment success. These factors provide guidance as we review portfolios and strive to maintain the right balance between preservation and growth of capital. At this point in the economic cycle we are seeing signs of the move out of the current recession into a new economic cycle. The factors shown below help us to frame the discussion.

Click image to enlarge.

Typically leading us out of a recession and back to more robust growth are the smaller, value-oriented companies. In the current environment it will also be the high-quality companies that have the resources to grow their business through the acquisition of competitors or complementary businesses.

What’s the next step?

In a recent interview Thomas Caldwell, Founder of Caldwell Securities, noted that “there is no news, only opinions” about the future, and investors need to quell their emotions and always view the present as an opportunity. We do not yet know the real depth or severity of the economic damage, but opportunities do exist. It’s time to look again at how your portfolio is positioned to meet your needs and objectives.

Click to enlarge image.

With the above factors in mind, think about how you want your portfolio to be positioned 2-5 years out and start to move in that direction now. Particularly during times of uncertainty it is beneficial to apply the barbell approach – strike an appropriate balance between defensive and offensive assets. We don’t know what life after lockdowns will bring, but with interest rates close to zero you’ll need to see some growth in your portfolio to achieve your life vision and sustain the lifestyle you desire. Don’t allow fear to get in the way of a bright future.

 

In my next blog I’ll be providing an update on different sectors and how you can use ETFs for sector-specific investing. Until then, stay safe and continue to do your part flattening the curve.

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

What do you think economic recovery will look like post-Covid?

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The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

Dollar-Cost Averaging – A Strategy that Works

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Opportunity always accompanies a crisis. If you are investing on a monthly basis and have a secure cash flow throughout this pandemic, then consider temporarily increasing your contributions. It’s easy, all it takes is a phone call to authorize the change.

The tables below show why this is a powerful way to build wealth.

Market Falling

If you invest $100 each month when prices are falling, you buy more units/shares. In the example below, it may not have been emotionally rewarding to buy at $6.50 per unit (month 12) as compared to $10.00 per unit (month 1). For a long-term investor, there is a significant difference in growth on 15.38 shares compared to the 10.00 you received for your $100 in month 1.

Table and chart illustrating impact of dollar-cost averaging. When the market is falling more units/shares can be purchased at a lower price.

 

Market Rising

Table and chart illustrating impact of dollar-cost averaging. When the market is rising fewer units/shares are purchased at a higher price.

 

Market Fluctuating

Table and chart illustrating impact of dollar-cost averaging. When the market is fluctuating units/shares are purchased at different prices..

 

Side by Side Comparison

The comparison below demonstrates clearly that dollar-cost averaging is a successful strategy in all types of markets but the most beneficial is purchasing when prices are dropping.

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

Blame it on the coronavirus

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Well, it’s been quite a week in the financial markets! I’m writing this Friday afternoon before the close of trading but it appears as if it’s another day of panic.

In 2019 the prices that investors were willing to pay for shares (ownership in a company) continued to rise at an above-average clip. At the same time, the earnings (profits) that the companies were reporting were not showing the same growth. The rise in stock prices was disconnected from what investors could expect to receive as their share in the profits (dividends).

In 2020, this DISCONNECT, the spread between the price per share and the profits, continued to widen… until the potential economic impact of the coronavirus sent investors into a panic. I believe that if it hadn’t been the coronavirus, it would have been some other trigger.

Click image to enlarge

 

When this has happened in the past, my approach has been to look for opportunities to improve our clients’ portfolios. In 1987, when I was just starting in finance, I observed the 23% one-day drop in the primary Industrial Index, the Dow Jones. Since then, there have been numerous opportunities to watch investor psychology in action.

Things to keep in mind:

  • It’s usually best to stay invested
  • Diversification doesn’t necessarily prevent short-term declines but it does stabilize your portfolio
  • When fear is at its peak in the financial markets you can be strategic and use the opportunity to strengthen your investment portfolio

On our agenda for the next few days/weeks:

  • Looking for ways to reallocate tax-efficiently by transferring in-kind from Non-Registered cash accounts into Tax-Free Savings Accounts (TFSAs)
  • Looking for ways to reallocate tax-efficiently by transferring cash from RIF/LIF accounts into Tax-Free Savings Accounts (TFSAs)
  • Investing cash currently held within accounts
  • Reviewing source of monthly withdrawals for retirement income payments

On days like this, history can offer some helpful reminders.

