Jun. 1, 2022 "The three steps to invest for multiple goals": Today I found this article by Fisher Investments Canada. This is an advertisement/ sponsored content:
Tackling multiple financial goals can be a challenge. Maybe you’re trying to ensure a comfortable retirement while saving for a home purchase. Perhaps you want to take a dream holiday in several years. Whatever the case, typically, investors are in pursuit of multiple financial goals. The difficult part is developing a strategy that allows you to pursue them all.
Fisher Investments Canada has three steps to help you plan investing with multiple financial goals in mind. Thinking and acting strategically now can have a significant impact on achieving these goals in the future.
Step one: Prioritize your goals and establish time horizons
The first step is to list your main financial goals and estimate how much money you’ll need for each.
Keeping your list short can help you stay focused.
Rank your goals by importance to you and your family.
When prioritizing, consider whether the goal is a necessity or “nice-to-have.” In most cases, necessities should take precedence. You may want to take a luxury holiday, but you likely need to save for retirement. So, saving for retirement would almost certainly be a higher priority.
The next consideration that will help prioritize your financial goals is how much time you have. Fisher Investments Canada recommends separating your investment goals into at least three main “buckets”—short-, medium- and long-term.
These buckets are important because the time horizon for each of your goals will influence your investment strategy. For example:
- Short-term bucket: Money to be used in the next three years for goals such as a kitchen remodel, large wedding or dream vacation.
- Medium-term bucket: Money you’ll need about four to seven years from now. Goals for money in this bucket might include a down payment on a home or starting a business.
- Long-term bucket: Money that you will need eight or more years in the future. Bigger financial goals like retirement might fall into this category.
Step two: Get the right investment mix for each goal
Once you’ve placed your goals into different time-horizon buckets, it may make sense to set up different investment portfolios to meet these goals.
That way, you can match each time horizon with the appropriate asset allocation — the mix of stocks, bonds, cash or other investments.
Picking the proper asset allocation gives your money the best chance of meeting your goals while taking appropriate risks.
Generally, the longer your time horizon, the more risk you can afford to take. Here are some examples of asset allocations for various time horizons.
- Short-term bucket (within the next three years): Given the short timeline, preserving your capital will be a main concern. That often means limiting short-term market volatility.
- Consider more stable investments like cash, money market funds or certificates of deposit (CDs). You won’t see much growth from this asset allocation, so regular contributions will do most of the work.
- Medium-term bucket (four to seven years out): Given the extended timeline, the portfolio can target a mix of growth and capital preservation.
- Fisher Investments Canada believes this calls for a portfolio of equities and fixed interest securities.
- The equity allocation should provide growth, while the fixed interest can help reduce short-term volatility.
- Long-term bucket (eight or more years): For these longer-term goals, growth will be the primary aim. Fisher Investments Canada suggests that this portfolio is best allocated almost entirely to equities. The short-term volatility will be a small price to pay for the long-term growth that equities can offer.
Step three: Review regularly
Fisher Investments Canada doesn’t recommend obsessing over day-to-day account balances; however, it is critical to check in with your investments at least once a year to make sure you’re still on track.
Your investing strategy probably shouldn’t change, but you may need to occasionally rebalance your portfolios to make sure you’re still investing in line with your goals.
As the years go by and you close in on your medium- and long-term goals, you’ll likely need to adjust the asset allocation to reflect the closer time horizon.
As you achieve some financial goals, others will emerge or change. You will also want to adjust your investments to incorporate those new goals and priorities.
You will want to revisit your investment strategy any time there’s a major life change to see if you need to make a modification.
TIP: Don’t underestimate your retirement needs. As you approach your retirement age, don’t assume you need to shift into low-risk, low-return investments.
Many people live in retirement for 20 to 30 years or more.
That can make “living in retirement” a long-term goal, which may require significant investment in equities to keep up with inflation and ensure you don’t run out of money.
Investing requires focus to reach your goals.
However, it doesn’t have to mean focusing only on one goal.
By prioritizing your financial objectives,
selecting the appropriate investment mix for each
and checking in regularly with your investments,
you can give yourself a greater chance of reaching multiple financial goals over time.
Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid.
Past performance is no guarantee of future returns.
International currency fluctuations may result in a higher or lower investment return.
This document constitutes the general views of Fisher Investments Canada and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients.
No assurances are made that Fisher Investments Canada will continue to hold these views, which may change at any time based on new information, analysis or reconsideration.
In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.
Fisher Investments Management, LLC does business under this name in Ontario and Newfoundland & Labrador. In all other provinces, Fisher Asset Management, LLC does business as Fisher Investments Canada and as Fisher Investments.
Disclaimer: This story was provided by Fisher Investments Canada for commercial purposes.
Sponsored:Fisher Investments Canada: The three steps to invest for multiple goals | Financial Post
Aug. 26, 2022 "Five investing principles that should always apply no matter the season": Today I found this article by Peter Hodson on the Financial Post:
I hate to break it to you, especially to any kids reading this, but school starts in a couple of weeks.
Investors shouldn’t really take the summer off, but many do, so consider this a refresher course in five basic investment principles that should apply in both bear market and bull markets to get your brain in shape for the upcoming school/investment year.
