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Investing: ‘What ifs’ and ‘maybes’ lose out to long-term planning

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Back in August 2011, I posted Don’t Panic. plan

I took a look at investor psychology in the face of negative sentiment on the markets. In It was the best of times (for dividend investors), I outlined how well dividend-payers did over the last few years. The markets have done very well for the dividend-centric.

So what’s an investor to do, now?

Interesting U.S. market stats

Bob Pisani, of CNBC, points out some interesting information regrading U.S. markets:

Most notable among the trends was a near-record pace of fund flows last week into equity funds.

Stock mutuals saw $19 billion come in, the highest since 2008 and the fourth-biggest in the 12-year history of tracking the data, according to Bank of America Merrill Lynch.

The latest American Association of Individual Investors survey registered a 46.4 percent bullish reading during the same period, well above historical averages, while those expecting the market to be lower in six months fell to 26.9 percent.

Finally, the CBOE Volatility Index, or VIX, a popular measure of market fear, is at a subdued sub-14. A declining VIX usually means rising stock prices.

(Read More: Why VIX’s Recent Plunge May Be Bad for Stocks)

About the only areas showing caution were safe-haven money market funds, which saw assets grow to $2.72 trillion on an influx from institutions, and commodities, which had outflows of $570 million.

The most popular reason among traders for all the optimism is basic relief that the U.S. made it through the “fiscal cliff” scare relatively unscathed.

If that’s the case, the looming debt-ceiling battle and a likely lackluster earnings period could offer perilous counterweights.

So, what’s an investor to do?

The reality is, if you know who you are as an investor, and more importantly, where you want to be, none of this should rattle you. But it should make you think. Trading the media is something some do, and some do it very successfully, but most don’t. And that’s why investors must plan.

When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.

— Chinese proverb

Warren Buffett plans. Why not you? After all, planning is a form of self-reflection and self-education.

The metric of the past and planning for the future

It may be wise for investors to reassess their investing plans, to decide if their plan is capable of meeting their goals and then have the courage to sail on the course they’ve charted. If past is prologue, then the last couple of years have rewarded the longer-term planners for wading through the ‘what ifs’ and ‘maybes’ and sticking to the fundamentals.

The market hasn’t had a 10 per cent correction in a while in the U.S. While we all watch, we have to wonder at the market’s resilience while remembering why we hold assets that act as ‘insurance’ against revaluations. Any correction should be incorporated into your plan and taken advantage of. But a 2 or 3 per cent drop from an all-time high is hardly a correction. Having some cash on hand when markets have hit recent highs is rarely a bad idea.

The market hasn’t seen a traditional correction in almost three years. Majority sentiment would have seemed against this phenomenon three years ago. We will have a correction at some point. No one can be sure of the degree of the next correction. But does this alter your planning?

Planning empowers you in the face of ‘peril’

It’s best if you incorporate the possibility of a correction into your plan. Because, at some point, the stock markets will correct.

In a world gone into overdrive, where the short-term seems like the long-term to some, authentic long-term planning may be the most valuable commodity.

The markets are like anything else with respect to planning. And the markets are one of the best barometers of human psychology. ‘Perilous counterweights’ need to be part of your planning.

We’ve all heard that in the long-term risk gets reduced by time-in-the-market. In the meantime, knowing your tolerance for risk is crucial. What we can learn from the period from August 2011 to now is that risk happens in so-called ‘safe’ investments, too.

The broad markets have outperformed cash. At some point, markets will correct. Maybe that process has started. Markets correct. This is part of what makes a bull market healthy. And corrections are the reason why we should use proper asset allocation in our portfolios.

One thing is sure. It was better to be in-the-market than it was to be in cash in the time period we looked at above.

No one owns the patent on the future. No one ever knows the exact nature of the next correction. It’ll be interesting to see what the next six months holds …

A plan we can live with is part of what keeps people happy as investors over the long-term. So that we can sleep and dream of sheep.

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Ch-ch-changes, self-mastery and the stock market

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zenmarketFear, greed and change

The more things in the market change, the more they stay the same

Ah, the markets … If you want to do a great study on fear and greed, look no further.

In summer 2012, I posted Is it better to have invested, and lost investing, than never to have invested at all? (There may have been a little bit of cheek in that title.) The market had taken a bit of a beating after hitting highs in early 2012. Investors were piling into bonds, driving bonds higher and higher. Everybody was piling into Apple, and Apple would soon make an all-time high.

