Compare apples to apples when benchmarking performance

How to compare your portfolio with an index

A benchmark is a market yardstick independent of your portfolio against which your performance can be evaluated. It’s usually an index that tracks the performance of the broader market, like the S&P/TSX Composite Index or the Dow Jones Industrial Average, and so on. But with the growth of financial products over the past 20 years or so, especially exchange-traded funds (ETFs), indexes have sprouted like mushrooms, tracking ever-finer slices of this market or that. Many indexes have been created solely to provide a benchmark for just one ETF or one investment fund or pool and are therefore virtually useless as a gauge of broader market performance. READ MORE

Sell in May and go away? Not so fast!

Seasonal patterns can be misleading

“Sell in May, go away, and don’t come back till Labour Day.” With the return of volatility earlier this year after many years of an uninterrupted bull market, many analysts are warning that the stock market is due for a correction, and that now is the best time to sell stocks – before the summer doldrums set in. The market’s crystal ball gazers claim to have a window into the future. In fact, no one does, and acting on what might happen can be decidedly bad for your financial health. READ MORE

No, investing is not “free”

The real cost of investing in mutual funds and ETFs

The way the marketing hype has it these days, you’d think investment costs have dropped to zero. What with all the do-it-yourself platforms out there hawking their black boxes and promising, at least implicitly, huge savings on costs, novice investors can be forgiven for thinking that buying mutual funds or setting up an ETF portfolio is somehow cost-free. Just open an online account, press the “trade” button, and it’s done. Unfortunately, it’s not quite that simple. Any economist will tell you that there are costs associated with every good or service. Investments are no exception. Here’s a summary of the costs that you’ll still pay for when buying that mutual fund or ETF. READ MORE

Three principles for battling market anxiety

What to do when markets seem to go crazy

When stock markets suddenly begin to drop alarmingly as they did at the beginning of February, many investors will contact their brokers and advisors and start selling things. Others, however, seem not to be so anxious, and while concerned, do not “ride madly off in all directions,” as the old Stephen Leacock quote has it. So what’s the difference here? As financial advisors, we see both types of financial personality, more of the former than the latter. What does it take to get yourself into the group that just isn’t as fussed about market setbacks like this? READ MORE

Volatility returns to markets

More normal trading patterns likely to emerge

Volatility returned to the stock markets, seemingly very suddenly, at the beginning of February. It was hard to avoid panicky headlines shouting about the 1,175-point drop in the Dow Jones Industrial Average on Monday, Feb. 5. Some are already calling it “Black Monday.” All the other major stock indexes followed suit. Toronto’s benchmark S&P/TSX Composite Index fell 271 points. And the broader U.S. blue-chip S&P 500 Composite Index fell 113 points. At one point during the week, several indexes briefly entered “correction” before recovering somewhat. Is it a “crash,” a “correction,” or a “healthy” revaluation? And what – if anything – should you do about it as an investor? READ MORE

Avoid Market Excitement Syndrome!

Stock markets are setting records daily. Ignore it!

“The market will fluctuate.” That old bit of market wisdom is ascribed to Gilded Age financier J.P. Morgan, and is as true today as it was a hundred years ago. The primal emotions of fear and greed are ultimately at the bottom of all market movement, and they take turns confounding market watchers, analysts, and investors. Trouble is, no one ever knows when there will be a market top (or bottom). READ MORE

Option strategies as an income-enhancement tool

What’s a “covered call write” and how do managers use it?

Portfolio managers increasingly use stock options to enhance income, using something called a “covered call writing” strategy. But to many investors this sounds mysterious and slightly risky. In fact, when used properly, the strategy can help investors boost income and manage risk. Here’s how it works. READ MORE

Is it time to look for active bond management?

Bond ETFs retreat as rates edge up

You might have noticed that the shorter-term returns of the broader index-tracking bond ETFs, such as the iShares Core Canadian Universe Bond Index ETF (TSX: XBB), have been sliding recently. Is it time to switch out of passive, index-tracking bond funds, and look for something more actively managed? READ MORE

How busy Millennials can become investment couch potatoes

Active versus passive investment styles

The “couch potato” portfolio is so named because it takes a “passive” approach to investing. It is predicated on the theory that markets are efficient, or smarter, than any single person. Studies have shown that the passive, or couch potato, investment strategy on average beats about 80% of professional money managers over time. For time-squeezed Millennials who would rather do almost anything else than manage money, this strategy can make a lot of sense. READ MORE

Year-end tax issues with bond funds


Why they’re not taxed the same way as GICs

As year-end approaches, it’s time to start thinking about the tax implications of distributions from your various investments. This year, the tax consequences of bond mutual funds compared with, say, straight-interest GICs have been top-of-mind for many investors. Here’s a quick primer on some of the tax issues involved with bond funds. READ MORE

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