Retire Me - Episode 21 - Preparing for a Possible Layoff & Introducing Factor Investing

In this episode we discuss:

1) Preparing for a Possible Layoff

I walk through 6 steps that you can take now if you are concerned about a possible layoff even as businesses begin to get back to normal coming out of the pandemic.

• buffer up your short term savings
• evaluate your household cashflow and identify areas you could trim back if needed
• get your documentation in order 
  • Group benefits
  • Group savings plan statements
  • Company stock options statements
  • Get into your CRA My Account and figure out what your TFSA and RRSP limits are - these may be possible destinations for severance payments and/or retiring allowances 
• consider re-financing your mortgage - you may be able to lower your rate and lengthen your amortization period by re-financing.  NOTE: this is not a free lunch.  It may result in penalties and it will lenthen the time it takes to re-pay your mortgage.  Speak with a qualified mortgage professional for help here
• if you believe you may need to tap into your retirement/long-term savings, shift some of your portfolio to high-interest savings or short-term bonds 
• if you are nearing retirement and you were considering letting your employer know, consider holding off on that discussion.  While it is admirable to let your employer know about your intentions to retire, letting them know too soon may impact the way that they manage your exit

Introducing Factor Investing

In this week's segment of "Key Questions for the Long Term Investor" we discuss the question:  Is there a better way to build a portoflio?  

We explore what makes for a reliable factor that you can implement in your portfolio.  A factor needs to be:

1. Persistent
2. Pervasive
3. Robust
4. Investible
5. Intuitive

The primary factors at work in portfolios I implement for clients are:

In global equities:

1. Market (stocks have historically outperformed bonds in the long run)
2. Relative Price (also know as value investing) (relatively cheap stocks have outperformed relatively expensive stocks in the long run)
3. Relative Size (small company stocks have outperformed large company stocks in the long run)
4. Profitability (profitable companies have outperformed less profitable companies in the long run)

In global bonds:

1. Term (longer term bonds have historically outperformed shorter term bonds in the long run)
2. Credit (relatively lower credit quality issuers' bonds have out outperformed relatively higher quality issuers' bonds in the long run)

How do you implement these ideas in a portfolio?  You can "tilt" the portfolio towards these factors to get benefit from higher expected returns in the long run. 

Why do we tilt?  Why not go all in on the factors?

Because, sometimes individual factors can go through long stretches of relative under-performance.

For example, between 1928 and 2019, value has outperformed growth in the US by 3.18% per year annualized.  But, between 2010 and 2019, value has under-performed growth by 3.95% per year annualized.

To capture the expected premiums from factors, you need to be patient and disciplined because there will be times where the portfolio under-performs.

More data on the factor premiums in the charts below:

Thank you for listening!

Mark

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Disclaimer - This podcast is for informational purposes only.  Please consult with a financial advisor familiar with your unique financial situation before making any decisions.  Nothing in this broadcast constitutes a solicitation for the sale or purchase of any securities.  Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.  Mark Walhout is the owner and lead financial advisor at Walhout Financial and an Investment Fund Representative at Investia Financial Services Inc.