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Market 2021 Clinic Transcript:

Spring Plans: Okay, everyone well, welcome to the quarterly market update with with our lovely host Darryl Brown. This is being recorded and, of course,


Spring Plans: we welcome your questions and we ask that you type them into the Q&A feature and we will get to them after Darryl’s opening remarks.


Spring Plans: So let me introduce Darryl. I’m sure all of you know who he is, but if you don’t he’s the Director of Portfolio Strategies here at Spring. I am Sandi Martin.


Spring Plans: You probably want to know who this disembodied voice is too. I am a partner here at Spring, I’m one of the financial planning team,


Spring Plans: and Darryl is the Director of the Portfolio Strategy, so he has more than 13 years of experience in the financial services industry. So prior to joining Spring,


Spring Plans: he had the position of the Director of Public Fixed Income for SunLife Investment Management.


Spring Plans: And prior to that role, was a senior analyst for Dominion Bond Rating Securities in Toronto. So we at Spring are very, very lucky as are our clients to have him here with us.


Spring Plans: Darryl helps our clients analyze their portfolios, to communicate investment policies, and is passionate about guiding people through the noisy and often confusing world of investments and that’s what he’s going to do today, so,


Spring Plans: I ask you to welcome Darryl!


Spring Plans: Thank you for the intro Sandi, it is super noisy out there!


Spring Plans: But thank you very much for spending the evening with us we’re going to try and kind of move through things quickly but also hang out on some of the topics which I think are,


Spring Plans: of kind of big importance to people. So really what we’re looking at doing this evening is just taking a run-through


Spring Plans: what has happened, what’s going on, just to sort of take a 30,000-foot view for you.


Spring Plans: We’re going to talk about what everyone seems to be talking about for the last six months or so, and that’s inflation and, you see it I’ve labeled it here inflation, reflation or stagflation. We’ll chat a little bit about each and what I think those mean.


Spring Plans: I think one of the nice things about this kind of market Q&A is we’re not just centered on what’s going on the financial markets, we do want to have a bit of an investor-ED


Spring Plans: component to it so we’re going to talk about what ESG investing is, it stands for Environmental, Social and Governance investing.


Spring Plans: Those factors, you might hear the acronyms not quite sure what it is, but I’ll kind of give you my take on that because there’s kind of a nice wide landscape of things going on in that space and a lot of different interpretations We’ll also talk about asset allocation ETFs.


Spring Plans: And I think we’ll jump into what I think a lot of people are super interested in, or what our clients are saying, and what you should do. I think those are the kind of, you know,


Spring Plans: neat pieces of insight that we have here to offer for you this evening. And then of course there’s some Q&A!  Please feel free to just drop any questions at any time


Spring Plans: into the Q&A feature. I don’t have visibility on it on my end, Sandi will be keeping an eye out for them, but


Spring Plans: please do throw in those questions and Sandi will let me know if there’s something that, you know, I can jump into right away.


Spring Plans: But I’d be more than happy to address all those questions near the end of the presentation. So,


Spring Plans: let’s jump into what I think happened, and I draw this, as you know, in kind of a simplistic way. I had drawn this a little over a year ago


Spring Plans: trying to figure out how to sort of kind of make heads or tails of the sort of connection between Covid, the onset, and an economic contraction that


Spring Plans: would result in financial asset destruction it, you know kind of prices for most assets going down as Covid was setting in, which kind of turns into this spiral – this sort of feedback loop.


Spring Plans: But then you have Central Bank Intervention and Fiscal Stimulus. Central Bank Intervention meaning


Spring Plans: the reduction of interest rates, not just in Canada/North America, but globally, by central banks. So for people not sure kind of what that means, basically, the


Spring Plans: bank, the Canadian Central Bank, which is the bank for our chartered banks, has a specified short-term overnight rate and that rate they control directly in times of economic


Spring Plans: turmoil, or when the economy is not doing too well, there’s the ability to reduce this rate, which makes the interest payments on loans cheaper. It’s generally stimulative for the economy.


Spring Plans: With interest rates down that hopefully provide some support to business, who have or are carrying debt. Along with that, fiscal stimulus


Spring Plans: pertains to the government’s expenditures – whether they’re running a deficit or a surplus, and they’re definitely running a huge deficit right now.


Spring Plans: With the benefit there being that people have received direct payments to support their


Spring Plans: livelihoods, to support their homes and their family, and that has been helpful to keep the economy going while people had, and have been, shut out out of their jobs for quite some time. So with those in play,


Spring Plans: I think around the May to June timeframe of 2020 we start to see, and this again, this is just a drawing of sort of how I look at things, we start to see


Spring Plans: you know sort of from a from an economic side, lockdown measures and monetary fiscal stimulus,


Spring Plans: trying to control what was happening in the economy, and obviously trying to control our actual health crisis- getting Covid 19. So those lockdown measures, well,


Spring Plans: were for some people, not super popular meant that, you know, we would kind of move through Covid 19, and, you know, kind of see the other side of things.


Spring Plans: And yes, there was some definite economic impact there, but we know we did start to see some stabilization, and same thing with,


Spring Plans: you know, sort of the financial markets, we start to see not only some stabilization, but we actually start to see


Spring Plans: some significant improvement, and you know, right now, the last I checked – we closed at an all time high today on the S&P 500. I use the S&P 500, it’s the main US index, the largest 500


Spring Plans: companies listed in the US, but I think, some people know this, a lot of those companies that even though they’re based in the US, they have operations globally, so I think it’s a better proxy


Spring Plans: to assess you know kind of what’s going on. And yes, North American centric point of view, but you know you do have your large companies, your Microsoft’s and your Google’s who have


Spring Plans: operations, you know, all across the globe and, in some cases, there are more revenues outside of North America


Spring Plans: than in. So we’re at an all time high. I printed this off last week or so, so you know there’s a bit of a dip that happened, but you know we are, we’re quite there, and if you look at things over five years


Spring Plans: it’s still on upward trend, so you know you’re seeing, you know, Covid is that large drop off, but then that’s subsequent recovery which has been driven again by a lot of monetary policy measures


Spring Plans: and driven by, you know, the expected recovery that we are still hoping to kind of see throughout, you know, North America and the globe.


