Andrew Ruhland was recently on MoneyTalks radio with Michael Campbell speaking about wealth management in 2016
Money Talks listeners and readers have heard and read recent very clear expressions about pending equity market risks in the U.S. (from Martin Armstrong) and Canadian markets – especially in the Energy sector (from Josef Schacter). But what should you actually do? Should you seek shelter before the storm?
In 2008, many investors were either caught unaware of the systemic risks, or chose to ignore warnings of a major market crash. The financial pain from that (passive or active) decision to do nothing was profound; pain burns deep emotional scars that can be difficult to reverse. The theme of this article is simple: don’t make the same mistake again.
To be clear, our firm’s view is not an apocalyptic one. Our consistent investment thesis for the last 5 years has been (and still is) focused on over-weighting equities versus fixed income, U.S. equities versus Canadian and global equities, and tactical over-weights to stronger currencies like the $USD. Precious metals miners will eventually be very attractive as well. This thesis is the direct result of great work by our Portfolio Managers, including watching global capital flows (et al) via Martin Armstrong. This has resulted in our clients enjoying very solid risk-adjusted returns.
With the ongoing integration of Armstrong’s Socrates™ system into our managers’ processes, we remain optimistic about investment performance going forward. I’m certainly looking forward to attending the next WEC with Marty in Orlando on November 10th and 11th, and tapping into his models and systems to help enhance portfolio results going forward.
Given the downside risks (seasonality, U.S. election chaos, rising war-risk with Russia, stagnant global GDP, et al), each reader should carefully consider if it makes sense for them to lock in recent gains in stocks, bonds and currencies for a portion of one’s portfolio. This decision should be made BEFORE any major downturn begins, and should be made coolly and calmly in candid discussions with your trusted financial advisor – someone who really understands your goals, circumstances and “financial pain threshold.”
If your concerns are (even politely) dismissed as being irrational and you’re told to simply do nothing, then that in itself should be cause for a “mindful pause.” After all, it’s your money and dealing thoughtfully and respectfully with the emotions that surround your nest-egg is a critical part of the role that a great advisor plays in the journey toward achieving your Life Goals™. Tax consequences should also be part of the discussion, but remember the old age, “Don’t let the tax tail wage the investment dog.”
Minimizing the volatility during periods of market turmoil is something that most investors think is an implicit part of the investment management services that Canadians pay for. It should be, but the ability and willingness of large investment managers to be nimble within capital markets is shackled by three important limitations:
- The standard Prospectus (or equivalent) of most mutual and segregated funds typically requires each fund to be > 95% fully invested within their mandate;
- Mutual funds impose minimum holding periods and limit the frequency that an investor can make in-out-in tactical moves; and most importantly
- Canada’s investment management landscape is dominated by the major chartered banks, a few massive insurance companies, and several big mutual fund companies. Besides having an obvious bias toward riding through all short-term volatility, big money managers have a little-known practical problem: if they make major defensive moves by selling down a significant portion of their portfolios, they can actually cause turmoil by “spooking the market.” Translation: being too big limits their ability to be nimble. The result is that their size can actually work against your best interests.
There is a practical solution to this limitation, which you can find by clicking here: http://integratedwealthmanagement.ca/special-video/
Remember as well, that if you do decide with your advisor to partially “de-risk” your portfolio temporarily, that you need to be willing (and able) to buy back in again during a period of market panic. Don’t worry about timing this “perfectly,” because you’re improving your long-term returns as long as you get back in at a lower level than where you took money off the table.
Andrew H. Ruhland, CFP, CIM
Founder & President of Integrated Wealth Management Inc. in Calgary
Arithmetic is beautiful, elegant, and stunningly objective. Sometimes the truth of our own arithmetic is unpleasant…but if you can accurately identify the core problem to be solved, then you can get to work on actually solving it.
So let’s start with some typical retirement Arithmetic. If you need $50,000 of pre-tax income from your portfolio, at a 3% yield you need $1.67 million. At a 5.5% return (including current income AND capital gains), you need $909,090. The difference is significant, and affects when you can retire, or how much you can receive in retirement income.
Are you just going to sit back and take this “yield abuse” dished out on mature investors by Central Banks who’ve helped drive down interest rates, or recognize the problem and get it solved? Let’s get to work.
