Short Articles

Investing Abroad - Canadian or U.S. Listed ETFs? Some Tax Considerations

For those looking to diversify their investments beyond Canada and use exchange-traded funds (ETFs) to build a global portfolio, they have the option to select Canadian listed or U.S. listed funds. There are some important tax considerations, beyond exchange rates and fees. The foreign withholding tax is particularly complicated. 

Using Machine Learning to Optimize Portfolio Weights

This articles discusses a technique called Hierarchical Risk Parity (HRP) that can be used to determine portfolio weights, given a set of holdings. In technical terms, HRP applies graph theory and clustering techniques to build a diversified portfolio, based on the information contained in the covariance matrix. Unlike classic portfolio theory, HRP does not reply on expected returns, which are difficult to predict and a slight change can lead to very different portfolio weights. 

Why You should Check Your Portfolio Score

​Interestingly, while it is not difficult to find individual stock or fund reports (most brokerages provide them), investors have limited access to overall portfolio analysis. The information gap makes it hard for investors to fully understand their portfolios, often leading to questions like: is my portfolio properly diversified? Will it help me achieve my goals? What can I expect in different market cycles? Or I have several balanced funds, what is my net asset allocation?

Calculating Your Retirement Income Target: The Rule-of-Thumb Approach Revisited

Your retirement income target is the level of income that affords you the same standard of living as that during your working years. To calculate this target, many financial planners suggest a rule-of-thumb approach. It assumes that you will need 30% less income when you retire, which implies that your retirement income target should be 70% of your final earnings. In reality, however, no two retirements are the same, and adjustments need to be made depending on your personal circumstances and your perception of a successful retirement lifestyle.

CCP/QPP: To Defer or Not to Defer

Is it worthwhile for a 65-year-old retiree to defer CPP or QPP pension until, say, age 70? On the one hand, deferral increases the pension amount per year by 8.4% (up to age 70). On the other hand, it means that the retiree will receive fewer pension payments in total. Without delving into the complexity of an individual's financial and tax situations, we provide some guidance based on a simple criterion: Does deferral result in a larger dollar amount in total?

Decomposing Risk: How Popular Holdings Analysis could be Misleading

When it comes to evaluating a portfolio’s sector risk exposures, analysts typically take stock of a portfolio’s holdings, and then group them by sector. In the pie chart below, we show the breakdown of the S&P 500 constituents by sector. This type of holdings analysis (or breakdown approach) provides a useful point-in-time snapshot of a portfolio. However, we think that it can give an incomplete - or at times, even a misleading - picture of a portfolio’s risk exposures. In this article, we use the energy sector to explain why.

Not All Risks are Created Equal

If you ask investment advisors to quantify risk, they are mostly likely going to refer you to a well-known statistical concept called standard deviation. Standard deviation in this context measures the dispersion of an investment’s returns over time.​However, two portfolios with the same standard deviation (and other overall risk characteristics) may have very different risk drivers.

Actively Trading Passive Vehicles

I have been teaching a course on investments at the Schulich School of Business, York University, since 1998. I have noticed an increasing trend of ETF usage amongst my students, be it in the stock market simulation game in the course, or in their personal portfolios. This should not come as a surprise. After all, we would expect millennials to embrace new technology and products more readily, and to have an appreciation for the benefit of low costs and transparency.

Financial Advice from Shakespeare (and others!)

To students of finance, portfolio diversification is one of the most fundamental concepts in the discipline. Harry Markowitz, Nobel Laureate in Economic Sciences in 1990, is credited for operationalizing the concept using mathematical statistics. To fans of Shakespeare, the idea of diversification should not be foreign either....