Spring Plans: And to that point, the recovery that we’re seeing as far as the markets go, it’s not just the US, Canada you’re seeing that in Europe, the Middle East and Africa and you’re seeing that also in the Asia Pacific Region.


Spring Plans: All the one year numbers, you know, quite extraordinary from kind of a rate of return perspective.


Spring Plans: In the 20s for the Americas and Europe, and then a little bit of softness in certain areas of the Asia Pacific region as you’ve you know sort of seen


Spring Plans: them move through Covid a little bit ahead of the rest of the world, and so I think what you start to see in the Asia Pacific region is


Spring Plans: a little bit of a slow down. Which doesn’t mean an outright slow down, but just a slow down in terms of the rate of expansion in those areas from an economic standpoint and then from the financial markets responding.


Spring Plans: Additionally, you’ve had issues such as the Evergrand property developer having their


Spring Plans: issues in terms of debt repayment. So things are a little bit shaky in the Asia Pacific region, does that translate into some shakiness


Spring Plans: in North America or, you know, could that contingent spread? Potentially, but we’ve seen it be more or less contained, and that was a big story, I think, last month that people were worried about. So we start to see that sort of linger in the Asia Pacific Region.


Spring Plans: This is a little bit of a busy chart but you know to jump into you know what people are talking about, inflation, and what exactly is going on.


Spring Plans: Really, when people and when the headlines are coming out, they’re quoting the blue line here – the light blue line – which talks about, (and this is US data,


Spring Plans: but Canada mirrors this) this is the US consumer price index, so US CPI, and for those not familiar with what CPI is – it measures the sort of price level for a basket of goods and services.


Spring Plans: To add confusion, there are people who, and there are quotes for CPI that exclude certain volatiles sectors like energy


Spring Plans: so prices at the pumps, and so what people are actually seeing is, you know, kind of refer to sometimes as Cornflation and they’re seeing inflation, you know kind of pop up to 4 or 5%.


Spring Plans: Which is in fact true, however, I think one of the key things that gets missed and a lot of the headlines that are out there,


Spring Plans: is the fact that these are year over year comparisons. This is kind of the kind of the biggest thing that I think is getting missed out there which is really unfair, but what has happened is, if you can see, on the bottom chart here,


Spring Plans: as prices for all goods and services continue to modestly rise over time- at the onset of Covid, so that kind of weird… see that dark blue line kind of fall away from the green checkered or


Spring Plans: the green dotted trajectory, when you’ve seen prices sort of fall away, there’s actually a period of deflation, which I think gets a little bit overlooked here so we’ve actually had prices,


Spring Plans: in many cases go sideways or fall when Covid happened. Which makes sense, you had people staying home, you didn’t have demand for certain goods or services. Those goods


Spring Plans: start to pile up and it’s just straight supply and demand. Lots of supply with


Spring Plans: very minimal demand. If people recall, there is a certain period of time where oil prices were actually negative – there was so much supply that could not be curtailed,


Spring Plans: and zero, or not zero but minimal demand, because people were mandated to stay home, so we actually had a period of time where prices deflated.


Spring Plans: Which really wasn’t I think in the headlines a whole lot and deflation, is for good reason, as a kind of a scary topic, it has a self fulfilling


Spring Plans: attributes to it. When people think prices are going to decline, they don’t spend and don’t spending causes a reduction in demand, and that can also you know spiral into prices further declining. So people are very hesitant to use the word deflation.


Spring Plans: But then you’ve had a recovery, so what we’re seeing right now is inflation, but from deflated prices.


Spring Plans: You’re seeing that dark blue line start to catch up over time to where it was kind of headed, you know sort of pre-pandemic.


Spring Plans: So I think that’s a really important thing to note firstly, that when you’re you’re hearing these headlines,


Spring Plans: they are comparing to a period of time, where the entire global economy was basically frozen and people were mandated to stay home, so yeah, prices were very weak or deflated and now you’re seeing,


Spring Plans: what I would say, what I would argue, is a reflation of those prices and really not inflation in the truer sense.


Spring Plans: Now, there is inflation in the system circling around, and I’ll get to that in a second, but a little bit of what’s going on in the upper chart here, the bars, you’re seeing you know kind of look at


Spring Plans: April 2020, you’re actually seeing areas where those prices have deflated and, naturally. So in that grey little bar – airfares, hotels admission to events – prices for those went down right in the middle of Covid, and


Spring Plans: conversely, you saw a inflation and subsequent reflation of things like you’re hearing in the media now – used vehicles and vehicle rentals. And that’s driven a little bit on through a


Spring Plans: resurgence of demand. There are also supply side issues. People may have heard of a chip shortage impacting


Spring Plans: car sales, and I can tell you anecdotally from some family members who were looking for a new car, they told me they went to the


Spring Plans: showroom and it was kind of freaky because when they would normally see a lot of cars, you know dozens and dozens, they were able to see all the way to the back of the parking lot! There’s simply no supply out there, so chips can’t be made fast enough to


Spring Plans: be put into new vehicles.


Spring Plans: It’s sucking up the supply of new vehicles and putting increased price pressure on things like used vehicles. That is also contributing to CPI increases –


Spring Plans:  abnormal CPI increases. And so I would say when we’re talking about inflation, there are things that are sort of part of the natural inflation cycle,


Spring Plans: but there are also things that are temporary, there are things that are Covid related. So, in addition to that, there are supply-side issues we definitely are seeing.


Spring Plans: Some of those are temporary and some of them could, in fact, kind of linger a little bit longer. Again, charges showing you know how crisis have changed over time,


Spring Plans: and very naturally, you know I think it’s important for people to remember that CPI is a basket of goods , so there’s a lot of different things in there.


Spring Plans: Certain prices for certain goods declined significantly during Covid and, as such, you’re seeing them reflate significantly as well.