The source for the following is PlanPlus Global using as an example a portfolio that is allocated 30% defensive (cash and fixed income) to 70% growth (equities), for the period January 1, 1973, to December 31, 2019,

There were a total of 73 rises but 79% of these, 58 in all, were less than 10%.

Click image to enlarge

There were 72 falls of one month or longer but nearly all were less than 10% and about two-thirds of these lasted only a month.

Click image to enlarge

Click image to enlarge

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

5 steps for smart investing in 2020

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We are living in unpredictable times. Disruptions abound in every sphere – social, political, economic, technological, environmentalFinancial decisions are more difficult due to increased risk and complexity. Future planning is more and more challenging for government retirement systems, private pension plans, and individual investors.  

How has investing become more challenging for you?

RETIREES
In a world where interest rates are not much above zero – and in some countries below zero, how do you generate a reliable retirement income stream for an uncertain but potentially lengthy lifespan?  How do you invest to obtain sufficient cash flow while preserving your wealth? 

PRE-RETIREES
If retirement is on your horizon, how do you confidently grow your wealth to ensure that you’re there – enough for a long and joyful retirementwithout worrying about the impact of market changes?  

PEAK EARNERS
If you are at your peak 
earning potential in your career, how do you translate your current success into an investment strategy for wealth accumulation? 

BUILDING CAREER AND FAMILY
If you are building your career and family, how do you create a nest egg for a sustainable future that is also in harmony with the needs of a changing world?   

Our role as an investment advisory firm is to understand the emerging trends, not necessarily to make market forecasts. It is to help you be prepared for the future, however it unfolds. That is why it is useful to explore forward-looking projections based on different “What if?” scenarios, and to focus on things within your control. 

Implement these five simple steps to make smart decisions through 2020 and beyond in order to accomplish your investment objectives 

1. Know what is most important for successful investing.  

Define the elements of your investment strategy by characterizing them according to one or more of the following six factors you want to emphasize in your portfolio. 


Dividend
– Companies that distribute higher than average profits to investors
 


Value – Securities that are undervalued in the marketplace


Size – Smaller firms with high growth potential


Momentum
– Large and mid-cap companies with an upward price trend


Quality
– Stable companies with healthy balance sheets


Low Volatility
– Securities with lower risk and less price fluctuation
 

Focus on the factors that most effectively address your situation, not what the media may be promoting as the latest and greatest opportunity.  

__________________


Sustainability – You may also want to consider sustainable investing, where holdings are screened according to ESG criteria (environment, social and corporate governance).


2. Diversify your investment holdings
 as much as is reasonably possible across asset classes; rebalance as needed. 

Maintain an asset allocation that will enable you to accomplish your goals. Each asset class comes with its own particular risk and reward profile. Diversification helps smooth out the ups and downs as each asset class responds differently to changing conditions. Select asset classes and specific investments that meet your risk tolerance and your return objective while offering the greatest likelihood of success. 

3. Understand how your investment portfolio is constructed and what to expect.  

You may find it beneficial, for example, to know the range of results that have been achieved historically for your chosen asset allocation. Clarity fosters confidence and a greater sense of control. You are more able to filter out the noise of the market chatter. 

4. Have an Investment Policy Statement (IPS) in place to help guide your decisions. 

An IPS sets out your investment objectives, the boundaries for your portfolio and the rules to be followed when making changes to your asset allocation and investments. It helps to reinforce decisions, why they were made, and the circumstances under which they will be adjusted. Particularly for more complex portfolios, a written Investment Policy Statement helps to keep everyone rational and accountable. 

5. Be ready to act on defined triggers. 

Here are some examples of defined triggers.

Add to your investment in this stock if/when the price drops by more than 15% from initial purchase price … or 

Increase the allocation to international equities by X% if/when the US dollar declines by Y% or more against the Euro  or  

Switch from US equities to Canadian equities gradually over the next year to achieve strategic target of 15% … or  

For income tax purposes, minimize the taxable capital gains in open, non-registered accounts by using your TFSA and ETFs where appropriate …. or 

Increase the cash or near-cash in your open, non-registered account at the beginning of each year, in readiness for the annual withdrawal for your life insurance premium … 

 

Applying the steps

With a full suite of investment products, we are able to rebalance portfolios by adding individual stocks, ETFs and alternative strategies to the asset mix, where appropriate and desired, in a cost-effective manner. If you understand what you own, why you own it and the basis upon which changes will be made, you can expect to enjoy many years of successful investing regardless of market twists and turns. 

