A bull market is a terrible teacher of smart investing habits.
In the kind of fast-rising markets we’ve seen for most of the past two years, picking stocks and sectors has been an easy path to investing success. You don’t need to hit on every pick when stocks are flying. A few home runs and your portfolio is up overall by double digits.
This will not work over the long term. In fact, stock market choppiness in early 2022 suggests a tougher slog ahead for investors. Hitching a ride on stocks with momentum or great buzz on online forums – remember Gamestop? – won’t deliver the same results we saw 12 months ago.
In the final instalment of the Back to Basics series, I want to encourage you to think about simplifying some or all of your investing. That means using diversified portfolios with a mix of stocks and bonds or guaranteed investment certificates that reflect your age, your investing needs and your comfort level with the potentially sharp ups and downs of the stock market. Here are two ways to get a diversified portfolio that I refer to as easy and easier.
The easy option is set up an account at a digital broker and use it to buy an asset allocation ETF, which is a fully diversified portfolio of stocks, bonds and, in one case, a dash of cryptocurrency. ETF stands for exchange-traded fund, which is in simple terms a mutual fund that trades like a stock. The cost of owing asset allocation ETFs is extremely low, and the cost of buying them ranges from zero to just under $10 per purchase. My latest ranking of digital brokers will help you find a cost-effective broker.
The easier option is to use a robo-adviser. To be perfectly clear, the diversified portfolio you get from a robo-adviser will be quite similar to the one you get through an asset allocation ETF, but with an extra cost of as much as 0.5 of percentage point. For many people, there’s value in paying more for the extra support and guidance provided by a robo-adviser. My latest robo-adviser guide will help you understand what’s available in this sector.
Looking back at the past two years, full credit has to be given to investors for capitalizing on outstandingly good bull market conditions. The next smart move is to get back to basics.
Back to Basics
Part One: Now’s the time to revisit the most basic rule of personal finance
Part Two: Would a 20 per cent interest rate get your attention?
Part Three: A month-by-month guide to excuses for not saving money
Part Four: How to ace your mortgage decisions
Part Five: A low-effort, low-risk way to profit from rising rates
Part Six: Budgeting for the never-ending cost of kids
Part Seven: Have you answered the ‘what happens to my family if I die suddenly’ question?
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Rob’s personal finance reading list
So you think you know credit cards
Even long-time cardholders may learn something from this nine-point primer on how credit cards work. If you carry a balance, check out the sections on how card interest is charged.
Best tax software
Best paid and free tax software, and a list of seven free tax-filing options. April 30 is the deadline for filing your 2021 tax return.
Retirement’s Rule of 30
How to juggle the costs of everyday life and retirement saving over a lifetime using a rule that says you should aim to save 30 per cent of your gross income, minus mortgage or rent payments, and extraordinary short-term expenses, like child care costs. What’s unique about this approach is that it accepts people will have less to save when they are starting a family.
How to ace a job interview on video
Video job interviews became a thing in the pandemic, and they’re likely going to stick around. Here are 20 tips to help you nail the interview.
Q&A
Q: Is there any information on the internet about customer service at robo-advisers?
A: Here’s a link to a Reddit discussion on Canadian robo-advisers. If anyone has a story about particularly good or bad service from a robo-adviser, tell me about it by sending an e-mail to rcarrick@globeandmail.com
Today’s financial tool
Pay down debt or invest? This calculator shows the rate of return you need from investments to match the benefit you get in diverting money from debt.
The Money-Free Zone
Black Line by the U.K. artist Jelly Cleaver is a smoking hot song I keep listening to lately.
What I’ve been writing about
- The 2022 ETF Buyer’s Guide: Best Canadian equity funds
- Water, the quiet menace that could slash the value of your home
- Three insider tips on choosing a digital broker for retirees
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing … and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
