Asking Myself How Well I Did by the Globe’s Rob Carrick’s Standards.

Asking Myself How Well I Did by the Globe’s Rob Carrick’s Standards.

Rob Carrick writes about personal finance for the Globe and Mail. I read his columns regularly. I think he provides a valuable public service. He educates investors – both those who are “do-it-yourselfers” and those who work with an advisor.

Whenever he writes something directed at investors about how they should evaluate their advisors, my interest is piqued. In the past, he published a questionnaire to help measure the value you get from your advisor. I sent it to all my clients and got outstanding feedback.

In recent weeks, he provided this list of questions as the basis for a post-2022 discussion with your advisor. Here are the questions and my answers.

Bonds. How was your portfolio positioned to minimize the damage of rising rates on fixed income (bonds)? How can you benefit from the now-higher yields? Should you be putting new money into bonds or GICs?

Matt: I went into 2022 slightly underweight bonds. The bond portion of portfolios was short in duration, meaning, less sensitive to rate increases. I think bonds are great value right now and it’s time to bring them to market weight or slightly above. Generally, my portfolios are not “tactical”, meaning I don’t make big shifts in the weighting of major assets classes. People with near-term needs such as people in or close to retirement should use GICs and bonds to protect money that will be withdrawn in the near future and earn a handsome yield in the meantime.

Stocks. Was your portfolio’s performance in stocks or equity funds better or worse than the market? Should you be putting more money into stocks?

Matt: My stock performance was slightly better than the market. I shifted money into “value” stocks early in the year and reduced exposure to “growth” stocks. That worked. In all honesty, the impact was modest, but helpful. The portfolios were still down a fair bit – generally 10%. I prefer to be neutral on these attributes of “value” and “growth”. The change I made was more to correct a bias against “value” which was out of favour for years and finally come back last year.

For investors for who accumulating, yes, you should be putting money into stocks. For those who have accumulated and who are seeking safety and/or income, dividend paying stocks offer great value.

Inflation. How was your portfolio built to offset the effects of inflation?

Matt: In two ways. First, portfolios contain a meaningful weighting to “real assets” which include commodities, real estate and infrastructure. Second, they have exposure to dividend growth stocks. Both of these, in my view, are hedges against inflation and both contributed positively to performance
in 2022.

Fees. Does the advisor provide multiple services for things such as financial planning, tax and estate planning and ongoing communication about the clients’ evolving lives to justify their fees?

Matt: Yes. If you read this blog regularly, you will have seen constant references to the need for planning. Not all clients require it to the same degree, but every client’s circumstances are viewed in the totality of their wealth and investments are positioned to meet broad goals such as retirement, tax efficiency and estate optimization.

Product Fees. Ask the advisor for a quick recap of the product fees you are paying how they compare to lower cost alternatives.

Matt: I love this question. I like to say that I am “product agnostic”. I have no bias in favour of or against mutual funds or Exchange Traded Funds (ETFs). What I am looking for is the best product at the best price. In some cases such as with large Canadian and US stocks, low cost products work well. In other cases such as with small companies, emerging markets or certain parts of the bond market, it is worth it to pay more for active management.

Last year, the product cost or “embedded” fees in the pooled products I use was 0.62%. It is a combination of mutual funds and ETFs. That’s a meaningful reduction from the cost of funds alone which would usually be over 1.0%. This is the make up of most RRSP and RRIF accounts. In non registered and TFSA accounts, I generally hold individual stocks, bonds and preferred shares and the product cost of holding those is 0. I am very sensitive to the impact of fees and very committed to keeping them as low as possible to ensure maximum client value.

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