Spring Plans: So just a bit of color on CPI and the headlines, why every time I see the headline out there I kind of roll my eyes because, yes CPI is popping


Spring Plans: from up to 4.5, 4.6, 4.8% but those price increases are not likely to be persistent and permanent; you’re not likely to see


Spring Plans: a rise in consumer goods or services at 5% year over year over year for the next 40 years straight. I think you’ll see this little pop and then things will


Spring Plans: go back down to something that resembles the sort of long-term CPI rate which, by the way, for Canada is about 1.9% over the last 30 years or so.


Spring Plans: Darryl-


Spring Plans: So sorry, but there’s quite a relevant question here for you: do inflation numbers include the impact of smaller sizes? So, for example, what used to be a 12-ounce coffee at $1.25 is now a 10-ounce cup, at the same price.


Spring Plans: And does productivity impact better technology? Does that productivity impact get incorporated into the CPI? So kind of two somewhat related questions.


Spring Plans: Great, I love that question, so the first one- no, and that is… that description of actual good sizes getting smaller as referred to as shadow inflation, and that is definitely appearing in different areas, you might see it in bags of chips, coffees,


Spring Plans: certain goods… they might have the same price, or they might have an increased price but smaller amounts, so you know CPI is a basket, it’s a


Spring Plans: quantitative metric. It is weighted in terms of the contribution of different goods or services in that number.


Spring Plans: It’s not a perfect number, it’s not a perfect metric. I would say that the Bank of Canada doesn’t focus exclusively on CPI, so there are flaws and that is certainly one of them.


Spring Plans: The second aspect is really, really fascinating, and I spent a lot of time in my previous role in fixed income doing a lot of long-term analysis on


Spring Plans: I would say, it’s more likely deflationary forces, which are productivity, digitization, and globalization. CPI does capture some of that and where you see that is in a somewhat muted CPI actual rate over the last


Spring Plans: few decades, so again Bank of Canada’s target CPI is 2%, they’ve not really been able to hit it. They would love to see prices rise at about 2% – they’ve always been sort of kind of 1.8, 1.9, and change.


Spring Plans: And every now and again they hit two, and that’s a big deal. And I think what the Bank of Canada has sort of long been wrestling against are more,


Spring Plans: and I don’t want to say deflationary forces, but the ability to manufacture goods at higher levels of productivity, with lower levels of input, whether they are actual goods or actual people, is deflationary. CPI does not really… it does capture some of that.


Spring Plans: I would say the other thing that CPI doesn’t capture is


Spring Plans: an improvement in the actual quality or safety of goods. So yes, while cars have perhaps increased at a certain rate – or pick any good out there, but we’ll use cars, because I think people can visualize it quite well –


Spring Plans: CPI is a comparison of a set basket of goods, you would ideally want that basket to remain the same, over time, in terms of


Spring Plans: what you’re actually comparing – either you know, a car or a knife, or whatever you might be buying –


Spring Plans: but we’ve seen as time goes on, you know, a car that you buy nowadays is not the same as a car they bought 25 years ago. Yes, a car


Spring Plans: is being compared to a car, but the car from the early 90s didn’t have GPS and didn’t have advanced safety restraints systems. It didn’t have comfort and


Spring Plans: audio video equipment. So there’s so many improvements from a quality and output standpoint that CPI doesn’t capture. See, there’s no sort of asterisk here to say that, like your car comparison –


Spring Plans: versus the car that we’re comparing it to in terms of price wise like 25 or 30 years ago – there’s no asterisk there to say that a car nowadays is just basically a technological marvel by comparison. So CPI, it’s


Spring Plans: not a perfect metric. There are flaws in it, I would say, from and again broadly for having spent time on this, the Bank of Canada. Yeah, they’re


Spring Plans: tracking CPI, but it is not the be all end all of metrics from a policy standpoint that they’re looking at, so I think that’s a really good observation, right? Like there are sort of issues with a number,


Spring Plans: and I think there’s going to – I don’t foresee


Spring Plans: a move away from CPI let’s just say that – but I think people are sort of noticing that there are some little things that may or may not be capturing in here, and and therefore the number may not be as precise as people may want it to be.


Spring Plans: Really good question, though!


Spring Plans: I would say, sort of to that end


Spring Plans: and having spent time again on the fixed income side of things,


Spring Plans: where when you’re buying long-term government bonds or corporate bonds, you really are in fact focused on inflation. When you own a bond, you don’t have a really significant way to earn a ton of money, other than


Spring Plans: your interest payments, which are fixed, and if inflation is eating into that, that can really ruin your bond returns. Right now, you have the Government of Canada 10 year bond yielding 1.6%, you had the Government of Canada 30 year bond yielding 2.05%.


Spring Plans: Compared to about four years ago, those numbers are almost identical compared to 2016.


Spring Plans: And what that is saying is from the fixed income bond universe, that they have not seen a meaningful change to their long term.


Spring Plans: inflation expectations. Yes – in the short-term, inflation is going to pop, but when we look down the line, your sales investors are willing to pay and willing to receive fairly modest rates of interest payment.


Spring Plans: And you know, are not super concerned with inflation and if I were on the desk nowadays, I think you’d still hear people talking about


Spring Plans: the return to the trend of long-term interest rates declining over time. But right now, going back to


Spring Plans: where I labeled things inflation, reflation, or stagflation right now, I think we’re just getting out of the reflation area and we’re getting into some healthy inflation.


Spring Plans: Stagflation, just for context for people and for reference, is a really kind of quirky economic term. Generally, inflation pertains to a period of time where the economy is expanding.


Spring Plans: There are, however, periods of time where you can have the economy contracting and still have prices going up,


Spring Plans: which is something that I think you might see at all times, here, there over the next few years, what can cause that to happen that usually is an issue with things on the supply side.


Spring Plans: So again, going back to chips and going back to you know sort of global trade movements, then sure people have been hearing about lots of cargo ships hanging out in the waters outside of ports, not being able to get in. So


Spring Plans: stagflation is a phrase that you’ll hear more and more if you haven’t already, and that is pertaining to inflation.


Spring Plans: It can come from certain areas, but right now the real risk is from the supply side, where you have a disruption in goods, movements and so that’s causing prices for things like


Spring Plans: used cars, lumber very famously over the previous summer, you know to be a lot more elevated. I would argue lumber’s probably a little bit driven by both supply and demand as well, too.


