Tag Archives: investment returns

Reviewing the Investment Predictions From Six Months Ago

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The first week in March, the markets plummeted. When we talked on March 6th I indicated not to worry, they’d be up 15% again within six months.

In fact, the week after that brought Black Monday, as traders have termed it. The markets tanked again – and a lot worse – with the Dow having its largest one-day drop in history (1,800 points).

Fast forward to yesterday (September 1st) since the over-reaction is behind us and last week all markets have recovered their losses for the year, and have all set new all-time highs. I only talk about investing twice a year and in broad terms. That’s not my degree. But I am an interested spectator because I manage a seven-figure investment for a relative. It’s up 15% for the year so far, because 70% is invested in tech related mutual funds. One thing I can’t tell you about is the Canadian market. The investment firm handling the account has not invested in commodity heavy Canada for over six years.

March 3rd: Dow 25917  S&P500 3023  NASDAQ 8738

March 9th: Dow 18200  S&P500 2191  NASDAQ 6631

Sept. 1st:  Dow 28645 (up 57%)  S&P 500 3526 (up 61%) and the tech-heavy NASDAQ 11939 (up 80%)

Yes, the 75% NASDAQ rally in August was Apple, Facebook and Amazon while other companies were getting wiped out…but that’s the reason I would never manage my own investments and you always need to have a diversified portfolio. The flavour of the month might not be the same one as next month or next year!

History will always repeat itself. When we see such massive drops in our investments, our mind tends to think it’ll go on forever. Now, with 20-20 hindsight, just as every market correction ever, we can look back at our March investments with a different mindset: The market always bounces back – especially when it overreacts.

The people who have not recovered – and may never recover are those who gave up and cashed out. It guaranteed that they locked in their losses. It’s done by millions of small investors in every major meltdown. They were there for the down rollercoaster and got off at the bottom, forgetting that the investment roller coaster always goes up – way higher than the bottom at which they cashed out.

Do remember that investing is a time horizon of five years or more. If you need the money in less time, you need to save and not invest – that’s a basic savings account or GIC and not the market.

The investments I oversee are in a managed portfolio with a national firm. There have been some hits and certainly some misses:

Pimco monthly income fund has been a horrific underperformer for years. Yet, the firm is adding more of it. Conservative portfolios need a fixed income percentage – I’m guessing Pimco is the best of the worst at these historically low rates.

The firm purchased a gold ETF on May 1st (Ishare SP/TSX GL GLD ETF) but sold it a month later at a $16,000 loss! Six weeks later, with Gold setting new highs week after week it would have been a $26,000 gain! That’s a difference of $42,000. The firm didn’t respond to questions from me. NOT happy at all!

In 2019 the market went nuts in the first quarter of the year. Yet the investment firm sat on the sidelines and did nothing. They’ve since admitted that they “missed” that huge wave…not good, but at least they owned up to it…

On the “win” side, Dynamic ACTV GLB DIV ETF is up over 28% for the year and it’s been a holding for some time, along with a NASDAQ index fund (there are many of them in either Canadian or US dollars)

Those examples show, once again, that even the professionals don’t have all the answers and don’t always get it right.

Next week we’ll wrap it up with some basic ideas on what’s next for the markets and if you should get out…(you shouldn’t…)

Just Do It (Some of it) NOW

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Just Do It (Some Of It) Now

The Nike slogan is “Just Do It” and everybody aged 18 and up, the sooner the better, should take that to heart. Or at least do some of it. There’s a chapter in the Money Tools book entitled: Do You Have a Half Hour?

In life there are tons of things we just never get around to – for all of us at all ages. We’re too busy, maybe next week, it’s not a priority, or whatever the reason or excuse. If you don’t take the first step you’ll never take the second step – and that chapter has about a dozen things that take less than half an hour.

If you look at your bank account and have an extra $200 you might want to save it. But it’s likely you won’t – or at least if you’re in your 20s because you don’t have an investment or TFSA (tax free savings) account, or an RRSP set up. That’s just one no-brainer example. If you take less than half an hour to set up an investment account with just a $20 deposit you’ll have it if and when you have some extra money, a bonus, or maybe some cash for your birthday. But if you don’t even have an investment account, you’ll never detour the money to it. If you’ve done the half hour basics, it’s two clicks and you’ve added to your investments.

Just taking this one example at age 18 to 25 has a staggering impact down the road. Here is a chart of what just $1,000 savings gets you in compounded interest down the road if you set it and forget it (from taxtips.ca):

$1,000 in just GICs over 50 years turns to $16,000. If you’re already 25 or so, over 39 years it’ll be $7,700.