I still don’t know what I was waiting for
And my time was running wild
A million dead-end streets
Every time I thought I’d got it made
It seemed the taste was not so sweet
So I turned myself to face me
But I’ve never caught a glimpse
Of how the others must see the faker
I’m much too fast to take that test

— Changes, David Bowie

Ch-ch-changes: Turn and face the strain

Just when many investors had given up on the markets and run to bonds, bonds peaked and the markets went on a tear. To date:

  • European and U.S. stocks outperformed
  • Many had avoided European and U.S. stocks because of the various end-of-the-world scenarios hitting the headlines hard at the time
  • Apple began its more than 33 per cent decline, losing one-third of its value or more than $230 billion
  • RIM (now Blackberry) more than doubled in value (though it has pulled back lately)
  • Government bonds/treasuries haven’t done a lot while the stock markets have done well
  • Dividend-paying stocks had a good year
  • Gold didn’t glitter
  • More than $140 billion of announced U.S. M&A deals in February alone

Fashionably late doesn’t work in the markets

Suddenly, retail investors felt they might be missing the party. And they were. As these investors came back, a virtual upward spiral led to:

But, is this different than what’s gone before?

Financial information burning holes in space

The avalanche of information that surrounds the stock markets and much larger bond markets is daunting to say the least. Few can digest the information outside of financial professionals. Even Warren Buffett, by far the most successful investor I can think of, will tell you financial professionals don’t know exactly what the market’s going to do — and Buffet says he doesn’t care, in the short-term.

So, what’s an investor to do in the digital age when information travels so fast it seems to burn holes in space?*

Eat what’s good for you

Well, the flood of information’s always been there. The tools of dissemination have just changed. You still need to be intelligent about what you consume.

If you have a good plan, and the conviction to stick with a good plan, you will do well as an investor over time. Being an investor is sort of like being a business owner. You have to be strategic, and you have to devote some time to future growth. That was true fifty years ago, and it’s true today.

More wrong than right

Boys and girls who cry wolf will eventually be right, but are more wrong than right

Mayan calendars, financial crises and the boys and girls who cry wolf will test the mettle of who you are and what you plan to do. It’s always been that way, and it’ll always be that way.

There will be corrections, but there will be long moves forward. You’ll read about high fees and why ETFs** are better than mutual funds, and, in some cases that’s very true, but, what’s even more true is:

  • If you’re avoiding the markets because you’re overwhelmed with information, talk of high fees and the fear that the end is nigh, remember there will always be reasons to set your hair on fire. Markets will correct. Markets will advance. And you’ll always be able to find bad news if you look for it.

The strategy of sticking to your strategy

Get a strategy. Stick to it.

Despite everything, the stock market is still the greatest engine for wealth creation the world has ever seen, and mutual funds are the single easiest investment for the average investor to participate in. The 1 per cent have known about equity markets for a very long time. Information about wealth creation has been widely available for a long time.

While the world may be changing rapidly, especially with respect to communications, investing basics, for the average person, haven’t changed. In a sea of change, there’s still a pattern that holds true.

Keep working your garden

I once watched a gardener working on a Japanese garden. Imagine if he changed his plan every hour and began creating a different garden … Would he ever achieve the aesthetic harmony he set out to?

What separates people from the rest of the animal kingdom is our ability to use our minds. If wealth creation, concerns over retirement or just understanding the great forces at work around us register with you, take a few steps forward.

If you’ve ever watched a baby learn to walk, the kid who’s running like the wind a couple of years later first learned to move forward with a few wobbly steps leading to some serious tumbles as ambition and confidence grew.

Want more information about investing?

Get informed.

Click here for more about bonds/fixed income investments.

Click below for more about asset allocation and reallocation strategies:

Get the balance right

A simple way to arrive at the right asset allocation for your portfolio

Plan like a pension fund manager when it comes to your investment portfolio

Let’s think about assets

Asset allocation: Diversification is king

Click here for articles about dividends/dividend-payers.

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*I’m a fan of social media when used judiciously. Please see my post Social cosmology: Social media is creating its own multiverse and the series of posts that came before it.
**ETFs are wonderful products, but you need to have a trading account in order to buy them. If you’re struggling to keep track of your mutual funds, a trading account may require more time than you’re willing to invest.