Spring Plans: All of that is a whole mouthful that,


Spring Plans: if people are thinking about inflation, how it relates to them and their investments in their portfolio,


Spring Plans: just be very careful with the headline numbers. From my standpoint and, quite honestly, from a planning standpoint,  there’s not any kind of significant change that we’ve made in terms of


Spring Plans: incorporating inflation into plans. We’re not using a 5% number indefinitely for plans.


Spring Plans: We always, you know, reevaluate what our metrics are in terms of rates of return, assumed rates of return, or assumed inflation over time.


Spring Plans: So we’ll continue to look at that, but from our standpoint there’s no reason why


Spring Plans: anyone should change their inflation expectations for the next few decades to double what it was, I just don’t see that as being realistic. I can see inflation being elevated for the next few years,


Spring Plans: but really that’s a product of reflating the economy and really getting some kind of healthy price support for the entire system.


Spring Plans: Low-interest rates, not great for savings, obviously, if you’re sort of putting money aside for your cash wedge, emergency savings,


Spring Plans: we get the question I think all the time, what are the best rates out there? This is what I found, and I, you know if you’ve seen anything more than this, let me know.


Spring Plans: But generally, what’s going on right now is if you’ve got high-interest savings that you need to park away somewhere,


Spring Plans: don’t expect much more than about one and a half percent which is very, very low. Doesn’t mean you need to run out and try and invest everything and knock it out of the park and the market.


Spring Plans: But don’t feel like you’re doing anything wrong or that there’s some secret out there, everything is very muted, as far as interest rates go, and I’m really not expecting that to change significantly.


Spring Plans: Next topic: ESG investing. It’s become one of the more kind of requested topics when it comes to portfolios – and really it’s been top of mind, since the pandemic began, and 2020 was really the year where


Spring Plans: I feel like companies were vaulted into articulating what their ESG stance was.


Spring Plans: So companies had to articulate what environmental or social or governance


Spring Plans: provisions or factors or guidelines, did they have in place for their companies. Investment managers were forced into asking and incorporating


Spring Plans: those factors into their investment decision-making, for a number of reasons. And ESG has been around for quite some time, though factoring in for a number of reasons it’s resurged in this year, and it’s not something that’s new, it’s evolved over time.


Spring Plans: There are lots of ambiguity around the factors, they have changed in terms of what’s important/what’s not. Decades ago, you know, involvement in anything that had to do with perhaps


Spring Plans: manufacturing weapons came into sort of the ESG space. Now, I find ESG is very much climate change and fossil emissions focused.


Spring Plans: Along with, you know, the tech companies are getting caught up in the S, the social part, what good is it to have these addictive algorithms for kids and that’s showing up in terms of


Spring Plans: if you want to invest in a company like Google or Facebook, do they have policies in place that


Spring Plans: kind of honor the social impact of what their product or service is? So that’s getting incorporated into investment decision-making nowadays.


Spring Plans: It’s really fascinating, especially you know, as I mentioned, like tech companies – you wouldn’t think tech companies would get kind of blocked out on the ESG – and, in fact,


Spring Plans: a lot of investors, up until maybe about three or four years ago, had considered tech companies to be a replacement for, say, companies involved in fossil fuel.


Spring Plans: Fossil fuel extraction, and now, people are kind of saying hey let’s actually think about what’s going on with some of these tech companies that, you know, what social impact are they having?


Spring Plans: Is it positive or what? What’s going on?


Spring Plans: I think people kind of generally are curious on what impact that has on investment performance, and it really depends.


Spring Plans: If I go back a slide here, and you know, I just want to sort of kind of articulate that there’s a lot of ambiguity around ESG. There are on the very sort of


Spring Plans: light side, there’s the integration of these factors, but to kind of, and I would say what this would result in when you have some type of ESG integration, it might result in you saying ‘well I’m not going to invest in the energy company that extracts fossil fuels and burns it,


Spring Plans: I’ll exclude them, but I’ll maybe include the company that transports those fuels. It doesn’t have you know as big an environmental impact’, in theory.


Spring Plans: So you have approaches like that, but sort of on the more, kind of, I don’t want to say extreme, but if you are to integrate, you know, these factors a little bit more, you have people who will


Spring Plans: outright say, well it’s not socially responsible to have anything in the energy complex, have an investment in anything in the energy complex, and this is more of an


Spring Plans: inclusion/exclusion approach to investing. So both are out there, I want to sort of communicate to people there’s no right or wrong thing, there are different


Spring Plans: sort of definitions of what ESG investing is, both for institutional investors and for individuals, some people will be okay owning kind of the best house on the dirty block, if you want to call it that, or


Spring Plans: some people don’t want to have any interest in the space whatsoever. And then kind of further to that is impact investing which is


Spring Plans: investing in kind of more directly, more concentrated ideas or concepts or products or services that can have an impact. So it could be


Spring Plans: kind of specifically renewable energy, it could be building retrofits, those all fall more on the impact investing side of things. So that’s kind of skipped over on this slide, but that’s the sort of landscape you’re seeing and


Spring Plans: how could that impact investment performance and it really depends. So really interestingly again, and I referenced a period of time where


Spring Plans: energy prices were, oil prices specifically, were negative in 2020 so


Spring Plans: investors who had a very low or zero exposure to oil at that time, because they didn’t want to have any kind of companies who contributed to climate change in the portfolio, so investors who did that outperformed everyone else.


Spring Plans: Outperformed the Canadian market and generally outperformed any type of other broad portfolios that had energy in there, so that was a specific point in time.


Spring Plans: And I don’t want to sort of extrapolate that for forever and ever, but I do want to say that you’re going to have these different periods of time where


Spring Plans: your performance as an ESG investor or socially responsible investor or someone who includes or excludes


Spring Plans: certain sectors, that’s going to cause the performance of your portfolio to deviate from the broader market – that can be both good or bad.