Having been indoctrinated for decades about how “safe” top-rated government bonds are, we find ourselves at or very near historic low yields, with lots of risk to your principal if you’re investing in long-term government debt. It’s happened before, at least a couple times in your grandparents’ lifetime. The problem is real, the results are serious, only the timing is unknown.
As Jim Dines says, “Over-efforting creates countervailing forces,” so don’t ignore volatility of market prices simply because an investment has a high yield. Focus on total return, with yield (interest and dividends) as part of the overall return, along with prudent capital gains.
Below is a compilation of strategies for dealing with the low interest rate environment from the IWM stable of discretionary portfolio managers…not specific recommendations for the reader. All portfolios are managed within the framework of an Investment Policy Statement (IPS), which is a best practice among Fiduciaries. “Process provides protection,” and here’s an intelligent process:
- Step 1: Seek Higher Yielding Fixed Income alternatives to Government Bonds, with a focus on credit quality, including:
- Corporate Bonds, preferably under 5 years to maturity to be able to reinvest at higher rates in the future
- Preferred Shares with a guaranteed floor-rate reset provisions, ideally at rates 3% or more > 10 year govt. bond yields…and tax efficiency
- Commercial Mortgages, with Loan:Value ratios > 75%, and
- Structured Real Estate Trusts
- Step 2: Consider “higher than traditional” allocations to High-Yielding Equities. The old rules about no more than 30 or 40% equities in retirement are outdated. Consider the following:
- Blue-Chips are boring and effective. Utilities and other sectors like telecoms and consumer staples with stable cash flows and great dividend coverage are a start
- High Yielding Corporate Bonds behave more like Equities, so an ETF helps diversify away individual credit risk but not sector risk. HYG, JNK and XCB are a few well-known options that can fit the bill, but see notes on timing and currency below
- Alternatives like structured Asset-based Lending and Factoring pools yielding 6 to 8%
- Step 3: Dynamic Strategies. Markets are fluid and dynamic, and management of your portfolio should be as well:
- Writing Covered Calls on your blue-chip equities to add 1 or 2% to your current yield
- Active Currency management, sometimes to grow but most importantly to protect
- Buy volatile assets like stocks and high-yielding corporate during pullbacks, not just because you have cash
- Think of cash as a tactical asset class, not a strategic one, unless you’re already drawing income during retirement
- Lock in gains with a disciplined risk management framework. Be one of the strong hands who are selling to the late-comer weak hands when valuations are stretched. You never go broke by taking a profit, and great assets can be bought back later at lower prices.
Increasing the yield within your portfolio almost always decreases its volatility, and the less volatile your portfolio is, the less likely you are to do something that is financially destructive like selling volatile assets near panic lows.
And remember, everything included in your Investment Plan should be consistent with the Life Goals ™ expressed in your Wealth Management Plan.
– Andrew H. Ruhland, CFP, CIM
Founder and President, Integrated Wealth Management Inc. in Calgary
I just wanted to drop a note as an update to my newsletter from Sept 26th….the springs continue to tighten.
As we approach the Nov 8th U.S. elections, there are several other important “weather systems” converging and which, taken collectively, we believe could trigger some short-term equity market volatility.
The three most significant systems are:
1) the sabre-rattling between the U.S. and Russia in Syria, with the potential of war contagion; both of these nuclear powers are benefitting from the promotion of an external enemy to distract from domestic challenges. Yesterday, Russia urgently recommended that Russian students abroad return home as soon as possible;
2) instability in the Eurozone banks orbiting around Deutsche Bank, stagnant GDP, an immigration crisis that is overwhelming their already stretched welfare systems, and the uncertainties created by a departing U.K and federal elections in France and Germany…and a potential Italian catalyst, and
3) desperation and frustration in Japan stemming from the futility of over 26 years of ineffective monetary and fiscal policy, choking Debt:GDP and an aging population.
We’re in ongoing contact with our Portfolio Managers as part of normal operations, and I’m happy to report that our managers already shared these concerns and had been taking defensive actions within client portfolios as a result of their own internal risk management processes. They have some dry powder after harvesting recent gains, and are patiently awaiting key support levels to get fully long again. If these support levels don’t hold, portfolios can be quickly de-risked even further.