Related articles:

$1 Million Invested in Stocks in 1935 is Worth $2.4 Billion Today (If You Held On) (

Teachers’ Pension CEO Says Plan Should Take More Risk (

Written by johnrondina

February 19, 2013 at 4:05 pm

Stocks, bonds and what? People need to learn more about investing

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Financial literacy or a pair of shoes?

Last year I blogged about financial literacy in Canada.

Statistics about kids and adults are a little worrying when it comes to financial literacy. From new data, Americans aren’t much different. Studies show people need to do a lot more to become financially knowledgeable.

Juggling the egg

I recently overheard this: “What’s in your portfolio?”

Blank stare, and then: “I own XYZ.” (One of the biggest stocks in the U.S.)

That’s it. XYZ. Nothing else.

But wait! XYZ’s done great! It should go up forever or even longer.

Hmmmm … The thing is:

Those are the two “it’s different this time” ideas that have humbled investors since stock markets were born. Short-term thinking … People forget that the XYZ’s of this world have been a long interchange of different companies throughout investing history.

Do you really want one egg dictating your financial future?

Investing without diversification is potential financial suicide. (Or at least financial Russian roulette.)

Momentum is a marvelous thing when it’s on your side. But your worst enemy when the tide changes.

Ask former RIM, Palm, Nortel, Enron, Lehman Brothers investors.

If this had been your only stock, how would you have felt? What would have happened to your portfolio?

Know what you know:

Find out what you don’t know

According to the Investor Education Foundation of the Financial Industry Regulatory Authority’s study in the U.S.:

  • 67 per cent rated their financial knowledge as “high”


  • Only 53 per cent answered this question correctly:

True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.

I doubt that most of these respondents were momentum traders trading single stocks. It’s more likely that the majority had no idea that this is one of the most important rules of wealth creation: Diversification.

  • Only 6% got the above question wrong, choosing “True.”


  • 40% said they didn’t know the answer, and 1% declined to answer


Maybe it was just an anomaly.

Let’s try again:

If interest rates rise, what will typically happen to bond prices?

Rise? Fall? Stay the same?

No relationship?

  • Just 28 per cent answered correctly

Yes, they will usually fall.

  • 37 per cent didn’t know
  • 18 per cent said bond prices would rise if interest rates rise
  • 10 per cent said there’s no relationship between bond prices and interest rates
  • 5 per cent said bond prices would stay the same
  • 2 per cent said they preferred not to answer

Becoming a statistic can have long-term complications

Looking at these stats shows there’s a lot of financial illiteracy out there.

It’s a crime that financial literacy is not taught in high schools.

— Michael Finke, professor of personal financial planning at Texas Tech University/co-developer of the Financial Literacy Assessment Test, part of Ohio State University’s Consumer Finance Monthly survey.

(In Canada, things are changing.)

Can teachers help?

When asked about six personal financial planning concepts:

  • Fewer than 20 per cent of teachers and teachers-in-training said they felt “very competent” to teach those topics
  • Teachers felt least competent about saving and investing

   — 2009 survey of 1,200 K-12 teachers/prospective teachers National Endowment for Financial Education

What do you do if teachers don’t feel competent to teach financial literacy skills?

Governments …

  • Need to focus on helping teachers get these skills


  • Need to bring in outside help to assist in improving financial literacy skills

Agencies are doing their part in both the U.S. and Canada to raise awareness around financial literacy. They can’t do it alone:

  • Parents need to teach their kids about debt

But parents need to understand the dangers they’re trying to warn their kids about.

The consequences to our economy and economic future of financial illiteracy are immense. Championing long-lasting positive changes for kids (and adults) is important.

Those shoes were made for walking (but they could really cost you)

Study after study has shown that adults will spend more time focusing on buying a pair of shoes (or other purchase) than they will on their financial future.

Is this the legacy we want to leave our kids?

Find out more about diversification:

You don’t need to listen to Warren Buffett (if you’ve allocated your investment portfolio properly)

A simple way to arrive at the right asset allocation for your portfolio

Get the balance right

Plan like a pension fund manager when it comes to your investment portfolio

Asset allocation: Diversification is king

How to be a smarter investor

Is it better to have invested, and lost, than never to have invested at all?

