Question about CDs in the US ands GIC’s in Canada

 

On July 6, 2020, from L. B. …..Newfoundland

Question:

Sixty percent of my portfolio is in  GIC’s which are now giving me just over 2% return. Where else can you hold cash and do as well in the short run?

Monday Morning Millionaire Program Answer:

A 40/60, market/cash or near cash asset allocation puts a slightly greater importance on safety than on growth potential.  It  is good for retired people and conservative investors.

Certificates of Deposit (CD’s) in the US and Guaranteed Investment Certificates (GIC’s) in Canada are similar to each other. Preservation of capital is their primary objective.

A 2% return on a security designed to preserve capital is good. It might be worth your while to shop around for better terms and returns, however.

As an interesting aside, writing in his book The Battle for Investment Survival, Gerald Loeb says that knowledgeable savers would gladly pay a fee to any bank which would guarantee the preservation of the purchasing power of our savings if they felt that there was any hope of the bank staying solvent.

From one of our experts:

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Why are the markets doing so well?

 

Headlines, such as the ones with you see below, abound these days.

Secondary Fundraising Stays Strong Despite Pandemic

Preeti Singh, Wall Street Journal, July 5, 2020

BIGGEST POINT GAINS 

Fox Business, March 3, 2020

You would need several hours to follow the links above and the links within those links. Information comes at investors like water from a fire hydrant.

Investors would have nothing to lose by ignoring the above headlines and they would save time. “Best Day”, “Fundraising Strong”, “greatest 50-day rally” — every one of them enticing, not one of them actionable!

That is the nature of journalism. There is even a service which ranks headlines for their ability to capture readers’ attention.

We wrote about this phenomenon previously. It is worth reviewing.

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The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 400 words, members can read this post in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

 

Happy birthday, Canada/America!

Another example of multi-tasking, this Canada/America birthday greeting is going out right between July 1 and July 4 to take care of both.

We who live in either of these two countries have won the lottery! Our prosperity opportunities are endless.

Tax-freedom day, the day that tax-payers begin to work for themselves instead of the government?

For Canadians, that is just about now. For Americans? Mid-April!

At the beginning of our grandparents’ lives? Before the end of January!

Happy birthday, Canada/America!

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The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 200 words, members can read our posts in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

 

 

 

 

 

Question about the 200-day moving average

On July 2,  2020, from John, G. … ON, Canada

Question:

I’ve been reading an article on the 200-day moving average of the the stock market. The DOW is now below the 200-day moving average indicating a bear market. Do you put much weight in this? Is there a good website to watch this?

Monday Morning Millionaire Program Answer:

In its broad context, the answer to your question is an important one.

Moving averages are one aspect of technical analysis. If you look up “technical analysis” on Amazon.com you will find over 10,000 books on the subject. (There are over 8,000 on Amazon.ca.)

There are more than 10 books specifically dedicated to the subject of the 200-day moving average!

Technical analysts only look at past security prices and trading volume. They try to identify chart patterns which they feel predict security prices.

There is a very small number of investment books that are highly respected by the knowledgable, the financial academics and the ethical financial advisors. Examples:

If any of them mention technical analysis at all, it is in a negative vein. The reason why all major banks have technical analysts on their staff is because the demand for technical analysis is high.

If investors fully memorized the thousands of books on technical analysis, they could not equal the simple act of buying an exchange-traded fund which parallels the S&P 500. Rocking chair investing, watching-grass-grow and watching-paint-dry style of investing is best.

Warren Buffett: “lethargy bordering on sloth remains the best investment style. The correct holding period for the stock market is forever.”

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The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 400 words, members can read our posts in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

 

Active or passive investing? Canada or the U.S.?

Respected studies [1,2,3,4,5,6] show that most investors, pros included, cannot beat a broad market index consistently. These support Habit 3 of The Six Habits of Monday Morning Millionaires.

Canadian members, please note that  adjusted for inflation and currency exchange, the Toronto Stock Exchange composite index lost money over the last decade while the S&P500 composite index more than doubled.

Why would future returns be much different? Wouldn’t investors be better off holding the S&P500 index via say, VOO or SPY or QQQ and sitting in their rocking chairs?

Honest professional money managers agree that a passive investment strategy will work well. One will never ‘beat’ the market with a market ETF, of course, and many investors feel that they can do better.

We are referencing Canada’s underperformance here because the majority of the Toronto Stock Exchange is in financials and resources.  If these sectors do not move as is happening now, then Canada will underperform the U.S. But, in inflationary times, a distant memory currently, Canadian markets will likely  outperform U.S. markets. That might occur over a decade from now.