Given how they handled the early 2016 market volatility and the post-Brexit “market zigzag” I am very comfortable with their positioning. With the added benefit of Martin Armstrong’s Socrates(TM) system to provide confirmation, I’m sleeping soundly knowing our Portfolio Managers are vigilant and pro-active, but there will be some short-term volatility that it would be wise to simply tolerate.
Over the summer, we worked on refreshing our website to coincide with beginning to provide editorial content to Michael Campbell’s Money Talks blog. I’ll be posting these articles on our new homepage, including an audio recording of my live radio interview with Mike on Saturday October 15th around 9:53 am Mountain time.
Over the last several years, both long-time and more recent clients have been discussing issues in a few key areas. Many people are starting to see global tensions rise and chatting within their social circles about the potential financial fall-out, and numerous clients started asking us how we’re prepared to deal with these rising risks. To that end, I created this special video to explain what we do and how we do it.
Patience, discipline and compassion are accretive to your wealth, health and happiness – so focus on these.
Andrew H. Ruhland, CFP, CIM
Founder, Integrated Wealth Management Inc.
Welcome to Views from the Crowsnest. Surprisingly little has been happening in broad equity markets in North America since my previous missive in July. That is noteworthy, per se. In several ways, this feels like the calm before the storm, so we’d better enjoy it while it lasts.
The same cannot be said for the political landscape in Europe and the U.S., where everything seems to be pushing further and further, reaching hitherto “impossible” levels of bizarreness, bloodiness, and willful blindness – believe me!
Leading up to the Brexit vote, the establishment warned the great unwashed (that’s us) that a “Leave” vote would bring about the destruction of the UK economy. While our managers were vigilantly on their screens in the aftermath of the historic “Leave” decision, and were able to take rapid defensive measures, they quickly had to shift gears as markets declined sharply for under three trading days, then reversed quickly. Predicted doom and gloom turned out to be a tempest in a proper teapot. Bloody hell, those Oxford & Eaton chaps were wrong – possibly a first for many of them!
The absence of a meaningful downward summer swoon in stocks has been a welcome relief from the usual seasonal patterns, but has many folks wondering when we’re due for a pullback or even a correction. Concerns about this are NOT irrational, given the market valuations, the state of the global economy, etc. The longer we go since the last notable downward move in equities (January and February 2016), the more likely the next air-pocket comes along sooner.
From our vantage point high in the Crowsnest, we certainly see a gathering storm, but it’s mostly behind us rather than blocking our planned journey. The developing storm is primarily in the government bond markets, which our clients have had very little exposure to, except for a smattering of very short duration positions. Avoiding major capital destruction in the “safe” long-term government bond markets is a critical part of our forward-looking investment thesis.
The waters ahead show some “moderate swells” in the near term, followed by smoother waters and strong tailwinds. Our managers are mindful of the potential for a sharp drop in stocks over the coming weeks, and are prepared with their defensive measures should the realized volatility be greater than the anticipated volatility. Marty’s Socrates system is already extremely helpful; as of this writing, major indices have not violated any major support or upward trend channels…but we continue to watch carefully.
In investing, there are periods of volatility that simply need to be tolerated as part of generating a better return than a GIC, and there are periods when it makes sense to take significant defensive actions so that your ship doesn’t get swamped. Discernment between these two types of volatility is one of the most important “intangible” qualities of great portfolio managers. Patience and discipline are a big part of the value that our team of money managers provide.
We’ve been delighted with their judgement so far, and they’re not resting on their laurels, either: 3 of our Portfolio Managers have been learning on the Socrates Preview for several months, and are committed to acquisition and utilization of the full version of Martin Armstrong’s Socrates system, which is expected to go live by mid-October 2016. One of our managers (so far) has also committed to attending the next World Economic Conference in Orlando with me. We’re looking forward to the insights at the Institutional and Technical Analysis conferences on November 10 and 11.
In Continental Europe, markets are not quite so rosy. While broader equity markets are about flat since the Brexit vote, their banking sector is still lower, with German mega-bank Deutsche Bank (DB) plummeting to fresh new lows today – down over 30% since the Brexit vote, and down over 60% in the last 12 months.