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Well …

It certainly helps you achieve your investment goals if you own investments that have a chance of getting you to your destination.

Take a look at the following charts and ask yourself two questions:

  • If you had bought during the major dips, would it have benefited you?


  • How would you have done with your money in low interest instruments according to the charts below? *

Example fund vs. 1-year GIC

Example fund vs. 5-year GIC

It’s clear that the most conservative investments wouldn’t have served you as well since the inception of this fund. What investors would do well to remember is that GICs lock your money in until maturity while mutual funds, ETFs and stocks are more liquid, generally.

Not to mention:

  • If you had bought during the dips


  • If you had rebalanced regularly

… you’d have done better than the chart shows since you would have lowered your cost or ACB and generally bought lower and sold higher.

So …

Do you have a plan, a strategy?

What is it?

Remember a few weeks ago when the news about Europe was so bad that optimism seemed naive?

I’m paraphrasing myself from a previous post. I talked about learning to harness your fear. There are always reasons you can find for Armageddon if you look hard enough.

People want stability. At times, markets and the business cycle are anything but stable. Above, you can see that during the worst stock market correction in most of our lives, an example of a balanced, dividend-based portfolio outperforming the most conservative of investments, GICs, by  four times or more.

When the doom and the gloom gets really thick, many investors feel paralyzed. But that’s exactly when great investors look for opportunity.

During the doom and gloom, markets often decide to have a good bounce.

Isn’t that counter-intuitive?

Actually, it’s pretty normal. If there were no walls of worry to climb, there’d be no bull markets. In “Wait a minute. There’s some good news re the markets?” I blogged about how investors often miss the opportunity in the end-of-the-world-as-we-know-it scenarios.

I posted some stark stats in “Why you should consider new investments now”.

Since we’re supposed to be strategic about long-term investing, let’s ask ourselves a question again:

When the market takes a substantial dip, is there more chance that it’ll rise or keep falling on average?

In “Don’t Panic”, I also talked about managing fear while investing. Learning to harness your fear is important in sports. Imagine you’re taking a penalty. It isn’t easy to stand there and score in front of 70,000 people.

Why should it be any different when you invest?

What’s the market going to do?

No one knows. There are a lot of educated guesses, research, charting, but no one knows.

Accept it.

Just as, if you decide to start a business or enter into any kind of relationship, there’s no 100 per cent satisfaction guarantee.

Business, economic news, the process of investing, continues to flow. It’s a river. There are rapids. There are waterfalls.

There may even be a couple of Niagaras out there.

But if you look at history, you’ll see that there were always those who pushed and went further. For every time you encounter end-of-the-world-scenarios, you’re going to see that someone steps up, looks at the recent correction in the market and says:

Hey, there may be some value here.

Accept the psychology of the market. But get a plan.

Is the bad news over?

Here’s what I said in that previous post:

We’ve come through a tough time. We’re not out of the woods yet, but if you’ve been sticking to a sound investing plan, you’ve taken advantage of the weakness in the market.

The bad news about being an inactive investor in 2011

If you had been sitting in cash only:

  • You missed a very nice rise in the bond markets


  • A great opportunity to reallocate investments to stocks

You might have taken advantage of a great time to buy equities at lower prices and participated in the rise of the bond markets.

Or, you might have asked the more unlucky question:

What happens if the world ends?

It might be better to ask:

What happens if I think strategically about my investments?

What happens if the world doesn’t end?

Want more information?

Click here for more about bonds and fixed income investments.

Click below for more about asset allocation and reallocation strategies:

Get the balance right

A simple way to arrive at the right asset allocation for your portfolio

Plan like a pension fund manager when it comes to your investment portfolio

Let’s think about assets

Asset allocation: Diversification is king

Click here for articles about dividends/dividend-payers.

* Example fund chosen out of large bank balanced funds with a dividend bias. Fund used purely for illustrative purposes with a time period of less than ten years since the effect of the financial crisis should have been greater during this period.

Chart source:

The rise and fall(?) of Apple

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It had become almost sacrilege to say anything negative about Apple.

Obviously, Apple was going to continue growing and would soon reach $1 trillion in market capitalization. Forget that no company has ever done that before. Think different.

Five companies had previously reached the $5 billion mark. They’re all worth less than that now.

Microsoft, GE, Cisco, Intel and Exxon Mobil, were the others.

