Stocks and bonds are the most common investments in portfolios. They are also the investments that we are the most familiar with and that receive the most media coverage. Yet, as I covered in the “Portfolio Pie” blog, 10% of the investable assets in the world are “alternative” such as commercial real estate and private equity. It is harder for individuals to find information on alternatives as they don’t trade on public markets. To help understand the reality of investing in alternative assets from a portfolio perspective, I look at the main types and how their return and risk has compared to bonds and stocks.
Heavenly Returns: Life Insurance as Fixed Income
I know what you are thinking. Isn’t insurance about getting tax free money when you die, not about investing? For sure that is the primary purpose. However, some life insurance can also be an attractive long term alternative to some fixed income in your portfolio. I recently went through an analysis of converting my term life insurance policy into a new policy. I am no insurance expert. But working with insurance professionals[1] I recognized the heavenly returns that can be available compared to fixed income alternatives.
MICs In Your Mix
Investing in units of a Mortgage Investment Corporation (MIC) is a way to bolster the yield of the fixed income portion of your asset mix. Currently, the 1.7% yield on a diversified portfolio of Canadian bonds remains low by historical standards. In the meantime, the likely transitory bump in inflation has seen the core inflation rate rise to 2.7%, implying a negative inflation adjusted return on bonds. So, let’s mix things up and look at how MICs may be one solution to bolster your fixed income returns.
2021: A SPAC ETF Odyssey
SPACs, or special purpose acquisition companies, began their odyssey in 1993. While the financial technology enabling SPACs is not new, since 2020 there has been a supernova of interest and issuance in the U.S. market. One way to invest in SPACs is through three recently issued ETFs. Hal 9000 and Dave (me, not the movie protagonist) explore the SPAC universe to understand why the investment returns on SPAC ETFs have not exploded to the upside in line with SPAC issuance.
Raging Bulls: Edifices vs. Equities
Housing prices and stock prices are hot topics, and both have been in raging bull markets over the last year. But who has been the heavyweight champion over time? Like many things in investing, the answer depends on the time frame and assumptions. So, let’s begin by introducing our competitors and the rules of the match.
Springing Forward
Back in the fall I highlighted the potential for Canadian stocks to spring forward versus U.S. stocks. Their multi-year underperformance had left investors cold along with U.S. value, U.S. small cap, international, and emerging market stocks. While small cap stocks and value stocks subsequently dodged the winter blues with strong relative returns, the others stayed in hibernation. Will these others join small cap and value stocks and spring forward?
ECG On ESG Performance
Following up on my blog last month on Sustainable Investing, I have monitored the health of ESG by performing an investment ECG. I replaced electrodes with data by monitoring the returns over the last five years for ESG and regular equity indices. A review of the performance graphs shows a clear pattern of ESG outperformance. But like most diagnoses, identifying the underlying causes is complex.
Sustainable Investing: The ABCs of ESG
Sustainable Investing (SI) is the general term used for considering the environmental, social, and governance (ESG)[1] impact of investing in the securities and assets of governments and corporations. Responsible investing, social investing, or values-based investing are other terms that are often used. Similar to traditional investing, it can be hard to filter SI information to separate the hype from the helpful.
Fair Fee Fare
There is a menu of choices out there for your fee fare. Paying a fair fee for advice and investments is one of the most important aspects of your wealth strategy. It is also part of what inspired me to build my consulting business and name it “Wayfairer”, as I have come across too many people that don’t get fair value for the fees they pay. Fairness is not always about paying the lowest fee. It is about getting valuable advice and services. It is about getting outperformance versus passive investments like low-cost ETFs if you are paying for active management.
Portfolio Pie
I like to think about the asset allocation of a portfolio as different pieces of a pie. You can choose from various ingredients to create a portfolio pie that best satisfies your needs. The asset mix of most Canadians’ portfolio pie contains a big piece of Canadian stocks and bonds. However, there is a much bigger pie to choose from, where Canada represents only a small slice. It helps to know what the size of the global investable pie is, and how it is divided up, before sitting down to take a bite of what is on offer.