November 2022 update - CFA update; state of inflation

I am excited and proud to announce that I’ve successfully passed the Level 3 exam of the CFA designation. This has been an arduous process with countless hours of studying and moments of self doubt, but I’m glad I stuck with it. My membership is now pending review before I can officially call myself a CFA Charterholder, but I’m looking forward to further proving my dedication to the field of investments to the benefit of as many people as possible, near and far.

On the economy, inflation in the U.S. has finally come down meaningfully. In October, annual inflation was down to 7.7%. Investors cheered and markets jumped at the news, hoping that the Federal Reserve will slow down interest rate hikes and eventually stop hiking altogether sooner. But that optimism might be misplaced. Over 7% inflation is still painfully high for the economy and for the average American or Canadian. As the President of the San Francisco branch of the Fed said, “…I can’t reiterate enough that one month of positive data on inflation does not a victory make”. So, the Fed will continue hiking until inflation falls more. The Bank of Canada is also being very cautious about early signs of inflation slowing. Governor Tiff Macklem in a recent interview admitted it will be painful process and might even cause a mild recession next year, adding “the unemployment rate is going to go up”. Already there are cracks in the economy: several big companies, including Amazon, Microsoft, and Disney have announced they will do layoffs in the next few months. It is again very hard to be optimistic about market returns, so staying into safety mode is the better option.

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%