With a U.S. style bail-out apparently not forthcoming from embattled Angela Merkel’s very unpopular government, I cannot help but wonder if DB will be the Lehman Brothers event for Europe. Their entire banking system is too fragile to withstand its largest player getting into real trouble. A crumbling European financial industry would likely accelerate the flight of capital from Europe to the U.S. and (possibly and ironically) the U.K. as well…and we’re ready for it.
Earlier I mentioned bizarreness, bloodiness and willful blindness. First things first: the bizarre and surreal U.S. Presidential Elections, with the much anticipated first debate set to kick off tonight…complete with marching bands and pep rallies at Hofstra University. Be on the look-out for baseball players eating apple pie with their moms.
The nonsense, deception, prevarication and re-direction coming out of both campaigns, combined with the constant on-air spin, half-truths (on a good day), and bombast are a recipe for headaches and nausea – literally. The threads of credibility previously attributed to mainstream media have been shorn. There’s not even a pretense of objectivity or fairness from the networks, major cable news channels, mainstream print or Facebook.
Despite these major headwinds, the unthinkable is happening: Donald Trump and Hillary Clinton are essentially in a dead heat, with Trump currently enjoying the all-important momentum, with a path to 270 Electoral College votes starting to take shape in the very early dawn. Who knows what sunrise will bring?
I stand by my previous published comments in respect of the winner being the candidate whom the majority of US voters fear and hate the least. Whoever wins, one thing is certain: America loses. I don’t relish the dilemma of American voters, charged with the unenviable responsible of picking the flavor of their poison pill. Is it any wonder that confidence in government is in free-fall? If I had to choose the flavor, it would be orange…similar to the hue of Mr. Trump’s spray tan.
The bloodiness is much more distressing. Europe is being overwhelmed by wave after wave of small-scale violent attacks including rape, beheadings, shootings, machete attacks, arson and rock-throwing. Mysteriously, the vast majority of these attacks are perpetrated by young to middle age men who are “new to the area.” Victims are being targeted for such horrible behavior as being young and female, wearing shorts in public, practicing their religion inside churches, and now for being blonde in Sweden.
The willful blindness amongst the mainstream media, the PC academic-classes, pandering politicians and Social Justice Warriors who troll social media (apparently full-time) defies belief. It’s even in the European court system. Specifically in respect of the media, to deliberately avoid reporting of material facts related to the motivations of these jihadists is to play into the hands of the perpetrators.
Being a truth-teller is not racist, xenophobic, bigoted, or Islamophobic. It’s unpleasant, unpopular, and impolite (to some) but it’s also very necessary. I don’t know how much good my mentioning this issue will actually do, but I know for certain that evil prevails where good people do – and say -nothing.
How do we start a reasonable conversation (see video at the BOTTOM of this link) here in western Canada focused on solutions, so we can preserve our safety and security, freedom of speech and our social fabric? As a father of four daughters and uncle of many more, including 3 members of the LGBT community, I am profoundly concerned. Are we going to wait until the violence reaches Europe’s level before this becomes an honest mainstream area of discussion? Ignoring this reality has deadly consequences. I’m writing this calmly, but I feel like yelling.
And then when we look south at the escalating violence, it’s so very easy to become discouraged and frightened. The frequency of violent deaths in the U.S. is highlighting the deep rifts in their society, pitting economically-desperate communities against themselves and against law enforcement when inevitable situations arise.
Again the mainstream media fails to address the core issues, preferring the circus of hysterical commentators and graphic video. It’s pretty obvious that a great many of these violent outbursts end up being the government against the citizens…with both sides being heavily armed and trigger happy. With recent civil unrest, it’s pretty easy to envision a full-on break-down of their fragile social order. Again, it may not make any difference, but we can’t all remain silent and simply hope the trends will change.
Given all that is happening in the world politically, economically, and socially, our team is extremely grateful for the great team of Fiduciary Portfolio Managers we have working for our Clients. Between their patience and discipline and the new tools like Socrates that are becoming available, we are quietly confident that we are on the right path to protect and grow our Clients’ financial wealth.
Patience, discipline and compassion are accretive to your wealth, health and happiness – so focus on these.
Andrew H. Ruhland, CFP, CIM
Founder, Integrated Wealth Management Inc.
Welcome to the July 2016 edition of Views from the Crowsnest.
So much has happened since my previous newsletter and June 24th post-Brexit message that I’m going to get straight to business.