Spring Plans: There’s no guarantee that ESG investing is going to lead to a more positive outcome, however, I think from a long-term standpoint, I would make the argument that having companies that are more ESG aware is going to result in


Spring Plans: better long-term performance, not just operationally but also financially.


Spring Plans: One phrase, but multiple approaches to it, and  what we do on our end here at Spring and for clients who are interested in


Spring Plans: Integrating any issue approach is we try to look at and, when we’re speaking to managers, understand their point of view. So where do those managers fall on the spectrum, do they even recognize ESG?


Spring Plans: And some managers don’t. Some managers just say it’s ambiguous, it’s a kind of Greenwashing, or whatever, it’s silly – we don’t care.


Spring Plans: There are some managers who are literally off this chart because they don’t believe in it, and then there are some who have specific funds


Spring Plans: that may exclude certain sectors, so what we do is really trying to understand who they are, and connect potential clients to those managers if they’re, in fact interested and, finally, you know just having that alignment with their values, I think, is really important.


Spring Plans: Next up:


Spring Plans: Kind of as a part of our investor-ED, is a product called Asset Allocation ETFs. I want to stress that I’m not


Spring Plans: recommending or promoting this product, I think it is one of the most disruptive, and kind of least appreciated products that have come out in the investing world in the last 30 years though.


Spring Plans: I think, and I say that because,


Spring Plans: one of the things a lot of people come to us with or want to understand, or they hear about or read about, is DIY investing. And one of the trickiest parts of it is just starting off being like well, what do you invest in? How do you do it? And


Spring Plans: well, after you invested in those certain ETFs then, how do I rebalance them over time? You know, what do I buy and what do I sell? So,


Spring Plans: maybe about five years ago, the only solution there would be for clients to come up with, on their own, an ETF for


Spring Plans: the Canadian market and hopefully it’s somewhat representative of what Canada is in a global landscape. Really, only 4% of the publicly traded


Spring Plans: investable market is out there, so having a small exposure to Canada via perhaps the Canadian ETF, then exposure to the U.S., then exposure to non-North American companies, then perhaps a


Spring Plans: corporate bond ETF and perhaps a government ETF… so you need to like six or seven ETFs to create a diversified low-fee portfolio. Along came Vanguard in early 2018 and created something called an Asset Allocation ETF, which is an ETF of other ETFs.


Spring Plans: Kind of mind-blowing right?


Spring Plans: Next, if you look at what that, and I’m using the Vanguard Growth ETF portfolio, but this is very similar for all their products, I should also mention,


Spring Plans: again, not a promotion of Vanguard specifically or the specific ETFs: there’s Vanguard, there’s BlackRock with their ishares, Horizons, and even Fidelity. All have Asset Allocation ETS, but we’re just using Vanguard


Spring Plans: because they were first out of the gate. So their ETF holds, other Vanguard ETFs here, and you can see they’ve got the U.S. exposure there, Canada, they’ve got their developed excluding North America, they’ve got their bonds, so you can see, all of the different


Spring Plans: geographic representations there, and you can see how that results, on the chart to the right, with a diversified portfolio that incorporates lots of different sectors. So from a capital portfolio construction standpoint, an asset allocation ETF like VGRO


Spring Plans: allows you to gain exposure to different geographies, different sectors, and what this ETF does is it specifies, and not just the growth ETF, but there’s the Vanguard conservative one, there’s


Spring Plans: the all-equity one, they basically assign a static Asset Allocation to each of these ETFs, Asset Allocation being the proportion of stocks in


Spring Plans: the portfolio versus the proportion of bonds. VGRO is 80%, the VBO is 60% equities 40% bonds, sorry- I should say VGRO’s 80% equities 20% bonds, VBO is 60/40,


Spring Plans: the conservative one is 40/60 and so, for the average investor out there, they may not know or want to feel comfortable having


Spring Plans: to pick six or seven different ETS to put into the portfolio to get this level of diversification, but they recognize asset allocation. They understand that it rebalances itself over time… great! You just have to pick the one, the asset allocation, that’s a match for you,


Spring Plans: and you’re good to go and it re-balances.


Spring Plans: It doesn’t sound like it’s kind of super complex. I should also mention the fees for them are very low points, they’re .25%, but I think people are familiar with what Robo-advisors are,


Spring Plans: or have at least heard of them, and the excitement around them, and I would say asset allocation ETFs actually do about the same job as a Robo-advisor for a fraction of the cost.


Spring Plans: Robo-advisors typically .7%, .75% or so. Asset allocation ETFs being around sort of .25% or thereabouts now.


Spring Plans: What all Robo-advisors have is a very slick kind-of onboarding process, and there were people to kind of talk to, perhaps if you wait on the phone long enough,


Spring Plans: asset allocation ETFs you do have to open your own online brokerage account so that can be a little bit of a barrier for some people, it seems really intimidating


Spring Plans: to do so, and it definitely feels intimidating because you really do feel like you own


Spring Plans: your investment performance and that doesn’t sit well with a lot of people. Believe me, after doing investing for 20 years, if I’m ever making trades, I kind of make the trade and I shut the browser and I run away because it’s kind of stressful, and you


Spring Plans: you can easily just sit there, and refresh the browser, and check for the next tech, to see how your trade did – is it up or down or whatever, and you can drive yourself NUTS!! It’s not for everyone, so


Spring Plans: opening up your own online brokerage account, throwing low fee asset allocation ETFs, it doesn’t really work for everybody, but it can be a really good solution for


Spring Plans: investors who are comfortable if you do understand the tools and resources that are there to help you execute trades.


Spring Plans: They’re okay with passive investing, and basically not trying to buy and sell, and try and kind of “beat the market”. They’re for people who are great at ignoring


Spring Plans: other people’s random advice, because really to make this approach successful you do have to maintain


Spring Plans: a more of a hands-off approach, you don’t want to do… there’s a mistake that I think is out there, that people make which is


Spring Plans: believing that they have a passive investing portfolio, because they hold passive investment securities in there. Passive investment securities basically being, usually, ETFs that hold a static basket.


