PWL Capital Blog

I ditched large cap international because of the example of the Japanese stock market, where from 1990 - 2019 the Japanese market as a whole stagnated but Japanese small cap value stocks delivered between 5.4% and 8% annualized depending on whose index you're using. https://www.pwlcapital.com/wp-content/uploads/2020/12/Five-Factor-Investing-with-ETFs.pdf (Page 19)

Given population demographics, I see most of Europe and developed Asia going the way of Japan and am betting their equity markets will show similar characteristics. Never mind that even during good times there has been a historical small-cap value premium in most of those regions, although not as pronounced as in the US.

Ditching emerging markets is part practical part political. The practical aspect is most emerging market funds have a sizeable allocation to Chinese stocks. Chinese stocks have failed to produce reliable returns and are incredibly distorted by the Chinese government picking winners and losers, sometimes at gunpoint. I don't want to bet my financial future on how Xi feels about his breakfast on any given morning. Additionally, China is a geopolitical adversary. Yes it's impossible to completely cut them out of one's supply chain, but I can avoid directly boosting their financial markets.

As for the few emerging markets funds that don't include China, they include other nations such as Saudi Arabia that I'm hesitant to actively invest in for political reasons. I also think emerging markets…

> Gold is just such a weird special-case thing in economics that it seems very hard to draw interesting conclusions about anything else when you're opening up the discussion with using gold as a benchmark.

Especially since the gold standard did nothing to help in stabilizing currencies:

* https://archive.ph/FWKcL / https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

Is not an hedge against inflation:

* https://www.nber.org/papers/w18706

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789

even over the long-term, per Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976:

> Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation…

> Gold is the only currency that kept it's value through time.

Papers have been written on how it does not:

* https://www.nber.org/papers/w18706

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789

See also Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976 on how it's no good against infaltion:

> Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation is an example of faulty inductive reasoning.

* PDF: http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram-TheGoldenConstant.pdf

* https://www.pwlcapital.com/will-gold-save-the-day/

Having gold as one's monetary base (e.g. Gold Standard) doesn't even help in stabilizing currencies:

*…

I don't want to ruffle too many feathers here but people often ask why someone would invest in alternative investments like a hedge fund or private equity fund rather than hold an ETF.

This is one of the reasons, and there are many more. If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. The Nikkei has been even worse... http://www.bloomberg.com/quote/NKY:IND

That doesn't mean everyone should try to add alternative investments, I think most people should hold ETF's. But rather most people should not blindly follow the dogma of holding an ETF that represents the market regardless of market conditions.

I can't believe I'm going to recommend a Tony Robbins book, but his latest book on investing is actually pretty good, actually you just need to read chapters 5 and 6 to save you some time.

I'd recommend most people check out his "All Seasons" portfolio that he got from Ray Dalio. I mean if you can get Ray Dalio's expertise working for you, you've got a great chance of having things work out for you!

https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmore/Advisor-Blog/Cameron-Passmore/November-2014/Stories-over-Science-Tony-Robbins-Financial-Adv

EDIT Wow, based on the downvotes this struck a nerve. I don't think I said anything wrong here, do people just not want a balanced view?

For the Canadians in the audience:

* https://www.highinterestsavings.ca/chart/

* https://www.ratehub.ca/savings-accounts/accounts/high-interest

There are also 'HISA ETFs' like CASH.TO:

* https://moneyguynow.com/best-canadian-high-interest-savings-etfs/

However note:

> The biggest difference between HISA mutual funds and HISA ETFs is that ETFs are not CDIC-insured. This occurs because HISA mutual funds allow investors to be registered with the deposit institution as individual depositors, whereas a HISA ETF bundles the sums provided by all investors and invests the proceeds in the ETF’s name. However, HISA ETFs mostly invest with systemically important financial institutions (SIFIs), which are subject to greater regulatory requirements than non-systemically important ones. In Canada, we have three types of SIFIs.

* https://www.pwlcapital.com/high-interest-savings-account-etfs/

@2: Research on the topic seems to disagree with you. You're not taking less risk, you're just trading one risk for another.

Vanguard Research actually wrote a paper about this called 'Dollar-cost averaging just means taking risk later' [0].

Or if you would like more recent research the paper 'Dollar Cost Averaging v.s. Lump Sum Investing' by Ben Felix [1] is worth a read imho.

0: https://www.passiveinvestingaustralia.com/wp-content/uploads/downloads/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf

1: https://www.pwlcapital.com/wp-content/uploads/2020/07/Dollar-Cost-Averaging-vs-Lump-Sum-Investing.pdf

Edit: Formatting