Weekend Reading – Stocks for the long run at your peril?

Weekend Reading – Stocks for the long run at your peril?

Hey Everyone!

Welcome to a new Weekend Reading edition, about owning stocks at your peril. A take on that soon!

Here are some recent reads on my site just in case you missed them:

There are certainly some pros but also some cons when you invest in just Canada – be mindful.

Weekend Reading – Pros and cons of investing in just Canada

We have been raising our cash position in recent years, including so far in 2024, whereby no new purchases have been made beyond our TFSA contributions. These are my ideas about where to put your cash right now. 

Where to put your cash right now

Finally, I hope to post my latest dividend income update next week! We’ve inched forward from February and I will share more about that soon…

February 2024 Dividend Income Update

Weekend Reading – Stocks for the long run at your peril?

Weekend Reading - Stocks for the long run at your peril?

Image credit: Pexels.

Headlining this Weekend Reading edition, this article from Larry Swedroe caught my eye: Should Long-Term Investors Be 100% in Equities? (Own stocks for the long run at your peril).

Interesting headline and catchy, but we know stocks for the long-run can work for long investing periods. Otherwise, nobody would take on this form of investing risk for any reward…

That said, Swedroe does raise a few interesting factoids from his reference in the article about stocks in the long-run:

“Over the 150 years from 1792 to 1941, the performance of stocks and bonds produced about the same wealth accumulation by 1942.”

AND

“Results for the entire 227 years were weakly supportive of Stocks for the Long Run: The odds that stocks outperformed bonds increased as the holding period lengthened from one to 50 years. However, the odds never got much higher than two in three and increased only slowly as the holding period stretched from five years (62%) to 50 years (68%).”

The problem I have with such information, while interesting, is our modern economy is fundamentally different than 1942, let alone 1842, or 1792. I simply don’t see the value or point in referencing any stock market data that goes back 200+ years for the modern retail investor. 

But I do agree with Larry in that stocks may not always beat bonds, at least over short or modest investing periods. I have participated in a bit of a “lost decade” in my own DIY investing past.

It could happen again.

Looking back at a broad measure of the U.S. stock market, such as the S&P 500 index, over the past 20 years, you would see (or experience as an investor) very different results from the first decade (2000-2009) and the second (2010–2019).

In fact, for large-cap U.S. stocks in particular, this “lost decade” from January 2000 through December 2009 resulted in very disappointing returns – an index that had historically averaged more than 10% annualized returns before 2000, instead delivered less-than-average returns from the start of the decade to the end. Annualized returns for the S&P 500 (CAD) during the market period were -3.18%.

Reference: https://woodgundyadvisors.cibc.com/delegate/services/file/1614689/content

Of course, we only know the results of stocks in hindsight after bad market periods are over and preferably for me, a few generations back makes sense to measure some relative stock market history vs. going back to horses and buggies in the form of a few hundred years…

What do I think? Is 100% equities investing at your peril?

No. 

I remain invested in mostly equities at the time of this post with conviction although I do keep cash (or more recently cash equivalents on hand) and always have to some degree. 

Instead of worrying about stock market corrections, how long any stock market correction might last, I’m more inclinded to worry about some things within my control and influence:

  1. My sustained savings rate for investing in equities (as I keep some cash on-hand). 
  2. The ability to remain with my hybrid investing plan of stocks and low-cost ETFs.
  3. Keeping said cash on hand to pounce when more equity opportunities avail, and 
  4. Avoiding fearmongering market news.

I align more with Larry Bates vs. Larry Swedroe on this one:

“I see the stock market, as a tool, for average people/average investors to be long-term business owners.” – Larry Bates, Beat the Bank.

So, I believe:

  1. a 100% equity investment portfolio can make great sense for younger investors, decades away from retirement, while,
  2. keeping 100% of your portfolio in equities as you enter retirement or remain in retirement could introduce unecessary risk. 

Any sensible investment plan must be tailored to the investor’s tolerance for risk (including losses) including the need for any equity drawdowns. When it comes to our personal portfolio, we remain invested in mostly equities while keeping some cash and we’ll continue to invest this way moving forward.

What’s your take on investing risk for reward?

How much cash or fixed income do you keep?

Have you changed your asset mix of stocks and bonds and cash as you have aged, why or why not?

More Weekend Reading – Stocks for the long run at your peril?

Over at Cashflows & Portfolios, both Joe and I shared our top-5 stock positions at this time. A few stocks fell out of our top-5 in fact over the last year due to some lagging prices. 

What stocks do you hold in your top-5? Or do you just own ETFs for that?

Related, Nelson Smith highlighted his top-10 Canadian Dividend Stocks to buy and never sell. I like a few from his list. 

