June 2022 update - Full defensive
The US stock market is now officially in a bear market. What that means is that US stocks have fallen 20% or more since their peak. Some sectors of the market have fallen much more than that: technology, communications services and consumer discretionary stocks have all lost at least 30% so far. Last week, the Federal Reserve hiked its interest rate by 75 basis points, trying to fight off inflation. But that might cause the economy to slow down, maybe even go into a recession. A lot of economic indicators have already turned red, suggesting a recession in the next year or so. Meanwhile, the Canadian stock market dropped last week by over 6%, falling below the level where I believe it signals a danger, so it warrants cutting exposure to Canadian stocks. Stocks from the UK and Japan, the remaining markets I follow more, have not fallen as far as others. But with so many other markets and economies showing danger signs, there’s little reason to believe these ones will remain unscathed, so I recommend cutting those as well and going full defensive. Interesting to note that the US stock market has been by far the worst performing market among big developed markets since the start of the year. It will be interesting to see if this marks a reversal of its outperformance which dates back to the Global Financial Crisis.
Sample portfolio for a Canadian investor
Asset class | ETF ticker | Weight |
Canadian stocks | VCN | 2.25% |
US stocks | VUN | 11.25% |
Foreign stocks | VIU | 9.00% |
US corporate bonds | ZSU | 0.00% |
Canadian corporate bonds | XSH | 0.00% |
Global high yield bonds | MHYB | 0.00% |
Emerging markets bonds | ZEF | 0.00% |
Global real estate | TGRE | 2.50% |
Canadian mortgage-backed bonds | ZMBS | 30.00% |
Canadian government bonds | CLF | 15.00% |
Global government bonds | XGGB | 15.00% |
Gold | KILO | 15.00% |
Sample portfolio for a US investor
Asset class | ETF ticker | Weight |
US stocks | SCHX | 11.25% |
Non-US stocks | SCHF | 11.25% |
US corporate bonds | SPIB | 0.00% |
Non-US corporate bonds | PICB | 0.00% |
US high yield bonds | SPHY | 0.00% |
Non-US high yield bonds | IHY | 0.00% |
Emerging markets bonds | VWOB | 0.00% |
Global real estate | REET | 2.50% |
US mortgage-backed bonds | MBB | 30.00% |
US government bonds | VGSH | 15.00% |
Non-US government bonds | BWZ | 15.00% |
Gold | GLDM | 15.00% |
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