You and your investment adviser have a lot to talk about at your next meeting.
The past year was historically bad in that both the twin pillars of portfolio building – stocks and bonds – were hammered. Portfolios that would have been considered prudently diversified a couple of years ago did not fare well. You and your adviser should discuss all of this.
Not in a prosecutorial way. You want to start out in fact-finding mode and then judge how well you’re being served. Here are five points to hit in your discussion:
Bonds
Canada’s bond market benchmark, the FTSE Canada Universe Bond Index, fell 11.7 per cent last year on a total return basis that includes both bond price declines and interest paid. This decline was excruciating to watch for investors with individual bonds and bond funds, even if the price declines in no way affected the interest they received. Ask your adviser how your portfolio was positioned to minimize the damage of rising rates, which are hard on bonds. On the positive side, falling bond prices mean higher yields on new money invested in bonds today, as well as guaranteed investment certificates. Ask your adviser how you can benefit from these higher yields. Should you be putting new money into bonds or GICs?
Stocks
The follow-through on the huge stock market gains of 2021 was a year of declines for markets in Canada, the United States and elsewhere. Were results from the stocks or equity funds you own in line with the markets, or were they better or worse? Also, recent stock market declines have affected many popular TSX-listed dividend stocks. As of mid-week, there were five stocks in the blue-chip S&P/TSX 60 index with dividend yields of almost 6 per cent or more, and another six with yields of between 5 and 6 per cent. Ask your adviser if you should be loading up on some of these stocks and adding to your overall stock holdings.
Inflation
Inflation edged lower in the latter part of 2022, but it’s still a dominant feature in the economic landscape. Ask your adviser to review the ways your portfolio is built to offset inflation. Key in on your real returns, which means returns after inflation. The inflation rate in November was 6.8 per cent, down from a peak of 8.1 per cent in June.
Advice fees
Yes, you have to pay your adviser regardless of whether your portfolio goes up or down in value. The professional adviser provides multiple services that justify these fees, including financial planning, estate and tax planning and ongoing communication with clients about their evolving lives. Are you getting that from your adviser?
Product fees
Returns for exchange-traded funds and mutual funds are shown on an after-fee basis, which means it’s easy to lose sight of how fees erode gross returns. After a year like 2022, it’s time to review just how much erosion fees are creating in your portfolio. Ask your adviser for a quick recap of the product fees you’re paying and how they compare to alternatives, such as index-tracking ETFs.