Here is a much more sensible take on FIRE (Financial Independence, Retire Early):

“Paradoxically, I realized, FI/RE represented anti-hustle to Jared: a movement that suggested doing less. My interpretation was the opposite—that in order to ever do less, you must first do far more. 

But I wondered: Rather than resolving to live the life you actually want once you’ve surpassed a magic number, what if you tried living that way now?”

Sadly, cybercrime is on the rise…140 BMO customers say they lost $1.5M in transfer frauds, plan to sue the bank. Some good tips in that article from some terrible circumstances. 

A nice Q&A from Tawcan with a passionate DIY investor who actually only owns a handful of Canadian stocks…can be found here.

Have a great weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

16 Responses to "Weekend Reading – Stocks for the long run at your peril?"

  1. Hello Mark; Thank you for your work on this site.Holding well chosen, quality stocks for the long run has been a very rewarding process for us. This step has abundantly met our investing goals of ample rising income and a secure retirement. A well thought out, properly researched, focused strategy of selecting strong, best of sector equities with a consistent record of success and growth has served us very well. We still own the first few stocks we purchased in the 80’s and 90’s (BNS,CNR, TRP, ENB,TD, FTS…) and these are among our largest positions after long term dividend reinvestment. One of our strategies was to direct ” found” money ( tax returns, extra income and gifts) to our investment account. Even small amounts invested wisely over time are able to really grow into something substantial. Take care. Mike. ( Incidentally, early on in my investment journey I read the book “Stocks for the Long Run” by Jeremy Siegel. It is a good read.

    Reply
    1. I hold all those stocks, for the record Mike, and have done so for many years.

      I add a bit to those companies every quarter via DRIPs running inside our TFSAs only since I have just recently as of early 2024 turned off / reconfirming all DRIPs are not running inside our RRSPs. (I haven’t had DRIPs running in my taxable account for some time now…).

      I have RY, TD, FTS, CNQ and BIPC as some of our biggest stock holdings, with BMO, CNR, EMA, BCE and Telus, and a few others not too far behind.

      Yes, I recall that book from Siegel, very popular!
      Mark

      Reply
  2. Hello Mark,

    Thank you so much for your dedication to run this blog. I enjoyed reading it and learned a lot from your posts. I’m DYI investor for a few years. Since reading your blog, I’ve adopted your approach as 50% of dividend growth stocks & and 50% of EFT (try to copy:)). I think it works for me. Last year, I earned about 13K dividends that was encouraging.

    However, I’m planning to retire in a couple of years. I’ve realized that the government will tax dividends for seniors higher (50-75%). Is it correct or this only applies to the low income seniors who receives GIS? As I remembered you mentioned that if our annual income more than $50k, then dividends will be taxed less. That makes me thinking to switch to invest more with ETF and rid off growth stock dividends. Could you help me to understand this? Thank you so much for your time. Take care.

    Reply
    1. Pros and cons to all forms of investing, Kim, but good to hear things are going well for you…

      Taxation of dividends is great, to a point, inside a taxable account. You are correct in that per person, if you have no other income to report at all during the year, that dividends are taxed extremely low, you barely pay any tax at all up to $50k earned per year inside a taxable account – assuming no other income. If you have other income than dividends, you will be taxed more/higher.

      https://www.taxtips.ca/marginal-tax-rates-in-canada.htm

      If you have A LOT of taxable investments, then consider companies that pay low- to no-dividends for growth whereby capital gains are more favourably taxed since you can be more strategic when you sell assets, incurring capital gains when you do and when you don’t sell, you’re just getting the gains/price growth.

      Companies that pay lower dividends, higher growth include CNR, CP, DOL, ATD, WCN and a few others for sure.

      Mark

      Reply
  3. For now, with about four and a bit years to go, still 100% equities. Other than RSP meltdown we intend to live off dividends and a small db pension while delaying CPP any maybe OAS to 70.

    We hope retirement lasts 25-30 years – I can’t see switching to fixed income at any time with 60-70% of our income needs after 70 being met with indexed pensions.

    Reply
    1. Ya, the only reason we are keeping a modest cash wedge as we consider semi-retirement in the coming year or so is because I wish to withdraw that cash for living expenses inside RRSP in particular vs. selling any stocks or ETFs there if/when any values are down in price a bit.

      Reply
  4. I would discard any data previous to the 1930s, since before that, the stock market was totally unregulated (stock manipulation and other scams were abundant). The risk associated with stocks at that time might have favored bonds prices during that period.

    Post-WW2, the only period favorable to bonds was the 1980s and early 1990s, because very high interest rates due to inflation were falling. Since the high inflation of the 1970s, central banks are targeting a 1-3% inflation rate and are ready to cause a recession to achieve it (hence the early 1990s recession).

    For me, it’s 100% stocks all the way! Since dividends cover more than my expenses, I don’t care about stock valuations, only that my income continues to grow.

