Risk Capacity: What is your capacity and does it match your tolerance?

Last week's post on risk tolerance mentioned that an investor's own financial situation can create more or less leeway to withstand the bad effects of poor investing results without permanent catastrophic harm, a feature we called risk capacity. We promised to look at what exists online to help an investor assess his/her own risk capacity, so here we go. The ultimate goal is to find the best investing strategy, specifically the mix of different types of investments, asset classes like cash / Treasury Bills, domestic or foreign equities, corporate or government bonds, REITs, or commodities, to combine into an asset allocation for the portfolio.

Risk Capacity - the key aspects

1. Time Horizon(s) - The longer before you need any or all of the money, the higher your risk capacity. Equities have historically on occasion gone through long periods of ten or fifteen years being underwater following market collapses. It is a big plus to not be obliged to cash in equities after a horrible down year such as the 40% 1973 dive of the TSX Composite and to be able to wait through the six year recovery period ( as bad as it was, the 2008 crash was only 34% and a mere two year recovery). Recognizing different time horizons for different goals e.g. house purchase in five years, university education in 18 years and retirement starting in 30 years pulls risk capacity in different directions. Tools or questionnaires that recognize such circumstances will produce a truer assessment. Some questionnaires ask too ambiguously about "when the money is needed back". It's not necessarily all or none - in retirement, one may turn an RRSP into a RRIF and withdraw small amounts to spend while continuing to seek some growth. 
2. Wealth - No doubt the world's richest investor Warren Buffett has little need to hold bonds or T-Bills to protect his modest lifestyle in case of a stock market decline. Conversely for someone with no other savings, a $1000 decline in a $10,000 portfolio verges on calamity. The more you have, the more you can put afford to put at stake, or as is often said, afford to lose. It's net worth, after deduction of debts, that is the relevant figure. Having to continue making payments on debt like a mortgage but not needing to count on the investment portfolio to provide cash is one reason we often hear the advice to always hold three to six months emergency cash reserves.
3. Other Income & Human capital - Economists call our lifetime earning power human capital. The higher your non-investment sources of income like salary the more likely it is there is a surplus or savings that buffers against any need to liquidate investments in a down market. Of course it is possible to use up any amount of income with too lavish a lifestyle, which is why some questionnaires go a step further and ask about your current savings rate. The other important aspect of the other income is how stable it is. A tenured professor has great job security while teachers and civil servants rate high as well but a commission salesperson or an hourly paid worker in a cyclical industry has a much less secure and reliable income stream. Professor and author Moshe Milevsky elaborates on the investing consequences in his book Are You a Stock or a Bond? (yes he does rate himself a bond) A secure income is equivalent to bond income while the less secure among us are the stocks. Given the huge proportion of almost everyone's personal lifetime income that comes from work earnings, factoring in your job to the decision of how to structure your investment portfolio, is a critical step. How much time you have left to earn makes a big difference too. Many questionnaires will therefore ask about your age and/or time before retirement. Some questionnaires will also use age to draw conclusions about time horizon though that is not the best way to do it. Salary is not the only possible source of other income. Canadians have access to Canada Pension Plan and Old Age Security payments after retirement. Some fortunate workers may be part of a solid defined benefit pension plan. Owning rental properties is yet another source. All these sources serve to increase the capacity to withstand bad effects when investment risk happens.

Figuring Out Your Own Risk Capacity
Questionnaires combine risk attitude and capacity - Unlike the questionnaires devoted only to risk attitude/tolerance, there are no questionnaires for risk capacity alone. Even the better questionnaires on risk capacity that we found all mix in risk attitude and some risk perception as well. It is therefore more difficult to discover any marked divergence between risk attitude and capacity, which is what we want to find out in order to think about and reconcile the two.

Index Fund Advisor Risk Capacity Survey - These US-based fund managers offer a short 5-question survey and a more complete 25-question long survey. It is well worth the extra few minutes answering the 25 question version. At the end, there is a question by question explanation of what your answer means, along with links to other parts of their website with in-depth explanations on the topic. An extract image of part of a sample output is below. The survey concludes with an overall stock vs bond recommended allocation. This is the best and most detailed questionnaire we found.