Pay attention, class. There won’t be an exam, but losing thousands of dollars because you forgot the basics can be just as disheartening as getting a D on a test.
Debt can kill a company
Endo International PLC filed for bankruptcy protection this week. This is the company that took over Canada’s Paladin Labs Inc. about a decade ago. Endo shares are down 91 per cent this year. The problem? Very high debt. Endo has US$8 billion in debt after a large acquisition spree. Cash flow in the past 12 months? Just US$80 million. It paid US$560 million in interest charges in the past 12 months.
Cineworld Group PLC this week said it was “considering” bankruptcy. The stock is down 95 per cent in the past year. This company tried to take over Cineplex Inc. in 2020, with about the worst timing a company could have (just prior to the COVID-19 shutdown). It had about US$8.9 billion in debt at the end of fiscal 2021 including lease liabilities, more than 27x its 12-month cash flow. Bausch Health Cos. Inc., once Canada’s largest company, this week retained advisers to help “map out its future.” Its stock is down 81 per cent this year. It has US$22 billion in debt, and cash flow of less than US$700 million.
The lesson here: Debt can kill a company, sometimes quickly. Make sure the companies you own can service their debt. Times are not always great, and a company must be able to survive before it can prosper.
Dividends rule
We discussed in a prior column how many companies are increasing their dividends, even with a possible recession ahead. That’s great, but even better is that dividends provide a big part of an investor’s return over time.
The amount can vary depending on who is doing the academic study and the timeframe chosen, but BlackRock Inc.’s global equity team not that long-ago suggested 90 per cent of equity returns in the United States over the past century have been a result of dividends and dividend growth. We do not think it is that high, and S&P Global Inc. claims it is around 30 per cent.
Regardless, dividends certainly help investors grow their portfolios. What’s more, a dividend helps you keep your stocks during rough market periods.
Of course, the longer you hold an investment, the greater its potential compounding impact on your portfolio.
The lesson: Own some dividend stocks.
Time vs. timing
Our clients always ask: “Is this a good time to get into the market?” We — almost always — say yes. Equities have provided substantial long-term returns over time, even if you buy just prior to a crash or a market correction.
No one knows if the market is going to crash tomorrow, or soar. You can guess, trade, pay taxes, go to cash, borrow money to buy, buy technical trading software and so on, and none of it is going to improve your market predictive ability.
Just invest what you can when you can and see the benefits over time.
The lesson: stay in school (stay invested).
Share takeovers can backfire
Yamana Gold Inc. recently agreed to an all-share takeover by Gold Fields Ltd. The transaction calls for each Yamana share to be exchanged for 0.6 shares of Gold Fields. But Gold Fields’ shares were US$12.20 ($15.86) each the day before the announcement, and are now US$8.75 ($11.38). Because the takeover compensation is in shares, Yamana shares, even with an announced takeover premium of 37 per cent, have fallen to $6.21 from $7.03.
I would get pretty depressed if I owned shares in a company that received a takeover bid, and my shares fell 13 per cent. Of course, things could have gone the other way, but the lesson here is that in a share-exchange takeover, you are still at the mercy of the stock market.
Share-exchange deals happen all the time, and don’t require debt, but they can still be risky for shareholders in the target companies.
A secondary lesson: Cash does not drop in value.
Permanent losses versus temporary losses
A loss is the difference between what you paid for an investment and what it is worth today if it dropped (usually evidenced by a market price).
Permanent losses are those that have been fully realized through sale, liquidation or termination (bankruptcy). Such losses are not coming back.
Market prices can go above intrinsic value when investors are bullish and greedy, and can plummet when investors are scared and fearful.
But the intrinsic value of a company doesn’t change nearly as much as the market price.
The job of the intelligent investor is to avoid permanent losses and to accept temporary paper losses.
Most investments are subject to the prospect of permanent loss, but the key is to get paid for that risk by the prospects of much higher returns.
This year, you no doubt have lots of paper losses, with all major markets down on the year. But is this always going to be the case? (Answer: no).
If you sell now, all you have done is crystalize a permanent loss.
Every situation is different, of course, but the lesson here is to determine what’s happening with your investment.
Is your investment bad, or is the market bad?
Knowing the difference will be key in whether you should accept a permanent loss or not.
Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)
Five investing principles that should always apply no matter the season | Financial Post
"A secondary lesson: Cash does not drop in value."
REALLY??? 😂
A very good column and pointing out that “the intrinsic value of a company doesn’t change nearly as much as the market price.” was excellent. However, dividends don’t deserve a lot of emphasis. They are popular but there is no net benefit.
The amount received is offset by an identical decline in the intrinsic value of the investment.
When buying equities, an investor is buying part of a business and it is how well the business is doing that matters.
Technology stocks that have dominated the growth in the S&P are not known for paying significant dividends. Going back 100 years is pointless as the industry has only existed for around 40 years.
Apr. 4, 2023 My opinion: I'm rereading these articles, and I see the "really?" comment is not on the Financial Post site anymore. I thought the comment was kind of funny.
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