Spring Plans: People make this mistake of actively trading their passive investments, and that is a recipe for


Spring Plans: more sleepless nights I would say, and a lot more stress. You really do, when you’re investing in passive investments,


Spring Plans: need to take a hands-off approach. It doesn’t mean you don’t look at things, just means you


Spring Plans: open up your investment account, monitor, manage, rebalance when you need, to rebalance to your appropriate asset allocation,


Spring Plans: and that’s all you do. And you’re not integrating the unsolicited advice that you hear from a well-meaning family member or work colleague, or that you randomly hear


Spring Plans: at the gym or at the movie theater, whatever it is, it really is all about ignoring people. Select the appropriate asset allocation for you, and move along.


Spring Plans: It’s a very simple, low fee, low maintenance approach.


Spring Plans: And, you know, I think if people are looking for something a little bit beyond that, you can, and I do recommend this, pair that core exposure with


Spring Plans: something that might be a little bit more tactical, if you are so inclined, and tactical just being you know you might want additional exposure to something – a personal interest, or something that you truly believe is going to be


Spring Plans: the next thing out there. So could be green energy, there’s an ETF that tracks companies that are investing in psychedelics – I know, like, it’s crazy. There’s an ETF for everything out there, so sure you can sprinkle


Spring Plans: one or two of those and very, very modest amounts in a portfolio, but, you know, I think asset allocation ETFs are a great way to form a core portfolio that’s a really low fee and really simple.


Spring Plans: Maybe we’ll eventually name this like our gossip section, but like I think, and honestly, from my point of view, this is super helpful because I am in this stuff and sometimes I even kind of forget kind of where things have gone, what was going on,


Spring Plans: and this has been really kind of a nice thing to look back on, and sort of kind of remember what was going on. So, April 2020,


Spring Plans: kind of the depths of Covid and lockdown really setting in, and to be totally honest with you, I was surprised, and I think it speaks to, you know, I think that the type of client that we tend to work with


Spring Plans: they are, I think, well informed, and I think that they’re very pragmatic and they were really sort of inquiring to understand how they could take advantage of the market correcting in a very responsible way,  we heard that in April and May of 2020.


Spring Plans: And then, very quickly, as you know, we sort of snap as the markets snapback became a little bit more challenging and so people are, you know,


Spring Plans: timing the market is not something that we recommend, but we can definitely say that at depressed prices in April, May, and June,


Spring Plans: they could have been good opportunities for long-term investors if they had sort of


Spring Plans: some job security, if they had their emergency funds set aside, you know if they had additional cash because they


Spring Plans: weren’t spending on restaurants, or food, or travel, or whatever it was, yeah you could put that money to work. But kind of June and August came into play, I think people felt that prices were


Spring Plans: too high at that point – because a year later they were higher than that, and then by September people started to freak out about the U.S. election.


Spring Plans: And rightfully so, because 2020 was kind of nuts at the tail-end leading up to the election, so. All that said, you ended up with a period of about eight straight months, where people really didn’t do a whole lot of


Spring Plans: allocating. There was very modest deployment of investment because I think people were just too nervous for lots of different reasons.


Spring Plans: I kind of want to stop here and just sort of go over…


Spring Plans: I don’t think I’ve been in the industry that, that long, it’s been kind of 15 years, but I feel like there were three times that I can remember where things have


Spring Plans: really gotten bad and prices have been depressed and really like looking back on those periods, what has made those periods of times successful for investors, is going into them with a plan or a notion that you can have these periods of turmoil.


Spring Plans: You know, having that understanding and then having a sort of plan in place to recognize it, and have an action in there to


Spring Plans: either deploy money, switch out of your perhaps fixed-income investments into equities.


Spring Plans: Going into these periods and having a notion that you know that they’re going to happen


Spring Plans: is what made for successful outcomes for investors so that’s something I would encourage people to think about anytime but, in particular, now. Things are going well,


Spring Plans: what you want to sort of be doing is kind of


Spring Plans: making a plan for what I don’t think will be next year or the year afterward or so, but looking back on this period of time where things really corrected in an aggressive fashion.


Spring Plans: Putting together the tools and the flight plan for you


Spring Plans: to take advantage of those situations, because they’re going to happen again, there’s going to be another correction, there’s going to be – hopefully, another not another pandemic like God willing, no not another pandemic, but there’s going to be


Spring Plans: periods of time where the markets freak out about something – U.S. government debt ceiling, U.S. property developer, perhaps


Spring Plans: getting into trouble, like those are very typical of what happens in market, they set in.


Spring Plans: and they may not result in like a 25-30% correction like Covid, but you know, these can be short-term areas where, if you have money set aside or if you are managing an asset allocation, they can sort of help you take advantage of those periods of time.


Spring Plans: November, December, lots of cash on the sides, and by January, people are kind of like ‘I still have lots of cash


Spring Plans: hanging out on the sidelines’, and they’re starting to get a little bit worried about low rates and then the inflation, where we sort of stacked in a sort of, excuse me, the inflation worries kind of got integrated into people’s mindset.


Spring Plans: So, again you’ve seen kind of the inflation numbers


Spring Plans: be all over the place, but you know, right now, I really feel like everyone who we speak to has it firmly ingrained in their mind that inflation is that 4 or 5% which I don’t think is going to be the long-term outcome.


Spring Plans: This is a slide that is a repeat for the people on the call if you are a DIYer, you know,


Spring Plans: looking back, how are you doing? Is your portfolio a hot mess? And maybe not, maybe you did exactly what a passive investment portfolio ought to do, which is, keep your hands off it.


Spring Plans: Maybe it was a period of time, where you were successfully opportunistic and were able to deploy money


Spring Plans: at favorable amounts. So, and then also just from a kind of emotional stress standpoint, there’s dealing with market corrections are stressful


Spring Plans: in and of themselves, not to mention how to deal with all the other stuff that’s going on, but how did you do? Did you come out of that experience okay as a DIYer?