Some Apple aficionados don’t want to hear anything negative about the company or the potential of its stock. It’s different this time. (That thought alone should give an investor pause.)

Apple stock has done extraordinarily well. There’s no disputing that. In fact, everyone’s on board, and it’s been almost impossible to hear comments to the contrary about Apple’s future.

But that’s changing.

Facts are emerging.

Stories on Apple have turned negative this quarter despite earnings.

Is the momentum honeymoon over?

Generally, if everyone’s thinking the same, then how much innovative thought is really going on? How many investors are thinking about competitive threats to Apple?

The near-religious zeal Apple fans hold for the company and its products is as much a detriment as it is an advantage. It’s been an advantage during the long stock price appreciation and the booming sales of Apple products.

But it’s a disadvantage now.

The problem with manic activity is that as Apple stock was reaching its riskiest time in the markets nobody wanted to hear about the risk. There wasn’t much listening going on.

It wouldn’t be the first time a company or stock was supposed to defy the odds, the averages. It’s hard to think in the face of such momentum.

Apple investors have done so well over the last few years, it’s hard for them to think that they’re wrong.

They are believers.

Ask not for whom the bell tolls …

Strong belief in brand is incredible. But from an investor’s point of view, it should make contrarian bells toll at this level. Open and honest communication with stakeholders includes discussing threats to the organization.

Doubt that? See the ongoing Wal-Mart story in Mexico, it has potential for great reputational fall out.


Investors would do well to remember momentum buys can end badly.

Here are some competitive threats to Apple:

Fly us to the moon

The stock went straight up recently. It was worth over $6 billion at the time I started making notes for this entry. The Wall Street Journal reported that out of 465 large-cap growth funds Morningstar tracks, 400 own shares of Apple.

So, who’s thinking different?

Have a look at the stock chart below comparing Microsoft and Apple. Pay special attention to how and where both stocks rocketed upward.

What happened to Microsoft over the last ten years until very recently? Will it be different with Apple?

Microsoft’s done better than Apple over its history. Is Apple really that different? Do companies reach a time in their history where they’re too big and too mature for their previous growth trajectory?

Since inception: Apple and Microsoft

A one-year chart on Apple shows a meteoric rise. Not a good sign, perhaps. Might some investors be thinking about taking profits?

What happens if there’s a slip-up in earnings?

Apple’s down more than 10 per cent since its peak in early April. At that time, headlines were shouting about its market cap daily. Admidst all the noise, would it have been better to buy Apple or wait?

Meanwhile, it’s dividend is miniscule.

Steve Jobs is gone

Whether you liked him or not as a person or a manager, it’s hard to argue that Apple’s growth would have been as strong without him.

Do you really need a new iPad?

The iPad accounts for about 20 per cent of sales. What if customers decide upgrades aren’t worth the cost of a new iPad?

When the iPad came out, it was innovative and new. Now, competitors are everywhere, and they’re bent on catching up.

What happened when the PC was introduced to the market? Did things get more competitive or less?

iPhone subsidies

The iPhone is anything but cheap.

If phone companies decide to stop subsidizing iPhones, will iPhone sales grow? What if smartphone sales fall?

What of supplier issues?

The iPhone makes up 50 per cent of Apple product sales. For a good discussion on iPhone subsidies, and the threat a suspension of subsidies would pose for Apple, go here.

Think different this time?

What are Apple’s competitors doing? Have they given up the ghost?

Maybe they’re creating an operating system that boots up in seconds on a 5-year-old Dell laptop?

See video …

And Microsoft’s numbers weren’t exactly awful recently.

Labour abuses, CSR and sustainability

Most people have heard something about Apple’s supply chain labour abuses. Apple’s working hard to redirect attention away from what’s already happened toward what it’s doing to improve the situation. Yet criticism continues to mount.

The following New York Times article and the comments left by readers are a threat to Apple’s reputation. The headline alone is damaging.

Apple’s tax strategy has also received negative attention recently. And guidance came out below analysts’ expectations.

The New York Times recently ran another less-than-flattering story on Apple retail stores. Shortly after, Apple decided to go from “green” to “brown” citing design direction. Great design isn’t green?

Think critically: Critical thinking is a positive exercise

The pace of change in tech is a lightning bolt. Sheer momentum favours Apple, but … eventually momentum stops, or investors sell on earnings.