But you’re 18 to 25 so that’d be a total waste of investments. If you put it into a basket of the top 500 companies in the world (that’s called the S&P 500) the $1,000 turns into $135,000 over 50 years. If you’re already mid-20’s it’ll be $77,000.

That’s a lousy $1,000 saved – never mind if you read the teenage millionaire chapter and do it quicker for a return of $1.1 million. Or you can hope you’ll get your $900 Canada Pension – good luck with that.

So the half hour today pays off huge – but you need someone to print you off this returns chart for you to believe it. And then you have to get off your butt and make the half hour. If that’s not worth your time – I can’t help you!

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Yes, You Can Get a 10% Investment Return

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Last week marked the 10th anniversary of the Lehman Brothers bankruptcy on October 15th, 2008. That was the straw that broke the camel’s back and what caused massive selloffs in investments of all kinds and the unofficial start of the financial meltdown from Wall Street to home owners. Eventually, it ended up wiping out three trillion dollars of wealth. Of the biggest investment firms failing kind of made the meltdown official.

At this depth of the meltdown, vast numbers of investors took their money out of the market. Yet, if you had invested in the Standard and Poor 500 – which is a basket of the largest 500 corporations, on the day before Lehman Brothers went bankrupt, you would today have a return of 11% per year for the last decade.

I talk about investing, in basic terms, a couple of times a year, and it never fails that I get two or three emails that using a 10% return isn’t reasonable. Or the question is where to get that kind of return. Well – here is proof once again. At the worst day since the great depression, it once again paid to invest and not pull your saving out. Yes, an 11% average annual return for the last decade. THAT is a long enough time period to be a fair measurement. If you want to go back over 50 years, the S&P return is still over 10%.

Do the research for five minutes and your own due diligence, but anyone under age 40 or so doesn’t need complex investing advice. They’re 20 or more years from retirement and can ride out three or four more cycles. Nothing could be better for someone in their 20s than to have their money in the S&P. It’s diversified because it’s 500 companies around the globe, it doesn’t need management fees or a broker and has a 50 plus year proven track record. I’m not sure what else anyone would need.

By the way, for anyone older than their 40s, a so-called 60-40 portfolio of 60% stocks and 40% bonds bought the day before the great meltdown would have been an 8% return on this 10th anniversary.

Time heals all investments. When the market corrects, lots of people panic, instead of seeing it as a temporary setback that has more upside than downside. No, you won’t more than maybe 5% this year. No, you won’t be down like you were in 2008, or up more than 25% as was the case a couple of years ago. If you’re not invested for the longer term of more than five years – stay away. If you’re needing to be up on a weekly basis – stay away. For the rest of the world, set it and forget it. Don’t even open your statements more than once a years. You’ll be happy you did….

George Boelcke – Money Tools & Rules book – yourmoneybook.com

It’s RRSP Deadline This Week

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Ah, the annual week of feeling the pressure to contribute to your RRSP with the hundreds of TV and radio ads is upon us. But stop a second and think:

Last week the National Post/BMO survey came out showing where we put our money once we’ve invested in an RRSP or a Tax Free Savings Account and 57% of all the money is in cash and 23% is in GICs. WHAT?

The no-service banks have spent millions of dollars this month to guilt you into contributing to your RRSP and you probably fell for it. But 80% of the money stays there and makes you no return? That’s crazy! At half a percent interest, your money will double in 140 years! Even if you’re getting a 1% GIC return, it doubles in 70 years. Is that when you’re retiring?

Banks are like airports. You go to the airport in order to get someplace. You don’t go there just to hang around for a few weeks. Banks are the place to park your money for a bit, to have a chequing account, and your emergency savings account. Banks are not the place to do investments.

Think of it this way: You donate your $5,000 RRSP money to a teller or someone in a fancy office that’s on commission. But banks keep less than 10% of it in cash. More than 90% is lend right back out on a 4% mortgage, a 6% car loan, or 20% credit card. THEY sure know what to do to make the money grow and it’s almost all free money.

It’s the best legal scam in the world: You get half a percent – they lend it out and make between 4 and 20 percent. That’s great if you‘re the bank – lousy if it’s you. If you own a clothing store, what’s your biggest expense? It’s getting clothes into inventory so you can sell them at retail. If you own a gas station, what’s your biggest expense? It’s getting the gas at wholesale into the tanks that you can then sell at a profit. But when 80% of the money isn’t making you a return, it’s as though you’ve given the banks free money to lend out, or the clothing store free inventory they can sell!

To add insult to injury, you probably have debts that you’re paying interest on. On one hand you’re locking up that $5,000 at no return while paying out that same 4 to 20% with the other hand. What’s the best way for lenders to make sure you never pay extra or pay off your debts? It’s by keeping you broke. When you pay money into your RRSP you have a lot less money to pay on your debts. That’s a no-brainer since you don’t have an unlimited income. So the banks not only get free money to re-lend, they’re also making sure you won’t become debt free for a long time to come – and that locks in the profits in interest you’ll pay for a lot more years.