Spring Plans: A really great point in time to kind of stop and look back and ask that question. People who invested with Robo-advisors,


Spring Plans: did you leave the robots alone to do their thing? Because that’s what you’re paying them to do, so hopefully, that experience worked out okay. I did hear at various times that Robo-advisors that service centers could have been a challenge to get to them,


Spring Plans: and you know, maybe, that was a good thing. Maybe it would have resulted in you


Spring Plans: perhaps selling down your portfolio at the precise time that you should have left things there, or allocated more,


Spring Plans: right? But like again, what was that experience like for you? We’ve gone through this period of turmoil


Spring Plans: as people who are responsible, ultimately, for their financial futures.


Spring Plans: On the investing side of things, like how did you do with the Robo-advisor? Or doing it yourself? Or, finally, for people with managed portfolios, did you feel like you were with the right partner? Right?


Spring Plans: You know, those are really, really key questions, I think, right now, when things are going well.


Spring Plans: Hopefully, you’re not sitting on any kind of major losses that you had to deal with, but right now it’s about, I think, looking back and sort of saying


Spring Plans: how was that experience? Do you feel like you’re in the right channel, as far as your investment strategy whether it’s DIY strategy, or Robo, or managed?


Spring Plans: Do you feel like your asset allocation was, or continues to be, appropriate for your financial objectives? Do you need to take on all the risk in your portfolio? Or maybe you can be riskier in your portfolio, depending on what’s required. Maybe that is a more appropriate outcome for you.


Spring Plans: Some of the things to be thinking about I think, going forward, to be top of mind:  Boomers, retirement planning,


Spring Plans: and de-risking your portfolio. We’re seeing more and more nowadays, where people are in


Spring Plans: decent positions in their retirement, they may not need to have as aggressive a portfolio


Spring Plans: as they currently have, or they think that they might have to have. So I think retirement planning – understanding where income is coming from the different buckets, the different accounts –


Spring Plans: and then also recognizing that hey, if you don’t need to be in the market, why are you? Maybe it’s better to reevaluate that asset allocation and kind of not have as much stress.


Spring Plans: Gen X, I think, retirement planning again. Also really important, but also stress testing, where you’re at right now, are you on the right path? Are you going to be okay? And


Spring Plans: especially coming out of the past year, what is your asset allocation look like? Is that the appropriate amount? Are you taking on too much risk?


Spring Plans: That can be, you know, something to consider. For millennials,


Spring Plans: it’s not great, it’s like well, what is your plan? Just


Spring Plans: cash flow, making sure it’s positive, and actually setting aside for long-term investing I think are the key things. There are lots of, you know, if you know whether people are


Spring Plans: looking at broadly whether they can afford a home, or work from home, career volatility, and earnings potential. I think there are so many questions there, really challenging questions for


Spring Plans: sort of people in the kind of 20 to 40 age group.


Spring Plans: So, hopefully, don’t get too, too overwhelmed. Hopefully, you can keep your cash flow positive and set aside money for long-term investing.


Spring Plans: And I think those should be sort of top of mind, and you know not getting too caught up in like, do I need to have my money in bitcoin? Am I throwing away money by not investing in bitcoin? Or the other sort of stuff that’s being trafficked on Reddit.


Spring Plans: And for finally Gen Z, I think the key thing there is understanding reliable sources like, where are you going to continue to get your information for over the next several decades


Spring Plans: that you will hopefully be investing? It’s a great period of time to learn, it’s the most amazing time to learn, quite honestly, if you’re


Spring Plans: someone who’s just starting out, or know someone just starting out, there is a ton of information out there, I’d caution people that there’s not a lot of insight, so gather up all the information, go hunting, you can learn about investing


Spring Plans: all over the place. Keep in mind that there,  that again, a lot of information out there is very general.


Spring Plans: Always make sure that you are firstly understanding that, and, secondly, knowing that you know investing decisions need to be made for you personally, so they also need to be insightful as well. Just keep that in mind.


Spring Plans: That’s about everything here that we’ve got I think you know, keeping in mind a few things,


Spring Plans: the stock market is a reflection of what people are willing to pay for an asset, or a stream of cash flows, it’s completely divorced from what’s going on in the underlying economy, and I really don’t think that’s going to change anytime soon.


Spring Plans: Just, you know, in terms of like some final thoughts: ‘time in the market’ and not ‘timing the market’ is a phrase that I think will sort of be helpful for people.


Spring Plans: Timing the market is just a fool’s errand, I think, so don’t try it, and you know, finally, your portfolio is not an island so


Spring Plans: what that means is that you’ll keep its consideration, what you’ve got, in terms of


Spring Plans: investments need to match whatever you have set aside is your short and long-term financial objectives. So, that’s all I’ve got. I appreciate you all hanging out, let’s jump into some questions.


Spring Plans: So we have a question about.


Spring Plans: dollar-cost averaging versus lump-sum investing, which I’m sure you’ve got thoughts about. So the example is: I just inherited $500,000, my long-term asset mixes 80/20, how do I get into, I mean the example here is VGRO, all at once? Or over a period of time? And why?


Spring Plans: Answer: like 95% of the


Spring Plans: investing questions out there, or financial planning questions out there, is it depends. There are some people I know who


Spring Plans: want to think about investments


Spring Plans: like their brains on when it comes to investing and then I want to turn it off and then move along with something else in their life and for those people, sure, you can go right ahead, and you can allocate that investment, it is already diversified,


Spring Plans: you can just boom- jump right in the deep end and move along, that’s great. There’s no prescriptive way to, sort of


Spring Plans: dictate what


Spring Plans: would result in a better investment outcome. For other people, if they have that lump sum of cash, allocating it all at once may not be comfortable for them, they might decide to do $100,000 every


Spring Plans: two weeks or so, or every month. I would say if you are not comfortable jumping in all at once, especially with larger amounts, and that’s a significant amount of money,


Spring Plans: if you don’t feel comfortable doing it all at once, three months is a reasonable timeframe to fully allocate those funds.


Spring Plans: Really, from a success standpoint, when we think about success it’s really much more about what’s going to ensure that you stay on the right track, as the investor.