    Reply
    1. Totally agree, Alex. What relevancy to our modern economy does 1800-stock market data have? Sigh.

      How is your dividend/portfolio income stream coming along? 🙂
      Mark

      Reply
      1. Hi Mark,

        I’m using the same withdrawal strategy as you (Unregistered account + RRSP only). In order to provide room for bigger RRSP withdrawals (and not cross the third tax bracket!), I decided to use the profit from our house sale to buy more low yield/very high growth dividend stocks than initially planned. This should at least slow the growth of the RRSP until I can do partial RRIF conversions once I’m 65.

        So my goal to reach a 6 digits dividend income in 2024 will have to wait 3-4 more years!

        Reply
        1. Great stuff, Alex. I’m biased but really a fan of “NRT” for us in the early retirement years (non-reg + RRSP withdrawals). I intend to buy more low-yield, higher growth stocks in my taxable over time.

          To reach 6-digits in dividend income would be pretty epic for you, I suspect? My goodness that would be sizable. Keep me posted and I will try and catch up!

          Mark

          Reply
  5. I guess I took the opposite way when it comes to investing , I had a 40/60 portfolio in my 40’s but then I swithched to a 100% equity now and I love it and I won’t change it in retirement simply because we have 32 Canadian dividend growers that keep “Raising” our Income every year so why would I settle for a fixed income? no we wanr an income that keeps up with inflation and since the plan is not to sell shares in retirement and rely on the growing income of our holdings why would I worry about market fluctuations? I see our income growing every year now and I love it but before when I started our income from our bond etf provided with a fixed income which I think you eroding your purchasing power if you count inflation and on top of that in 2020 that bond etf that was supposed to provide “Stable & Safety” to our portfolio crashed even worse then our equity so we decided to sell and buy more equities.
    Each case is different of course and each person is different but for us as we are debt free our cpp/oas and my wife’s pension and our portfolio of equity should provide us with more income perhaps of what we’re making now.

    Reply
    1. If it ain’t broke, don’t fix it…right? 🙂

      I also see our income growing year after year, it is my hope that continues but you never know…and to avoid just “living off dividends” we will sell stocks and ETFs over time, over decades of time I mean.

      “Each case is different of course and each person is different but for us as we are debt free our cpp/oas and my wife’s pension and our portfolio of equity should provide us with more income perhaps of what we’re making now.”

      Excellent. Other than a short PHEV car loan, for maybe 4-6 months (?), we hope to remain debt-free for the rest of our lives now. 🙂

      You have a great approach, Gus.
      Mark

      Reply
  6. I have a small cash holding and the rest in equities as I count CPP and OAS as fixed income. The income via dividends and interest plus my CPP and OAS meets my expenses. My renovations were financed with a sale of some securities but they are behind me now. I have been retired for 7 years and enjoy travelling and golf. The market value of my investments is largely irrelevant to me. I didn’t sell during the 2000 and 2008 financial crises nor the pandemic drop. The market will go up and sometimes down but worrying about it isn’t in my retirement plan.

    Reply
    1. Love it, Jan. I hope to join you re: playing more golf in semi-retirement..hopefully another year or so away for me. 🙂

      “I didn’t sell during the 2000 and 2008 financial crises nor the pandemic drop. The market will go up and sometimes down but worrying about it isn’t in my retirement plan.”

      Kudos. I really tried to add to my portfolio during the pandemic, just not enough oil and gas stocks!

      All my best Jan, and continued success to you.
      Mark

      Reply
  7. Lloyd (63, retired at 55) · Edit

    “What’s your take on investing risk for reward?”

    I now *partially* lean towards the Buffet doctrine – “It’s insane to risk something you have for something you don’t need”

    “How much cash or fixed income do you keep?”

    Today we’re sitting at 56% equity 44% GICs in the RRSPs, RRIF, LIF, TFSAs and non-reg. (We also have two moderate sized fully indexed DB pension incomes, 2 CPP and the wife’s wage replacement disability that runs for another couple of years. Context matters.)

    “Have you changed your asset mix of stocks and bonds and cash as you have aged, why or why not?”

    Yup, somewhere around 2017 (age 57) started puling back from equities. Decided we were beyond the ‘have enough’ point where further acquisition of large amounts of equities wasn’t required. Having a solid amount of fixed income GICs would serve us well enough in combination with some dividend earnings). Basically did the changes in three larger steps over 6 years (2017, 2020 and 2023) and some minor ones interspersed.

    I should note that none of this was well planned or thought out. It was mostly reactionary gut feelings to situations present at the time.

    Reply
    1. Great stuff…and not uncommon for me to see retirees in the 50-70% equity range, although I do see it higher at times with folks tht have one or more DB pensions. At the end of the day, to your Buffett point, investors need only to take on enough investing risk to meet their objectives and really nothing more.

      I enjoy your comments.
      Mark

      Reply

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