Mulberry Chartered Risk Profile and Capacity for Loss Questionnaire - This questionnaire is also only in pdf form so one must manually total the score for the 11 questions. Five questions address capacity and six risk attitude. It is meant for use by an advisor with a client so we have to do the usual DIY thing and be our own advisor to draw our own conclusions. Its unique feature is that it rates your capacity for loss separately, on a scale from Low to High.

BMO Insurance Investor Profile Questionnaire - Of the 11 questions, five relate to risk capacity, two to investing goals and the others to risk attitude. The questionnaire is only in pdf form so one must manually add up the score. The slots the investor into one of four types of portfolio - Conservative, Balanced, Growth or Aggressive, but no asset allocation recommendation is given. On this questionnaire we found that the risk capacity sub-total did not align with the risk attitude sub-total. The risk attitude questions seemed constructed in a way that caused our own answers to skew much higher than they should.

Vanguard Investor Questionnaire (USA) - Though Vanguard now has a Canadian arm, the website is not as extensive as the original one in the USA and it does not have a risk profile questionnaire. The US questionnaire consists of 11 questions only, half of which are devoted to risk attitude and the other half to risk capacity. The total score leads to one of nine possible recommended proportions of stocks and bonds, ranging from 100% stocks to 100% bonds. The scoring scheme puts enormous weight on the time left before beginning to withdraw income. There is no explanation of results.

Try all of them and look for consistent results - Rather than rely on any one of them, the thirty minutes or so that it will take to fill them all in lets us see how consistent the results are. Obviously, the more consistent the better since that means the various question wordings don't skew the answers and we can be more confident of being shown the right track.

Risk capacity should align with risk attitude - It's a bit more work to do since we must add up the sub-total score for the capacity questions alone but that gives us the ability to examine the all-important match-up between risk tolerance / attitude and capacity. Compare the capacity result with the tolerance answers from the FinaMetrica and Oxford questionnaires that we wrote about in last week's post. That will go a long ways towards reducing the divergence between what the questionnaires recommend and what investors end up doing.  It's an important potential failing of such questionnaires, as Preet Banerjee recently wrote in the Globe and Mail.

When this blogger did a personal comparison with last week's risk attitude questionnaire results, we generally did find convergence towards a 60% stock / 40% bond portfolio. But that is only our personal results for our own situation so every investor should do his/her own.

Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.

Risk Tolerance: Why and how to measure your own

It is standard best practice for a professional financial advisor to understand a client's risk tolerance. Since we, as DIY investors, have to be our own financial and investment advisor, that means we should be able to understand our own risk tolerance and apply the knowledge to achieve the same result. The desired end result is simply an investment portfolio that best suits our financial goals. A critical part of building an investment portfolio is to decide on an asset allocation, the mix of domestic and foreign stocks, bonds, GICs, cash (T-Bills or money market funds), real estate, commodities (gold or other) and risk tolerance plays an important role in that process. So how does risk tolerance fit in and contribute?

Risk tolerance vs Risk capacity vs Risk perception
A) Risk tolerance is an attitude, the preference a person has towards the balance between the chances of loss against potential gain. It is a psychological trait that is quite stable through a person's life, generally set by early adulthood, though it can change as a result of major life events, or evolve through the years, for example, as people get older their risk tolerance tends to decline. Everyone is different. Men tend to be more risk takers than women. Couples need to recognize that they are likely not to have the same attitude towards financial risk. Finding out differences and coming to an accommodation ahead of time within a couple will avoid strife down the road under the pressure of events. That's surely a big benefit on its own of obtaining a reliable measure of risk tolerance.

The people of some countries are more risk averse than others - apparently, Australians are more willing to take on financial risk than Americans who are more willing than the British, according to FinaMetrica in On the Stability of Risk Tolerance, which has collected hundreds of thousands of standardized surveys across these these countries. Another interesting point is that risk tolerance can differ markedly for a person towards physical, social, ethical, health and financial matters. The physical dare-devil might be a financial wimp, or vice versa.

The key result of matching risk tolerance with an eventual portfolio structure is that the investor should be comfortable with the portfolio. When the portfolio varies with market events there is less chance of a bad reaction when the portfolio behaves according to its matching risk level. The bad reaction can consist of emotional turmoil or it can consist of hasty ill-timed actions such as the notorious example of selling out after a temporary market plunge. However, as FinaMetrica note in their document on how to interpret the results of their risk tolerance survey, there is not an automatic consistency between the way someone reacts to an actual bad event, which they call "loss tolerance", and the risk he/she was willing to take.

