This year was a challenging one for investors. We’ve been so used to seeing positive gains in our portfolios it’s a shock when markets don’t cooperate!
The TSX is down 12.26 percent on the year. The S&P 500 is down 7.03 percent. International markets, as measured by MSCI EAFE, are down 13.94 percent.
With seemingly “no safe place to hide” this is the type of market that proponents of active management thought indexers would lose faith in as they passively track the market. But my low cost, globally diversified, 100 percent equities portfolio has only suffered losses of 4.93 percent year-to-date. How?
For starters, my Canadian equities component (VCN) tracks the FTSE Canada All Cap Index (large, mid, and small companies). This index is more diversified than the TSX and is down just 9.59 percent on the year – nearly 3 percent better than the TSX.
And while my international equities component (VXC) was hurt by the performance of U.S. and International stocks this year, it was buoyed by a weak Canadian dollar and was only down 2.75 percent this year.
So, yes, it was a tough year. But let’s have some perspective. A five percent loss is well within a normal expected outcome in any given year. If you can’t handle a 5-10 percent loss in a 12-month period then you have no business investing in the first place.
My two-fund index portfolio has achieved annualized returns of 6.33 percent since I implemented it four years ago. 2019 brings with it a new year of optimism (and contribution room!) and so I look forward to putting more money to work in the coming months.
This Week’s Recap:
I hope you all had a wonderful Christmas holiday! As we wrap up 2018 I want to thank you for making Boomer & Echo part of your weekly reading. I’ll be back one more time this year to update my net worth, so stay tuned for that on Monday.
Earlier this week I wrote how giving markets your daily attention by surfing news headlines and constantly monitoring your portfolio can be hazardous to your wealth.
Over on the Maple Money Show I chatted with Tom Drake about three strategies I use to create my own raise in light of salary freezes in the public sector.
And in my Smart Money column at the Toronto Star I shared the top five travel rewards credit cards for 2019.
Blair duQuesnay of Ritholtz Wealth Management says that market declines are the price of admission. I couldn’t agree more with this:
“The temptation to do something will rear its ugly head if it hasn’t already. But market timing doesn’t work. It creates two chances to be wrong; when to sell and when to get back in.”
When stocks fall by 20 percent people start asking questions and there’s no shortage of people waiting to give you answers. Don’t fall for it.
Going back to 1945 there have been 48 instances where markets have risen 4 percent in one day. 38 of them occurred during drawdowns of 20 percent or worse. The point? Stay invested or miss out on important rallies like we saw earlier this week.
Investor advocate Dan Solin shares some investing answers you won’t see in the financial media. My favourite:
“The only thing we know for certain about technical analysis is that it’s possible to make a living publishing a newsletter on the subject.”
Be kind or be hostile? Nick Magguilli on the most important decision you can make every day.
The Irrelevant Investor Michael Batnick shares a history of bear market bottoms.
An academic look into market beating factors such as momentum, value, and profitability suggests the latest indexing trend towards factor investing, or smart beta, is flawed.
Jason Heath explains when is the best time of year to transfer a TFSA between institutions.
The Globe and Mail’s Tim Cestnick says to make good on your New Year’s resolution with a home based business.
Mark Seed interviews Bob Lai about his sure-FIRE path to financial independence.
The Canadian Couch Potato Dan Bortolotti looks under the hood at iShares’ revamped all-in-one ETF offerings, curiously called XBAL and XGRO.
Why the idea of steady retirement spending is a myth.
Finally, two retirement experts extoll the virtues of regular travel.
Have a great weekend, everyone!