Weekend Reading – The worst investing years ever edition
Welcome to a new Weekend Reading edition, about the worst investing years ever.
Before we get into this week’s theme, here are some of my latest posts:
Are you fully passive or active? Well, I’m not one of those people who say investing has to be just this or just that. Check out my thoughts in this article here.
I wrote about the Top Canadian Dividend ETFs you might consider owning for income and growth. To help fight some inflation, you probably need both.
I recently shared my latest dividend income update:
The worst investing years ever?
Given the yo-yo nature of the stock market year-to-date, and after reading a few of Ben Carlson’s (A Wealth of Common Sense) recent posts, I thought it would be good to share some of his fine work as part of Weekend Reading.
Here are the worst investing years ever for some investing perspective:
Now, when you look out some 20-years, even with a boring 60/40 stock/bond portfolio, it’s interesting to see from Ben’s work that the range of annual returns for the worst 20 years associated with a 60/40 stock/bond portfolio is 3.4% to 6.0% (depending on the window you are looking at).
To quote Ben: “I wonder how many investors would sign up for a guaranteed 6% per year for the next 2 decades right now.”
For me, Ben’s post offers some great perspective and an opportunity to reflect a bit.
As bad as this investing year seems to be, it is by no means horrific and certainly not terrible when it comes to history. Ben’s history lesson reminds me there are really four pillars for investing success:
- Learn about investing risk and apply risk management to your investing life. Whether you invest in stocks, bonds, real estate or more speculative plays like Bitcoin, you should know that you’re mainly rewarded with returns for your exposure to just one thing— risk. Short-term risk might be easier to relate to. Stocks, bonds, and other assets can lose money in the short-term. Long-term risk—the probability of running out of money over the decades—is an entirely different matter. Learn to understand your risk tolerance and the need to take on investing risk and invest accordingly.
- Learn about investing history and apply it to your future self. From time to time, the stock market and investors that invest in it go just bonkers. However, investing history consistently tells us “this too shall pass” – it’s usually just a matter of when. By taking a long-term, multi-decade approach to investing, I believe wealth can be created for most common investors like you and me.
- Learn about investing psychology and figure out the personal investing game you’re playing.
From The Psychology of Money:
“…few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are. The main thing I can recommend is going out of your way to identify what game you’re playing.”
Keep this quote top of mind whenever you read or hear about any advisor, financial planner, or other financial professional sharing any financial advice. If they are not working hard to understand and manage your personal interests including how they change over time, walk them out the door.
- Learn about the investment industry and be mindful of the bias throughout the industry.
From Canadian billionaire Stephen Jarislowsky, who wrote The Investment Zoo:
“I am equally suspicious of mutual fund salespeople and financial advisors. I am not part of the current mutual fund vogue, which through slick advertising sucks in all kinds of small, unsophisticated investors. Assume the average mutual fund (and there are as many as there are stock market listings) earns the 100-year average return in stocks of an annual 5 to 6%. Now if your operating costs plus commissions absorb 2%, you take all the risk for a 3 to 4% average real return, and this is eventually taxable even in a deferred tax plan. Thus between 33 and 40% of your return after inflation, but before tax, goes to the manager.”
Instead, consider this from Jarislowsky:
“Once your initial plan is underway, anything you earn later can be far more readily spent, since once you have sown the seeds of a good investment plan, compound growth will take care of the rest. Why this is not taught in high school I will never understand, because it is far simpler than most of the things – totally useless later – that you have to absorb and regurgitate in class.”
I believe the more you know about the bias of the financial industry, and some of the folks that work in it, the more likely you will be able to navigate it. Simply put: the financial industry is a huge money-making machine. The financial industry at large often transfers wealth from clients to money managers. Absolutely, there are great people, great companies, and lower-cost solutions out there to support any financial clients in need. Just be mindful about the biases in this colossal marketing machine.
More Weekend Reading….
Here is a reader case study about van life – is early retirement in the cards for them?
86-year-old Gordon Pape had some advice for investors recently in The Globe and Mail about how to protect your portfolio in these wild and wonderful market times…(subscribers only).
“Dividends are reflections of a company’s success. Organizations that raise their payout on a regular basis are telling us they are doing well now and are confident about their future. Sustainable dividends also help to support a stock in a falling market.”