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The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 400 words, members can read our posts in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

Bibliography
1. Fama, E. F. (1965). “The Behavior of Stock-Market Prices” The Journal of Business 38, No. 1, pp. 34-105 The University of Chicago Press
2. Fama, E. F.; French, K. R. (2012). “Size, value, and momentum in international stock returns” Journal of Financial Economics. 105 (3): 457, doi: 10.1016/j.jfineco.2012.05.011
3. Rompotis, Gerasimos Georgiou, “Active vs. Passive Management: New Evidence from Exchange Traded Funds” (February 4, 2009). Available at SSRN:https://ssrn.com/abstract=1337708 or http://dx.doi.org/10.2139/ssrn.1337708
4. Blake, C.R., Elton, E.J. and Gruber, M.J., 1993, “The Performance of Bond Mutual Funds”, Journal of Business 66 (3), pp. 371-403.
5. Malkiel, B.G., “Returns from Investing in Equity Mutual Funds 1971 to 1991”, Journal of Finance, 1995 50 (2), pp. 549-572.
6. Gruber, M.J., 1996, “Another Puzzle: The Growth in Actively Managed Mutual Funds”, Journal of Finance 51, pp. 783-810.

Update on parking money.

We wrote about parking money in some detail, previously. Since most of our members’ asset allocation has a large percentage in money or near-money, this is an important subject.

The primary objective of holding money or near-money is to have it available to buy bargains when the market drops. Nevertheless, it does pay to shop around for best returns. Our American members can do so by visiting:

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Caveat on our “good debt, no debt” post

 

We add an important caveat to our post of 6/21/2020 titled

To borrow or not to borrow; good debt, no debt.

Point 3 states that the interest on the debt should be tax-deductible. One of our subscribers rightly pointed out that in Canada, interest paid on such debt is not tax-deductible in tax-advantaged accounts. (It is, outside such accounts.)

Tax regulations vary among jurisdictions and at different times. For example, interest paid on a home mortgage is tax-deductible in the US but not in Canada. The tax codes in both countries add up to thousands of pages — more than the longest novel you ever saw. Accountants usually claim expertise only in their own jurisdictions.

Nevertheless, your accountant will be able to provide guidance on this point as well as other matters of taxation.

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The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 400 words, members can read our posts in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

 

Q and A about paying too much for an underlying security

On June 21, 2020, from P. T  …BC, Canada

Question:

I was very impressed with your previous blog mentioning a phenomenal return selling options when VIX is high.

By selling just out of money cash secured puts, how can one avoid being “trapped” when the market is so frothy?  Picking a strike price just out of the money has the advantage of higher premium but if the market is close to the vertex, and if the put got assigned, one will end up with the underlying that is too pricy?   So the question is, how can one predict the top of the bubble?

Monday Morning Millionaire Program Answer:

Predict? It has been said that only death and taxes are predictable. To that, we can add the permanence of a tooth extraction.

First, the Monday Morning Program recommends selling just out-of-the-money covered calls and just in-the-money, cash-secured puts for for the greatest premium income. Since by expiry date, the market will be either higher or lower, such a sale will result in assignment half the time.

On June 18, 2020, we answered a similar question from John G.  …ON, Canada.

If investors’ underlying is an exchange-traded funds (ETFs) which parallels the S&P 500, being assigned at the top of the market is a pain in the short term only.  We should think long-term. We want to own one of these ETFs anyhow, so having it put to us is desirable.

The Monday Morning Millionaire Program contains compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 350 words, members can read this post in less than five minutes. Following and studying the links imbedded in a post would take longer. How members manage a post depends on their level of interest and investing knowledge.P

Fundamentals of a tested growth strategy

Economics Nobel prize winner Paul Samuelson stated that investing should be like watching grass grow or paint dry. The Monday Morning Program recommends exactly that. Here it is in four simple steps.

  1. Starting early in life, save 10% of income.
  2. Dollar-cost average your savings by buying one of the few exchange-traded funds which mirror the S&P 500.
  3. Do so in tax-advantaged portfolios.
  4. In retirement, some 35 years into the future, withdraw 4% of portfolios to live on.

Only those who do not understand markets would argue these points.

The first of these points might well prove to be the most difficult for many investors.

Additionally, starting early in life would be a good time to look into individual stock investing for those interested in that approach.

Early in life? Why?

Each stock transaction has a buy and a sell side to it. Only one of them is right. Investing in individual stocks (stock picking) is wrong half the time. Doing so early in life allows for recovery.

__________________________________________________

The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 400 words, members can read our posts in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.