Ignoring economic realities and financial market movements and getting caught in the adolescent drama of mainstream media’s obsession with modern politics produces only negative results, including but not limited to the following: frustration, outrage, feelings of powerlessness, and a re-direction of time and energy that is more productively deployed in matters where we can make a difference for those we serve professionally.
Brexit was just the start of the Age of Consequences: a global economic daisy chain overshadowed by a shrill political farce. This is the reality of our current public discourse, at least in the mainstream media: Crisis du Jour + Hillary & Donald + Entertainment “News” = Squirrel!
Today, we remain a community in mourning. Calgary is well known for its clear running water; right now that includes the tears being shed in countless homes, offices, and classrooms. Water in all forms can cleanse and heal…if we allow it to by literally going with the flow, instead of resisting.
When a senseless tragedy like the murder of young people happens at the hands of a peer, with a motive yet unknown, it shakes all of us to the core. The closer we are to the victims or the accused, the more acute and profound the pain and grieving becomes. As time passes, many of us are learning just how close we were to being directly and intimately affected by the pain of one very frightened young man; this includes my family.
About a year ago, the Boston Marathon bombing happened. The motto that emerged, “Boston Strong,” expresses the civic resiliency and unity that emerged from their galvanizing tragedy. I’ve seen a few “Calgary Strong” bumper stickers since our epic floods in the summer of 2013, but the Calgary Stampede’s spontaneous adoption of the brilliant “Hell or High Water” motto captured our hearts as THE expression of our own community spirit, teamwork and dedication…quite literally defiance in the wake of widespread destruction.
Welcome to the April 2014 edition of Views from the Crows Nest. A lot has transpired in the interval since our 2014 Annual Forecast Issue, and it appears that market action is now heating up again. Are you prepared to dance to “The European Shuffle?”
The last six months have been extraordinarily busy for our firm, with a focus on transitioning clients to the Portfolio Managers that we approved and hired in late 2013. While making major changes of any kind is never easy, early success (solid investment performance) following the transition has confirmed the prudence of our decision to hire new investment partners. I like it when the first steps taken together are in a positive direction.
It’s really quite remarkable how easily one can discern lower stress in hindsight. The proverbial frog that boils to death in a slowly warming pot cannot adequately perceive its own peril simply because the change is gradual, not unlike Jim Dines’ laser-focused expression, “Those inside the bubble cannot see the bubble.” Thank goodness for those who care enough to pop our own bubble when they see what we cannot or will not perceive.
Welcome to the 2014 Annual “Forecast” edition of Views from the Crows Nest. One of the many challenges with publishing a document that is intended to cover a one year period is that so much can change in a year.
Another challenge is choosing a theme, especially now when my creative faculties are wide open to receiving wisdom from countless sources. It’s not always this easy, so I’m deeply grateful when I am blessed with an almost embarrassing abundance of ideas, opportunities and new connections.
The most obvious challenge, though, is getting the actual forecasts themselves accurate enough to actually be useful and helpful to readers. The reality is that high-quality forecasts and advice are only as useful as they are timely, so forecasts that are too broad can actually be counter-productive.
Have you ever been in a situation where everything you’ve dreamed about just “flows” and wish you could repeat this at will?
Have you ever wanted to connect with a dynamic, diverse tribe of other intelligent professionals and practitioners who “get it” and can enrich your life?
Have you ever wished for a simple, low-cost, effective solution to attracting only ideal clients to your business…and that this could actually be fun?
Have you ever imagined that your business and personal lives could both be in complete alignment with the authentic you, with no B.S. or pretense?
Are you open-minded, collaborative and willing to give and receive wisdom, joy and abundance, so you can share it with your inner circle?
If you answered “Yes” to one or more of these questions, then we request the pleasure of your company at a lively, meaningful and exceptionally productive get-together early in 2014. You may also bring one other person who fits the criteria above, and first priority will be given to direct recipients of this note.
I’ll send a reminder with more info before 2014, and then you can ask your big questions at the party…there’s a very good chance you’ll love the answers
Friday January 10, 2014 7:00 to 9:00 PM
At Self Connection Books 4611 Bowness Road NW
(Next door to NOtaBLE Restaurant)
Please RSVP as soon as possible to