When it comes to Apple stock, think about the future, think different:

Will ignoring competitive challenges to leap on to the Apple bandwagon pay off? Is the past a good indicator of the future, or is this the beginning of a new paradigm?

Whatever happens critical thinking is anything but negative. Critical thinking is the lifeblood of all creativity and innovation. It shouldn’t stop with remarkable success.

If you’re active in Apple, consider that risk went up significantly when the stock shot straight up. Will Apple get anywhere near the $1 trillion market cap an analyst at Piper Jaffray & Co. forecast? Or the $1,001 stock price another at Topeka Capital Markets sees? Will it become the only company to reach these levels?

That’s a more than 40 per cent increase in the stock price.

The ride may be bumpier from here.

Investor be informed.


How Apple blew it on the iPhone

Apple misses

Business/IT professionals say they’ll buy Android tablets

The New MacBook Pro: Unfixable, Unhackable, Untenable

Apple issues guidance below analysts’ expectations for Q3

Hedge funds dump Apple and buy Microsoft and Google 

Part Two: You don’t need to listen to Warren Buffett* (if you’ve allocated your investment portfolio properly)

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In Part One of this post, I left off saying I’d discuss why having a plan benefits you when it comes to asset allocation within your portfolio.

Markets keep on moving

Investors have to be conscious of the fact that the markets are never static. No one knows exactly what’s going to happen in the markets.

Since markets change, and taking into consideration recent events, here are three points we should consider:

  • Are investors now overweight bonds?
  • Do investors miss out by trying to time the markets?
  • Can you achieve your investment/retirement goals by holding (supposedly) low-risk investments?

The bond blackhole 

It’s highly probable that some investors are overweight bonds. If this movement to bonds is related to short-term fear rather than long-term planning, it’s a mistake.

Consider an older retiree who’s heavy in bonds. That same retiree holding a large fixed income component in his portfolio is going to suffer in a bond correction.

Still, these older retirees need the safety fixed income investments provide them. But retired investors need to weigh the potential in equities long-term over the safety in bonds or GICs and allocate accordingly.

Equities, inflation and long-term hedges

Here’s an interesting article from The Economist discussing Canada’s pension plans.

Ask yourself: Why do professional pension fund managers include equities in their investments? Are they about to abandon stocks?

Without growth an investor’s going to be in trouble when they begin withdrawing investments in retirement. Equities have done best over the very long-term against inflation, even during recent superb bond outperformance.

So, what’s happened to stocks? Why all the noise?

Of course, it’s generated by abuses leading up to the financial crisis, and investors who’ve been spooked by the big correction of 2008-2009. But here’s the thing:

Stocks have undergone a period that will go down in history as one of the largest corrections most investors have seen. Equities then had a larger than average correction last year.

Since that time, if you’d focused on the opportunity presented, you’d have had some nice returns. Stocks may correct again since they’ve had a march upwards. Companies have increased dividends focusing on what looks like better times with strong balance sheets.

Are stocks a better value than bonds?

In Part One, you can find solid reasoning on why they are.

Don’t want to be glued to your portfolio?

What’s the easiest way to take advantage of market swings that favour different investments at different times — without becoming a burden on your personal time resources?

Proper asset allocation.

Despite the volatility, stocks have done pretty well

As the chart above shows, stocks and bonds have still done pretty well over the long-term. Amidst all the volatility, stocks and bonds have performed. U.S. stocks may not have done as well for Canadian investors, but they picked up enormously in 2011.

Avoiding equities? It’s going to cost you in the long-term

The S&P/TSX 60 is made up of sixty of the largest companies in Canada. These dividend-paying stocks have done well over the ten years above despite the correction during the financial crisis.

Since equities have had a couple of major corrections in the last five years, they continue to show value especially in the face of historically low interest rates. U.S. equities are showing even more value relative to those in Canada. But they’ve also had a nice increase lately.

Believe in your plan

The stock and bond markets have shown an amazing ability to outwit retail investors. It’s hard to know what the markets will do. Don’t worry about it.

The secret is focusing your energy in a pro-active plan:

That long-term plan will help keep you focused.

Do you still believe in your plan? Are you comfortable with the amount of risk your taking?