Spring Plans: If allocating half a million bucks all at once, is going to cause you to lose sleep, and, you know, perhaps


Spring Plans: not be comfortable and alter the composition of your portfolio or go back on your decision, if that’s going to happen, then I would suggest that doing it all at once probably isn’t the right solution


Spring Plans: and that maybe, sort of 100K and staggering it makes a lot more sense. The dollar-cost averaging is a


Spring Plans: phrase that makes sense,


Spring Plans: but also it’s not, I don’t think it’s one that I subscribe to, per se, only because


Spring Plans: I think dollar-cost-averaging has, the way it’s generally presented as it is, it implies the prices sort of moderate and kind of go down over time.


Spring Plans: And really the way that I think about things is much more, kind of going back to, I’m going to sound boring talking about asset allocation again.


Spring Plans: But, making sure that remains the proper amount for people, so, you know, whether you allocate


Spring Plans: all of your portfolio in an 80/20 manner all at once, or, if you do it in a manner that’s going to be more comfortable, more sustainable for you,


Spring Plans: over a period of say three months or so, maybe up to six months total.


Spring Plans: Whether you do that, I think, you know, I wouldn’t use dollar-cost averaging as something that’s top of mind, and what I would keep top of mind is what is required from you to be successful in allocating those funds.


Spring Plans: If you want to do it all at once and move along I think that’s just as fine as taking three months to do it.


Spring Plans: Those are all the questions that we had come through the Q&A so,


Spring Plans: do you have anything else that you want to add before we close up?


Spring Plans: I don’t think I’ve got anything, I’m just looking back at my notes here as far as


Spring Plans: a couple of


Spring Plans: questions that we have on


Spring Plans: you know, they’re not really questions that were asked to me directly, but questions that I’ve observed, sort of,


Spring Plans: in the landscape, not directly related to investing, but is on mortgages for people who have large mortgages, if there was an opinion that I had on that? And I would say trying to


Spring Plans: kind of game which way interest rates could go and might go is, again, super challenging. I’m not really expecting


Spring Plans: a massive increase in interest rates commensurate with some view that inflation is getting out of control.


Spring Plans: I think that’s kind of, sort of would be my answer to that question.


Spring Plans: So for people who are in, you know, there’s lots of back and forth, the real estate industry is super loud about this, that ‘oh my God interest rates are going up you gotta, you gotta lock in man, you’ve got to lock-in’.


Spring Plans: They’re not going to skyrocket that quickly, I think that they’ve come up off of very, very depressed levels, but I think people need to make that decision just knowing that –


Spring Plans: No, I wouldn’t say knowing – but understanding that, I think there’s a lot of hype in terms of just how quickly those rates could come up, and  making that decision should be something that you do


Spring Plans: commensurate with some financial planning work, right? Like does it make more sense for you to sort of know your costs of living, what your mortgage payments will be in your five year time span, or seven year


Spring Plans: time span?


Spring Plans: Or are you more comfortable understanding that you can have a variable rate right now, which will result in your payments being


Spring Plans: a little bit lower but there is the possibility that those rates could start to increase over time. I think a lot of people spend too much time on


Spring Plans: the sort of fixed versus variable question because they’re trying to game it, they’re trying to sort of go well, which is going to be, financially, the better


Spring Plans: option for me? And I don’t think that’s the way to think about you know something like a mortgage. It’s really about sort of saying to yourself, do you want to have that


Spring Plans: certainty that your payment is not going to fluctuate? For some people,


Spring Plans: they need that. They’re carrying a large mortgage and they need it, they wanted to know the payment is going to be whatever, and they can sort of work around that.


Spring Plans: For other people, I’m probably in this camp, I’m kind of like ‘yeah sure I’ll take the supercheap variable rate and


Spring Plans: I may have to plug my nose if, you know, rates start to go up over time. And I’m personally comfortable with that, but you know, other people aren’t, and by no means


Spring Plans: would that decision on my end be trying to pay as little as possible, like trying to kind of game it because I just have no idea which way


Spring Plans: precisely rates are going to track over three, four, or five years.


Spring Plans: But I do think that there’s a lot of hype about them going up very quickly, along with inflation, everything’s hyped.


Spring Plans: Well, and speaking of hype and related to the ‘it depends’ answer that you gave, there’s one under-the-wire question about whether here at Spring we’re seeing more take up from Canadians, you know, who have those kinds of… if it depends well, what about me and my situation?


Spring Plans: And if we’re growing, and I would say


Spring Plans: we at Spring and our colleagues across the advice-only planning world are all seeing growth and we are definitely seeing take-up from Canadians,


Spring Plans: and Americans who happen to live in Canada, and yeah, so Darryl I think you felt the same thing right? There’s just a massive amount of people looking for advice


Spring Plans: of this sort and we’re really glad of that, and we’re glad that we have colleagues that we can refer to when we need to.


Spring Plans: Yeah, it’s funny because I think we joked at a certain point of time and we’re like well, people are just sort of at-home and actually don’t


Spring Plans: have anything better to do than think about their financial situation, so yeah, there’s this massive pop that people are like okay,


Spring Plans: I have the time and like, I’m not going out, I’m not doing anything, or you know, I don’t think it was too much there like I’ve got too much money hanging around.


Spring Plans: You know, sort of that thing, because I’m not traveling or I’m not spending money, but I certainly think that, you know, there was a subset of


Spring Plans: Canadians out there, that did kind of financially okay over the course of Covid and, you know, maybe they just


Spring Plans: started feeling more confident, and okay that they could talk to people about their financial future and were more engaging now on the plan, but yeah it was incredible to see just how busy things were kind of midway through Covid.


Spring Plans: Yeah, yes indeed! Well, you’ve taken us right through to the end of the hour and it’s been outstanding, so thank you so much Darryl.


Spring Plans: And for everybody who attended – this is a nice way to spend the evening.


Spring Plans: I’ll remind everyone that we will be posting the recording of this clinic on our website and sending out a notification on our newsletter.


Spring Plans: And, of course, if you have questions for Darryl or for anyone on the Spring team, I mean, we’re here for you, we’re your planners, so you’re always welcome to reach out. So thank you for today and we will see you all the next time we have a quarterly market update!


Spring Plans: We’ll see you all next time! Thank you!


Spring Plans: Bye!





Darryl Brown
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