B) Risk capacity measures the ability of a person to withstand negative outcomes before a person's standard of living is materially affected. It measures facts, most typically:

• Time horizon (the longer before you need income or the capital back the higher the risk capacity), 
• Wealth (the greater your assets, the more you can lose before it hurts)
• Other Income (again the higher this is, the greater the risk capacity)

The UK regulatory body, the Financial Services Authority, says in its publication Guidance Consultation Assessing Suitability, that it is important to measure risk tolerance separately from risk capacity. Otherwise it is impossible to know which aspect is being measured. Part of the job is to compare and reconcile risk tolerance and risk capacity. Lots of tolerance with low capacity is a big danger while low tolerance and high capacity means missed opportunity e.g. the opportunity to earn higher returns and a better lifestyle in retirement or a greater legacy to leave behind.

C) Risk perception is the conception a person has of the actual risk with regard to different types of investments. Perception can change a lot through time and it may change quickly in contrast to true risk tolerance. The tendency of investors' mood to track rising and falling equity indices is sometimes termed changing risk tolerance but the re-interpretation, in the face of the stability of real risk tolerance, is that such tracking is due to changing perception of market place risk. In rising markets, people begin to feel there is less risk. For an instructive discussion of the difference, see this post on leading retirement researcher Wade Pfau's blog. The antidote to mistaken ideas of risk for all investors:

• Investment Knowledge (being aware of past market history and how much and what kinds of risk there is in various asset classes, which this blog tries to address constantly and through specific posts such as this series of risk posts in July 2011)

Figuring Out Your Own Risk Tolerance

While we may have a general idea of our own financial risk tolerance, in order to compare it in any organized way with risk capacity and the portfolio options that are likely to produce required returns to meet financial goals, it is necessary to put numbers to risk tolerance. The way to do it is through a rated questionnaire. Taking into account the comments on best practices by the UK's Financial Services Authority, who examined and found wanting many questionnaires, there aren't many good choices. Two we found are:

• FinaMetrica - self-administered online version (evidently the same questions as the pricier version for use in volume by advisors), along with the user guide that shows the mapping to portfolio asset allocation ranges and a Risk and Return Guide for various portfolios oriented to Canadian investors that itself has links to the historical results for the various portfolios. The company actually has posted the questions for various countries as a downloadable pdf on this page but of course you don't get the scoring and interpreted results. There is a $45 charge to fill out the questionnaire and get the results, all in about 20 minutes, but it can be worth it to get the greater output detail compared to the free Oxford questionnaire. It has 25 questions. Part of the output report looks like this -

• Oxford Risk - developed by the University of Oxford, it is free here on the Standard Life website; it has 10 questions and takes only a couple of minutes to complete. The entire output looks like this - 

This blogger filled in both questionnaires (paying the $45 for the former) as honestly as possible for myself and found they gave the same results (a bit above the middle risk tolerance), which is encouragingly as it should be if they work properly. Other free online questionnaires we found did not give the same results. The questionnaires with erratic results  all seemed to violate the Financial Service Authority's best practices by confounding risk tolerance with capacity, or by being ambiguous asking several questions at once which left a feeling that no answer could be right for some questions. Such short and easy questionnaire tools would seem to be an obvious thing to do to make a significant step towards investing peace of mind, though not assured success, by proper alignment between one's inner attitudes and investing activity.

There are other questionnaires that measure risk capacity. Next week, we'll have a look at those to find the good ones.

Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor. 

Green Bonds - The Fixed Income Way to Invest by ESG/SRI Principles

Investing in equities that meet ESG / SRI criteria is well established in Canada. Investors can pick from a reasonable smattering of mutual funds and ETFs, or pick out companies that either rate better than others (e.g.  our posts on mining companies, oil and gas producers, and consumer stocks). Beyond companies that adhere to a higher standard, it is possible to choose those that specifically provide products or services directly benefiting the environment e.g. see the 118 TSX Clean Technology index members. But equity capital is not the only way to invest.

Fixed income investment - buying the debt issued by such companies - is an option too. In some cases, the lending is tied to a project with specific environmental benefits and they are called Green bonds. Such bonds are mainly from companies in transport (rail, electric vehicles, mass transport) and energy (renewables like hydro, solar and wind) with a tiny portion in forestry. As with all debt, holders take precedence in getting paid before equity holders receive dividends so the investor has greater security. Yields from Green bonds will be in line with their credit rating.