Someone please tell me how it makes any sense to save while you’re in debt. When you retire you’ll have some savings and an equal or larger amount of debt – makes no sense. Get out of debt and then you can save some serious money and really quickly – money you used to send to everybody else at 4 to 20% interest.

Since we’re going to run out of time, next week I’ll give you some investment tips, tricks, and alternatives to actually make your money grow instead of helping the banks to grow their $10 billion a year in profits.

Another Week – Another Scam

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You are not exempt from the law of gravity. You and I also aren’t exempt from that little part of our brain that gets greedy and wants it all today. That comes to spending as much as investment returns.

On the spending part, we think that it’s not really that much per month or in total, and we get wildly and wrongly optimistic that we’ll pay it off sooner than reality or our income will ever allow. Besides, we think we make maybe $50,000 and we deserve it. Well, we don’t make $50,000 by the time taxes come off and all the bills we already have. But that little part of our brain conveniently forgets about that.

We can get just as stupid about investment returns when that part of our brain forgets about common sense. Savings accounts are around 1% right now, and the stock market has a historical return of 8% to 10%. So when someone tells us we can get a risk-free 18% to 22% return we have two choices: We can laugh and tell the guy to get lost because it’s always a scam, or has a big catch. But often we don’t. That little greedy part of our brain says: Well, that’s a great idea – and never mind the fine print, that we’ve never heard of the firm, and that it’s way too good to be true.

And thus, another scam or Ponzi scheme succeeds. The latest one unraveled in Alberta for over $52 million. Surprise! The police can’t find the people involved and the accounting firm can’t find any of the money. This one even conned a really successful Western Canadian businessman for $6 million.

If it’s 20 times what the bank pays, and double or triple the best market returns, it’s a scam. Stop and listen to the part of your brain that has the common sense gene and know only slow and steady wins the investment race.

All that glitters is not gold anymore. The hype of gold seems to be cooled off – or turned cold. That can’t miss investment and the only safe place from inflation was another fad like so many others. Sure, those still invested and everyone who has a stake in selling you gold tells you it’s just temporary. If you look through our stories, I’ve warned you away from golf three or four times. Now it’s down to the $1,300 area code from a high of $1,900 or so.

That wasn’t much of a hard prediction. Gold is massively volatile and subject to extreme downturns. A 30-second internet search past all the hype would have told anyone that. Tons of people have lost a fortune. That’s sad, but totally unnecessary. Slow and steady investing always wins the investment race. Those people got greedy and I guarantee they’ll get greedy again on the next sure thing in the hope of making it all back in one shot. They should have gone to Vegas, instead.

Dollar Cost Averaging Your Investments

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As we head into year end, and the RRSP season, lots of people are going to make a one-time annual contribution. Others are scrambling to get an RRSP loan so they can have the tax receipt. Both of those give someone an instant pot of cash to invest. In the case of an RRSP loan it also makes sure that person really doesn’t have the money to contribute because they’re making payments on last years’ loan. Not a good idea. I’d rather have them not contribute for one year and start immediately on a monthly plan for next year, which is actual real money, and not borrowed.

But for both these examples, a ton of people will have one lump sum of money to invest.
While we normally do not talk about investments, there was a story a couple of weeks ago that was so powerful it is worth sharing and certainly timely. While I believe investing comes after becoming debt free, except the mortgage, many people are in that enviable position.

One of the Wall Street Journal writers recently went back to the great depression and figured out how an investor would have made out in a market that went down 89% from its peak.
He took an index fund of 500 companies and calculated the returns. Now the story we hear in the media is that an investor at the height of the market in 1929 would have taken until 1954 to get back to even. Sick story, and probably enough to keep most people out of investing.

But someone who dollar cost averaged did incredibly well in a bad market. Dollar cost averaging is taking the same amount of money and investing it each and every month. The months the market is up, that money just buys less shares. The months the market is down, it buys more shares. So over time, it rides the peaks and valleys of the market.
Now, someone who started investing $100 a month at the absolute height of the market in September 1929 would probably be a huge loser, right? Wrong. Starting the worst week in the stock market with the same investment every month, that person was already even again in 1933. Now remember, those who dumped their money in all at once took until 1954 to break even. By 1936, still in the depression, the dollar cost averaging person had doubled their money. And by 1954 when everyone else was just back to even, they were up ten fold!

The difference is that you either pick the 5th horse in the 7th race or you are betting every horse in every race. Which one do you think is the guaranteed winner?