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A West Fraser grappler at work, Hinton, Alta. West Fraser is aiming for more exports to China. West Fraser Photo

West Fraser

Allan Roth is the founder of U.S.-based Wealth Logic LLC and his recent column on the positive effects of forced portfolio rebalancing is a great example of what Warren Buffett meant when he described his investment style as 'simple but not easy'.

Mr. Roth found that with a simple portfolio consisting of a U.S. equity index fund, and bond ETF, and an international stock ETF, portfolio performance was significantly improved by rebalancing twice per year to a target asset allocation. The performance benefits occurred in each of aggressive, moderate and conservative allocations.

The 'simple' part of Mr. Roth's advice is obvious. In the case of the moderate risk allocation, the portfolio was rebalanced to 40 per cent U.S. equities, 20 per cent international stocks, and 40 per cent bonds on June 30 and December 31 each year.

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The approach offers the advantages of enforced discipline. The paring back of the most successful portion of the portfolio every six months helps limit losses when that sector gets hit with the inevitable sell-off. Buying more of the worst-performing asset class makes it more likely to find profitable entry points.

It's easy to see how an investor might be tempted to ignore rebalancing at certain times. A strong period for international equity returns and a positive outlook would make anyone reluctant to sell part of the position. Avoiding the temptation to break the rules is the psychological 'not easy' part.

Most Canadians are aware of the long term benefits of passive, index-based investing. Knowing this, however, is not much help in determining how much wealth to allocate to Canadian and foreign equities, and fixed income.

The correct allocation will vary from person to person – age is an important determinant of fixed income holdings, for instance, and investors have individual risk tolerances. But the process of forced rebalancing will help maximize the benefits of asset allocation no matter which strategy is most appropriate.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

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West Fraser Timber U.S. duties on Canadian softwood lumber producers certainly aren't holding back West Fraser Timber Co. Ltd. Despite punitive duties of more than 20 per cent imposed by the U.S. Commerce Department last April, West Fraser's profits have been rising, dividends have been growing and the share price has surged 56 per cent, smashing returns for the S&P/TSX Composite Index and the S&P 500. More from David Berman (for subscribers)

Tesla Inc. There's no doubt about it – the promise of electric vehicles is exciting investors. Eight years ago their market share was near zero. After growing annual sales by over 50 per cent a year, electric vehicles now command over 1 per cent of new car sales globally and a far higher share in some European countries. There are many companies with favourable exposure to electric vehicles, from cobalt miners to battery manufacturers to specialists in electrical systems. But only Tesla has Elon Musk. Contributor Chris Horwood makes his case.

The Rundown

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Some new exchange-traded funds that basically give you an entire diversified portfolio in a single purchase are showing you can be successful in the ETF business by selling nutrition as well as junk food. The three balanced ETFs introduced by Vanguard a month-and-a-half ago are off to a great start, if you judge by trading volumes on the TSX. Rob Carrick explains more. (for subscribers)

'Stubborn' investors stay long on risky assets despite growing concerns: survey

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Investors are getting itchy feet, but are not yet heading for the exits, according to Bank of America Merrill Lynch. Concerns about trade, stagflation and leverage are evident in its latest survey of money managers overseeing a combined $579-billion, yet they remain "stubbornly" long on risk assets, the bank said.

The greying of Canada and why it's time for a new strategy for investors

The less-than-thrilling outlook for bond yields highlights the essential problem facing today's investors: How do you generate gains in a global economy where growth is slowing across much of the developed world and bonds aren't likely to suddenly start lavishing you with lush rewards? Tilting toward emerging markets is one possible answer. Another possibility is to bet on a particular investing philosophy. Ian McGugan explains.

Bitcoin's 'death cross' looms as one strategist eyes a significant drop

The tea leaves don't bode well for Bitcoin. Traders who look for future price direction in chart patterns are finding more indicators suggesting the world's largest digital currency may have further to fall. (for subscribers)

Manulife stock fund adds U.S. industrials, reduces cash position

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Canada's top-performing fund manager scooped up stocks on both sides of the border when markets slumped in early February, cutting his cash holdings in half. Find out what the Manulife Dividend Income Fund has been buying.

Ten new cannabis stocks are being added to Canada's largest pot ETF

Canada's largest cannabis-related exchange-traded fund is adding 10 new marijuana stocks to its portfolio. Clare O'Hara reports on which ones are being added.

Two retired couples, two different budgets: How much are they spending?

One thing that helps make retirement affordable is you generally don't need to spend as much money to maintain your standard of living compared to what you spent in your middle years. But figuring out how much less isn't simple. Writer David Aston details the budgets of two different couples.

Looking for capital gains?

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Ever since the financial crash of 2008, investors have poured money into dividend stocks and the funds that invest in them. They offered a relatively safe haven with predictable cash flow at a time of market uncertainty. It was great while it lasted, but that particular bull market is over. Gordon Pape tells you which ETFs to avoid if you're looking for more capital gains.

A handy check list before making an investment

Here is a check list that Richard Ivey School of Business professor of finance George Athanassakos makes prior to investing to help him overcome the weaknesses inherent in human nature, such as following the crowd and making impulsive decisions.

Scott Barlow's Top Links

Don't expect value investing to outperform any time soon

Number Crunchers

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A value strategy tailored for buy-and-hold investors

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Tuesday's analyst upgrades and downgrades

What's up in the days ahead

Our resident dividend guru John Heinzl takes a look at the stumbling share prices of stocks in the power and utilities sector - and has some recommendations on how investors should react. Meanwhile, we'll have a Q&A with portfolio manager Kash Pashootan on what he's been buying and selling of late in his investment funds.

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Compiled by Globe staff

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