If you believe in your plan and you are comfortable with the amount of risk you’re exposed to, make sure you apply the following to your investment portfolio:

  • A well-balanced mix of suitable assets
  • Evaluate your portfolio regularly
  • Stick to your plan
  • Rebalance your portfolio
  • Diversify with respect to the assets you hold, as well as the geographies you hold them in
  • Contribute regularly to your plan in order to take advantage of market volatility

Stocks have a lot going for them at the moment, but they’ve had a great run over the last few months. Will they correct?

Bonds have performed very well since the financial crisis. Will they correct?

Whether there’s a market correction or not in either asset category isn’t important. What is important is that you have a long-term plan that takes advantage of outperformance at different times in both stocks and bonds.

A good manager will make use of market volatility.

So can you.

Need more information?

Click below for more about asset allocation and reallocation strategies:

Get the balance right

A simple way to arrive at the right asset allocation for your portfolio

Plan like a pension fund manager when it comes to your investment portfolio

Let’s think about assets

Asset allocation: Diversification is king

How’s Warren Buffett’s long-term stock-picking record?

Chart source: Globe Investor


*While using proper asset allocation may reduce your need to listen to Warren Buffett about the stock markets, listen to him, anyway. Few have been as successful as Buffett in stocks.

The title of my blog post is a poke at his critics. Even fewer of them have had the same long-term track record as Buffett!

You don’t need to listen to Warren Buffett (if you’ve allocated your investment portfolio properly)

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Warren Buffett came out and highlighted the risk in bonds recently. He pointed out that long-term, stocks have a lot less risk than currency-based investments like bonds.

Stocks or bonds? Maybe both

Backing Buffett, the S&P 500 has had it’s best February since 1998. The S&P/TSX 60 has hit a five-month high.

Sadly, RRSP contributions are hitting lows just as the markets have taken off.

There are many reasons RRSP participation has declined: difficult economic times, fear generated by stock market volatility and the effect of demographics are just a few.

If some investors are avoiding the stock market because of fear stemming from the financial crisis, it’s cost them this year. If this becomes a long-term trend, it will cost people in retirement.

In “Bonds: Why you should love the unloved investment”, I discussed the role bonds play in a diversified, balanced portfolio within the context of stock market corrections.

Since the financial crisis, investors have seen a bull market in bonds as people bought “safer” investments like bonds.

But bonds tend to rise when interest rates decline. If interest rates don’t continue to decline, the return on bonds will be limited.

Considering today’s already low rates, is it likely that they’ll continue to decline?

If interest rates go up, the returns will become negative, and we might see the first correction in the bond markets since before the financial crisis.

Bonds vs. the S&P/TSX 60: The return of equities

Dom Grestoni of Investors Group recently said: “Rates are going to start rising, so if you commit to a 20-year bond at 2½% and the market rate goes up half a percentage point, you’re going to part with 30% of your capital.

We’re seeing valuations that are now discounted relative to the past 20 years, and interest rates are at record lows … Would you rather lock into a 10-year government of Canada bond paying 2.1%, with no prospect of growth, or buy a high-grade dividend-oriented stock, like a bank or utility, with yields above 4% … and that dividend is going to grow year after year.

Investors were underweight bonds as stock markets went from outperforming to underperforming during the financial crisis. Many may now be overweight bonds.

Both Buffett and Grestoni are trying to alert investors to this danger.

The mania is the message

Buffett would probably be happy if you didn’t need to listen to him. Some wise investors are already well-prepared.

How can you be one of them?

What Buffett was trying to counter are the manias that investors inevitably fall for. Sadly, most investors go for whatever investment vehicle has been getting the majority of cash flows.

Too many investors arrive late in the game.

Bad news burnout

The barrage of bad news has influenced investors: events in Europe, and other withering news grabbed all the headlines. Have people noticed that news has gotten more positive regarding companies, Europe and the outlook for stocks?

There are still threats amongst the opportunities. Financial news from Europe and the U.S. is mixed though better than it was.


There’s nothing wrong with holding bonds in a properly diversified portfolio. In fact, many managers hold bonds in their portfolios.

As mentioned in “Bonds: Why you should love the unloved investment”, many pundits were calling for a bond correction last year, and it turned out to be a great year to hold bonds.

But the same may not hold true in the future.

In Part Two, I’m going to discuss why having a plan benefits you when it comes to asset allocation within your portfolio.

Chart source: Globe Investor
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