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

Making sense of rates of return

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Financial Services has an abundance of acronyms and glossary terms that can be downright confusing. Even something as seemingly straightforward as the rate of return isn’t without a certain level of complexity.

The most important consideration is how you intend to use the information.

  1. Are you assessing the performance of the portfolio manager?
  2. Are you evaluating your personal rate of return?
  3. Are you most interested in long-term performance, looking for shorter-term buying opportunities, or assessing whether it’s time to take some profits?

There are two commonly used methods for measuring the rate of return of a portfolio: time-weighted vs money-weighted. Both are informative depending on your purpose.

When you look at the profile of a specific investment fund, you are seeing the time-weighted return. We often use data provided by independent research firms such as Morningstar and Fundata to evaluate funds (managed portfolios).

When you look at your own portfolio summary, you are seeing the money-weighted return. We always report net of fees so it is the true measure of your investment performance taking into consideration related costs.

See the following examples to understand the differences if you’d like to delve further.

 

click to enlarge image

 

click to enlarge image.

 

click to enlarge image.

 

Determining which portfolio managers you want to have managing your money and when you want to invest are informed by these types of calculations.

Hope this is helpful if you are puzzled by different rate of return calculations. If you have any questions, you can always call us.

 

*Graphics adapted from CI Investments’ “Making Sense of Your Investment Performance”

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

“And how will you be paying?”

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Black Monday Headlines The New Your Times

click image to enlarge

October 19th marked the thirtieth year since that famous day in 1987, when the US S&P 500 Index declined over 20% in one day. It’s known as Black Monday. I was just starting my career in financial services. I remember the news coverage and the total panic. This definitely wasn’t what I had signed up for, but it was a valuable lesson in the power of investor psychology.

If you want to learn more about that prominent day in the history of investing, see the New York Times article by Robert Schiller who studied investors’ behaviour following Black Monday. (Schiller won a Nobel Memorial Prize in Economic Sciences in 2013.)

Much has changed in finance in those thirty years since Black Monday.

We now have financial technology (FinTech) automating and accelerating the pace of money flows in the capital markets. There are thousands of publicly traded individual securities and managed portfolios (mutual funds, segregated funds, private investment pools, exchange traded funds), and a plethora of other hybrid investment vehicles that are competing for your attention.

FinTech has literally transformed our day-to-day banking experience. Remember when you saw your first automated banking machine? Pay bills online, take a picture of a cheque and send it electronically to your bank account? Really?? Now these activities are commonplace, part of our banking routine.

If you take a look at the industry updates we’ve posted this year (we only post a few of those most relevant), you can see that FinTech along with regulatory reform are causing enormous disruption in the financial services sector. With the invention of cryptocurrencies FinTech promises even more dramatic change aheadThese virtual currencies have the potential to replace the currencies of individual countries — and the banking system as we know it!

BitcoinThe first such digital currency was Bitcoin, invented in 2008 as a global means of payment. Transactions are done through peer to peer networks without the need of a bank, making it the first decentralized digital currency. In spite of the graphic, this isn’t a physical coin that you can put in your pocket. Bitcoin is virtual.

Speculators have been captivated by this innovation. With high volatility in the price of a Bitcoin (in USD up this year from $967.07 on Jan 1 to $6,400 Oct 31/17), you can imagine that fortunes have been made and lost already trading on this financial technology. Bitcoin could become the cyber equivalent of gold. It could also be a perfect example of a FinTech mania and go the way of the tulip bulbs in Holland (Tulip Mania).

Maybe other competing cryptocurrencies will prevail – Ethereum, or Dream, or Ripple… We’ll keep you posted on developments. For now Bitcoin is in the lead.

“And how will you be paying?” Someday, maybe sooner than you think, your reply just might be … “in Bitcoin please”.

As we move into the final weeks of 2017, take the time to review your current financial picture. Make sure everything is organized before year-end. Even if it’s not bitcoin, you’ll need some kind of coin to keep ahead of your taxes and everything else that goes into the business of life.

If you have any questions on your overall life plan, your portfolio or tax position, please call us. We’d be glad to hear from you.

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.