Pape highlighted the common sectors and stocks to consider for your DIY dividend stock portfolio:
- Banks – the usual Big-6 suspects.
- Utilities – FTS, CPX, EMA, among others.
- Telcos – the usual Big-3.
- Pipelines – the usual Big-3.
- REITs – various could apply but Pape favours CAR.UN and GRT.UN in particular.
Beyond Pape’s standard list, I would also identify a few low-yielding, growth-oriented stocks to consider for your portfolio. That will be the “L” in “TULF” stocks that should be the foundation of any good DIY stock portfolio – in Canada at least.
What is TULF?
- “T” for telecommunication companies (think Bell, Telus and Rogers).
- “U” for utilities (think Fortis, Emera, Capital Power, Algonquin Power, Brookfield Renewable Partners, and others)
- “L” for low-yielding dividend growth stocks with growth potential (think Canadian National Railway, Waste Connections, Nutrien, Metro, Alimentation Couche-Tard, Brookfield Asset Management, and others), and last but not least everyone’s sector favourite in Canada for dividends,
- “F” for financials (you know the names).
Great post by Andrew Hallam here: the investment paradox. Index investing works very well because you tend to beat most active money managers from the mutual fund industry over long investing time horizons.
“If your portfolio doesn’t perform well over a designated period, that doesn’t make your strategy bad. Nor does a soaring portfolio or a soaring stock market make your investment strategy good. That’s the investment paradox.”
Dividend Daddy is knocking it out of the park with his latest income update.
From Tawcan, he wondered if dividend investing is stupid.
Ha, I know my answer!
Got a pension from work? Lucky you! Should you be contributing to your RRSP if you have a pension? Cashflows & Portfolios has a very reasonable answer.
Build Wealth Canada highlighted how you can obtain guaranteed income for life: How to Use Annuities in Your Investment Portfolio.
Dale Roberts shared his outperformance on Seeking Alpha with his U.S. stock holdings.
Have a great weekend!
I read this somewhere in one of your posts Mark.
“There is an inverse relationship between investment performance and time spent watching (and reading) financial news.” There will always be something to say and and write about and then say it again just to fill pages. The best investors buy good companies and don’t worry too much about short term up and downs in the market. Our annual dividend income is already up over 12% for this year, so the price changes in our holdings are of little consequence.
Love it DivInvestor. 🙂
Have your changed your portfolio at all in 2022? Bought more of anything? I continue to DRIP pretty much everything right now.
I recall we have very similar portfolios.
You own banks (4-6?); then a nice mix of utilities (Fortis, Emera, Capital Power, and maybe Duke from U.S.?); then BCE and Telus for telcos. Pipes = TRP, Pembina, and Enbridge. The usuals 🙂
You also have BRK.B and finally some QQQ for tech exposure.
Are you able to “live off dividends” now?
Yes we are living off dividends entirely and have some left over to re-invest. The portfolio is the same, no changes, and we bought some more to park the money. As you know I can’t sit on cash, it has to be invested.
Sounds great and very smart. “Yes we are living off dividends entirely and have some left over to re-invest.”
Exactly where I want to be in a few years!
Good stuff Mark. From an investors perspective, what many consider the Worst of times, can really become the Best the best of times.
Yes, they can be, staying the investing course helps!
Have a great weekend.
Awesome read! But in general, a balanced diversification doesn’t seem to be helping much at a bear market.
Thanks for all the perspectives and compilation of interesting financial/investing information.
Have a great weekend Mark.
You too! Got in 19,000 steps yesterday! Rainy day today. Waiting for it to stop. Might be a push-up day indoors!
Awesome. Beautiful here yesterday and today. Got in 22,217 steps yesterday. Just finished 90 minute strength. Very tired right now, but going out for motorcycle ride soon.
You. Are. A. Machine. 🙂
Ha. Thanks. I wish!
Hope weather cleared up for you and some fun stuff happened. Including those fun push ups. I’ve got focus on them as I can’t do as many now as 6 mths ago.
Thanks Dreamer! I think it really depends. If you need income from your portfolio, and have to draw on it now, things could be a challenge!