TD Economics' 1st November report Green Bonds: Victory Bonds for the Environment gives an overview of what's happening with Green debt, as do Sustainable Prosperity's June 2012 briefing, ClimateBonds.net's Bonds and Climate Change: The State of the Market in 2013 and their joint Canadian update of September 2013.

Worldwide Market - US Dollar, Euro, Pound Sterling Bonds
Most of the Green bonds in existence have been issued by large international financing institutions such as the World Bank (rated an ultra-secure AAA), which lists its Green bonds here, the European Investment Bank, the International Finance Corp, the Kommunalbanken AS, the African Development Bank, the European Bank for Reconstruction & Development, the Asian Development Bank and the Nordic Investment Bank. The main currencies of issuance have been US Dollars, Euros and Pound Sterling.

Discount brokers such as TD Direct Investing and BMO InvestorLine at the moment unfortunately do not appear to hold any bond inventory of these big international issuers. It may be possible to phone the broker's bond desk and ask them to find such bonds but since Canadian discount brokers deal only with Canadian and US dollars we should only expect to get USD bonds, if any.

Canadian Dollar Bonds and Debentures
A better bet, though still likely hard to find, is to buy bonds issued in Canadian dollars on the Canadian market. In Canada, the Green bond market is still in the early stages, so there's not much available yet. The main issuers and issues on the market include the following. Most are investment grade, meaning that they are rated BBB or higher by ratings agency DBRS.

• The biggest issuer (per this report) is apparently Brookfield Renewable Energy Partners (DBRS Credit rating BBB).  The company builds and operates hydro power, primarily and some wind power plants. Issues include: five medium term notes maturing in 2016, 2018, 2020, 2022, 2036; long term in 2053
• The two national railways since rail is such a low-carbon transport method: CN Railway (rated A low). Morningstar has a handy list of its bonds here. Canadian Pacific Railway (rated BBB low) lists its long term debt on page 104 of the 2012 Annual Report. Note that ClimateBonds.net in its list of Green bond issuers includes CNR but excludes CPR for unspecified reasons.
• Northland Power produces electricity from biomass, solar, wind and hydro sources. Most of its debt appears to be privately placed and is unlikely to come on the market. It has issued convertible subordinated debentures (that can be exchanged for common shares under certain conditions - see p.32 of the Annual Information Form) that are traded on the TSX under symbol NPI.DB.A. This debt is not credit rated.
• St Clair Holding Inc (rated BBB) operates a solar energy site near Sarnia in Ontario. The facility was bought in 2012 by NextEra Energy, whose renewable energy portfolio is about a quarter nuclear, which may not fit some people's definition of environmentally friendly. Does a bond dedicated to a solar facility still qualify as Green? It's up to each individual investor decide. The $175 million bond matures in 2031
• Canadian Hydro Developers was acquired by TransAlta (rated BBB) and relaunched as TransAlta Renewables (TSX: RNW) in mid 2013 with a mix of wind and hydro power assets added from TransAlta's other assets - see investor presentation here. TransAlta retained 80% ownership.
• Newalta Corporation provides industrial waste management services (rated BB high, one level below investment grade)
• Boralex is a producer of all types of renewable power, except nuclear (not rated)
• Run of River Power, operates hydro power (not rated)
• Innergex Renewable produces hydro, wind and solar power. It also has convertible subordinated debentures traded on the TSX as INE.DB (rated BB high, one level below investment grade)
• New Flyer Industries makes buses. It's USD denominated convertible debentures mature in 2017 and trade on the TSX under symbol NFI.DB.U
• Capstone Infrastructure, which acquired Sprott Power Corp a few months ago, is another renewable power generation company. It has one small bond maturing 2016.
• Millar Western Forest Products has a callable bond with an 8.5% coupon maturing April 01 2021 (not rated)

A future possibility is that the Ontario Government (rated AA low) has just proposed to issue green bonds in 2014 to fund mass transit projects in the province. 

Brookfield, CNR and CP Railway bonds should be the easiest to find; they will be listed in the fixed income section at discount brokers. The Northland, Innergex and New Flyer debentures are readily available through the equity trading section.  Other debt issues in the list are likely to be difficult to find. Though the debentures are debt and pay interest the fact that they are convertible into common equity is the reason they are traded on the stock market. 

Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.

Investing Ideas from Norway, Home of a Humongous Pension Fund

When we reviewed the investing practices of Canada's three largest pension funds a few years ago, we discovered a number of ideas useful to individual investors. However, we also found that some of their strategies - pursuing absolute return strategies, making large private equity investments, direct investment in infrastructure or timberland - are really not available to the average individual investor. Step forward the national investment fund of Norway, the Government Pension Fund Global (GPFG). It was set up to invest Norway's oil money, to ensure that the oil wealth would be maintained for the long term to benefit future, as well as present, generations of Norwegians. GPFG happens to be the world's second largest retirement fund according to Pensions and Investments, with assets of $712.6 billion, dwarfing the Canada Pension Plan's $184.4 billion. And it has been quite successful. In their excellent review paper The Norway Model, business professors David Chambers, Elroy Dimson and Antti Ilmanen call it "... an exemplar for investors around the world". Best of all, its methods are very simple, a model that can be reasonably easily emulated by ordinary investors.

Pursue the market return
Starting with a belief that markets are largely efficient, GPFG follows a coherent set of policies:

• Use market cap benchmarks to guide investments, in the case of equities this being the FTSE All-Cap indices and fixed income Barclays Capital Aggregate indices, to seek so-called beta or market return instead of alpha or market-beating performance. A key risk objective and control measure for GPFG is that its own returns should be within 1% of the indices. They are essentially not trying to beat the market, mostly to get the market return. Another result of the policy is that developed economies of North America, Europe and Asia constitute 90% of equities, while developing markets like China, Brazil and Russia are only 10%. It's a cautious allocation, no big bet on these often-hyped countries.
• Invest in publicly-traded stocks and bonds, unlike many other gigantic funds like Canada Pension who have significant investments through private channels, GPFG owns publicly traded stocks almost exclusively. GPFG owns shares directly because it is so large and can do this cheaply, whereas we individual investors are better off in funds.
• Diversify. As of mid 2011, GPFG owned shares of 8400 companies and 7945 bonds worldwide. The shares represented over 1% of the value of each and all of these stocks worldwide and over 2% in Europe. GPFG literally owns an appreciable chunk of world securities. The list of equity holdings as of 31 December 2012 shows 273 Canadian holdings, more even than the 239 in the broadest ETF, the iShares S&P / TSX Capped Composite Index Fund (TSX: XIC). Individual investors in an ETF will own several decimal places less of the total market but the idea can be the same.

Equities provide most of the return not bonds

Another key belief is that equities, albeit riskier, will provide more return over the long run than fixed income. GPFG's policy is to allocate 60% to equities and 40% to fixed income. The fixed income is 99% investment grade (rated BBB- or better), lower yielding but safer. Up to 2007, the allocation to equities was only 40%, but was then increased to 60%. This allows GPFG to more confidently pursue its 4% long term real return objective.

The investment policy allows Real estate to form up to 5% of the total asset allocation, taken out of fixed income's 40% target.   Individual investors can take away the idea that a diversified balanced asset allocation works well.

Slow evolution of investment policy
Another idea that individual investors can apply from GPFG's example is that its investment policy has evolved very slowly, as the chart below from the Chambers paper shows. GPFG is only now dipping its toe into Real estate despite a policy change dating back to 2008 - the share today is only 0.9% of the portfolio, well below its allowed target. The decision to shift upwards from 40% to 60% allocation took nine years. The GPFG has a lot of studies on its website on other possible investment strategy changes, such as tilts to small caps and value stocks, but it is moving slowly to implement them. The deliberateness helps ensure the strategy is followed, especially in times of market turmoil. Once a good basic strategy is in place, the idea of thinking twice and making changes slowly is a sensible example for us all.

(click on image to enlarge)

Leverage avoided

Though its policy allows up to 5% leverage, GPFG currently has none. The idea of trying to boost returns by leverage is shunned. If the GPFG can achieve a 4% real return without leverage, why should individual investors bother?

