Duane Francis: Here Comes the Summer

Tuesday, June 11, 2019

I always get a good chuckle when I look back on my life and see how far we’ve come over the years and yet the more things change the more they stay the same. Seasons are a great example of how predictable life can be at times and though we can try to believe that winter will last forever, inevitably the spring will come followed by the summer and then….you guessed it, fall again. The same can be said for the financial markets over time. We all have been told that over time equities (stocks), have outperformed bonds, G.I.C’s and cash pre-inflation by a minimum of 2 to 1 and when we take inflation into account the outperformance becomes 4 to 1 historically.  If you have no idea what I am talking about we need to meet or speak to review this concept.

So where are we today? Over the last 10 years, equities have outperformed bonds, G.I.C’s and other fixed income investments by a wide margin and thus we have seen an incredible amount of money being invested into equity based securities. We realize that true wealth is created over time by investing in equities, (public and private) yet with the recent volatility in the (public) financial markets over the months of September through December and most recently May, you may be feeling a little uneasy and second guessing your investment strategy. By using our ‘seasons’ logic, the question remains, is this time going to be any different? Will the decline in the equity markets be permanent? Should we be buying bonds or G.I.C’s now? Will summer not come this year? Highly unlikely!

As we are all investors, I believe we all have five things in common; We want to preserve our capital, We want to grow that capital at an above average rate of return, We want to generate an income when require it, We want to provide liquidity for emergencies and opportunities and we want to minimize taxes. Turbulent times can make us all take a step back and revisit our tolerance to the volatility in the markets today. I believe in times like these it is important go back to the basics and ensure that we understand why we do what we do and where we are going in our mid to long term plans. Here are 8 eternal truths about investing for us to remember in times like these.

  • Investments go up……and down
  • Most people do the wrong thing at the wrong time
  • Markets usually over-react
  • No one knows what the future will bring(…ie; market timing does not consistently work)
  • Diversification is the best strategy
  • Savings accounts and GIC’s will not make you wealthy
  • Uncertainty creates opportunity.
  • Never say never

Sticking to our comprehensive financial plans and being diversified through these times and not chasing after returns or safety is the true formula for success.

As Warren Buffet so astutely said “Be fearful when others are greedy and greedy when others are fearful” and with the recent market pullback, we have the opportunity to purchase the highest quality both public and private securities at a discount. We should be ecstatic about this as we look to continue to create intergenerational wealth for our families.

 

Our behaviour today will determine our history tomorrow!!

 

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