Managing Your Money

As the year comes to an end, and we take stock of the year that has passed, we can see that change is happening more rapidly than ever before.  Change is constant, whether it be personal, social, political, or economical, and for that reason, we must constantly adapt.  Globalization has sped up change, and it now seems to be coming faster than ever, with more and more unexpected events.

As Trump gained fame on The Apprentice a few years ago, who would have thought he would become President of the United States of America in 2017!? Who would have thought Canada would be the first G-20 country to fully legalize marijuana (expected July 1, 2018)?  Could anyone have imagined a virtual, digital, non-government backed currency (i.e. Bitcoin, Ethereum, etc) would have gained so much attention by the mainstream?  And while hard to imagine today, could one or more of these currencies eventually eliminate the use of, and/or value of, Canadian or US money as we know it today???  Are North Korea and the U.S. really on the brink of nuclear war!?

Then we look at retail – Toys R Us, the biggest North American toy retailer – bankrupt!  Sears founded in 1886 – bankrupt!  Online shopping and Amazon is taking over the retail world.  The memories of walking through a toy store as a child, in awe of all the toys, touching and deciding which one to bring home, will be memories our children may never experience.  The FANG stocks (Facebook, Amazon, Netflix, and Google) have been taking over the market, making up a massive part of the gains in the U.S. stock market.   As technology changes, our lives change, and because of this investing has changed, and we must adapt – or at the very least set realistic expectations.

31_Lynn_WSJ Rolling the diceIn this graphic by the Wall Street Journal, we can see how things have changed significantly over the past two decades, when it comes to investing.  Back in 1995 you could have 100% of your investments in bonds, and reasonably expect a return of 7.5%.  By 2005 you needed to reduce your bonds to just over half your portfolio and put the other half in stocks (and a little in alternatives) to achieve the same return, but obviously with more volatility.  And now, to get that same 7.5% return on your investments, you need to have a significantly reduced bond allocation, and a significantly increased allocation towards stocks and alternatives, which in turn almost triples the volatility (shown by standard deviation)!

So what does all this mean?  In simple terms, if you don’t want more volatility or risk than you had in the past, you will need to expect lower returns in your portfolio.  And if you want to, or need to, keep up higher returns, then you will have to be ready for more fluctuations and risk in your portfolio.  As the need to include alternative investments into portfolios has increased, many investors (as well as advisors, and even firms) have not adapted to these changes.  Like with any other changes, being aware and having reasonable expectations helps us to adapt better.

I have written many times about “risk”, and how it can mean different things to different people.  This graph is a great tool to open the discussion with your advisor about risk and return, to make sure you are both on the same page when it comes to your portfolio.  As you step into the New Year soon, and start looking at planning for and bettering the year ahead (more about this in my January article), the timing is perfect to do a solid review of where your portfolio stands.  Don’t wait!

“Take stock of where you are,

and be well positioned for when

things turn the other way”

Many people these days have put their investment portfolios on the back burner.  “Why you may ask?”…  Well it is a story that repeats itself time and time again.  We have been in a “bull market” or a rising stock market for almost nine years.  So if your investments have been going up over this period, that’s likely why.  (It doesn’t take a genius to make money when markets are going up.) And often time when things are going well, nobody wants to rock the boat, it’s easier to just put things on the back burner.

Considering that we are in one of the longest bull markets in history, I would argue that it’s a good time to review, understand and set reasonable expectations.  I don’t want to sound pessimistic, but more realistic.  Don’t get me wrong, there are certainly indicators that are making some investors continue to feel bullish, but whether you’re bullish (think the market will keep going up) or bearish (think the market will go down), my advice is to take stock of where you are, and be well positioned for when things turn the other way.

The transition from horse and buggy to mass market electric cars took about 80 years.  The transition from transmitting no information over the internet, to almost 100% of information over the internet took about 15 years. I remember as a child, the argument my parents had over VHS vs Beta, and now even DVDs are almost obsolete in favor of streaming.  And what happened to all the music stores?  Will Canada Post be next…?  It’s anybody’s guess!

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 22 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected].

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.

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