Volatility and tracking error help manage "stay the course risk"

The GPFG belongs to all the people of Norway and the arm of the central bank that manages the fund makes a lot of information available. High transparency is an explicit aim and that allows deep public scutiny. During the 2008 financial crisis, GPFG under-performed both its equity and fixed income benchmarks by quite a bit, which caused much public criticism. The public debate that included proposals to de-risk the fund's strategy took some time. Meanwhile, the GPFG kept to its asset allocation policy, including rebalancing, and by the end of 2009 it had recouped all its losses and kept going strongly in 2010. 

The immediate public pressure was relieved, but a key lesson came out of this that is highly applicable to individual investors. Setting reasonable expectations is a critical step to being able to keep to a plan - knowing how much the total portfolio could drop (it was down 23.3% in 2008) despite diversification and a sound conservative plan; investing in markets entails facing volatility and the more every investor, whether Norwegian or Canadian DIY online investor, recognizes it, the less likely panic reactions and selling out at the worst time will occur. Surprises, especially nasty surprises, cause extreme irrational reactions. The GPFG publishes its quarterly estimate (see slide 10 of the latest 3Q2013 quarterly report here) of how much the fund value could vary within the next year).

Investing to a benchmark is another clever and effective technique for controlling bad reactions - if everything is down and one's own portfolio is down the same, the pain is a lot less - misery loves company. For an individual, investing in a broad market ETF means doing no worse than the average and that means plenty of company.

Part of the reasonable expectations should be the fact that a 4% return is to be achieved over the long term, not each and every year. There will be considerable ups and downs quarter to quarter and year to year, even for a balanced fund like GPFG, as slide 8 of the same quarterly report shows.

Rebalancing is an essential discipline

A big part of the reason that the GPFG bounced back so quickly is that it followed its rebalancing policy, which sets a limit of +/- 4% from the policy targets of 60% equity, 40% fixed income. Such a policy-spurred rebalancing has happened only twice since 2002. One of the fund manager's research notes shows that the rebalancing policy boosted returns. The constant inflow of new oil money added to the under-weight asset class, just like an individual investor would do with contributions to his/her account, allows regular small-scale rebalancing. In other words, an easy to monitor, simple, mechanical rebalancing policy works quite well.

No currency hedging  

The GPFG does more or less zero hedging of the currency fluctuations of its vast portfolio, 100% of which is foreign. The exposure to the variation of 35 international currencies against the Norwegian kroner at different times boosts, or reduces returns, as this chart image taken from the 3Q2013 quarterly report shows where the light blue kroner rate changes in each quarter vary between positive and negative.

If an investor has a well diversified portfolio with exposure to many currencies and is willing to withstand more short-term volatility, perhaps it is not necessary to buy currency-hedged ETFs.

Low costs are key

A critical part of the strategy to obtain the market return is to not have it eaten away by costs and fees. The GPFG is managed almost entirely internally, while individual investors must use funds to gain broad diversification, but the fund puts great emphasis on keeping its costs as low as possible, achieving 0.09% management costs since 1998. There is more than $2 billion managed by each employee on average. When searching for funds, we investors should always look favorably towards lower MERs.

Environmental, social and governance aspects are integral to investment decision-making

Though it is mainly the public will of ultimate owners Norwegians imposed through the political process that accounts for the GPFG's active consideration of ESG factors, the professional fund managers believe paying explicit attention to six key areas of ESG will enhance long run fund performance. GPFG managers are active shareholders, not only voting at annual meetings of companies but also lobbying them to make improvements and changes. It is possible and likely financially worthwhile (see references in links below) for an individual investor also to factor in ESG, either through ETFs based on these factors, or to do this directly for separate companies, as we have explored with REITs, consumer-facing firms, oil and gas and mining companies.

A caveat with ESG is that everyone may not always agree on what constitutes good/bad behaviour. The GPFG has only a handful of companies it excludes from its portfolios due to bad behaviour. Two of that tiny (52 companies worldwide) shunned minority happen to be Canadian mining companies we have examined in the last few weeks and found to be quite pro-active in implementing ESG - Barrick Gold and Potash Corp! Yet both these figure in multiple "ESG best" lists and Potash Corp is even part of the iShares Jantzi ETF (TSX: XEN) selected for ESG superiority.

Implementing these ideas

• How to create a simple written Investment Policy 
• Some Simple Portfolios we reviewed, some even simpler Single Fund Portfolios reviewed by Globe writer Rob Carrick or in our One-Stop Investing post

Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.