|
|
| Our Professionals |
Stephanie Venn
|
|
|
|
|
Foresight Lite
First Edition |
February 2009 |
Greetings!
Welcome to the inaugural issue of the new kid-brother to our long-standing newsletters, INSIGHT and FORESIGHT. Being younger, and thus more tech savvy, this version is entirely digital and will come to you from time-to-time as issues and important dates arise, and do so on a more timely basis than our quarterly, paper-based elders.
There will be two versions: INSIGHT LITE and FORESIGHT LITE, each dealing with their respective areas of tax & financial matters and investing matters.
We will be observing and experimenting over time to see how each of these siblings best fit in the family of our communications to you.
The "new kids" aspire to helping us take care of you better, but if they are too brash and obtrusive, then you can click them away at the top of the page.
We thank our affiliate, 2020 Canada - a members' organization for Canada's professional accountants - for inspiring our new digital Lite. |
 Good Sources
Well-known investment author William Bernstein from Oregon calls the business Press "financial pornography" and says that one should restrict such reading to the Wall Street Journal and The Economist. You should then free up all of that other reading time by reading books on investing and economic history to gain a more learned and balanced perspective. | |
 Avoiding the Vortex...
While nasty currents were traveling under the surface for a while before, the bear burst forth starting in late September and has carried on since. The market is a complex beast, and all of its constituent parts must be kept front of mind. For instance, while the plunge in world-wide equity indices was, at first glance, more severe in October than September; in fact, there was a positive market crosscurrent in October - a falling loonie. The result was that a Canadian investor's experience that month was a collection of bad, world-wide equity indices, significantly mitigated by rising euros, yen and greenbacks. The currency impact in November took a holiday and was neutral, while the pure indices were also relatively flat. The four month US currency impact from September to December was almost 15%.
Meanwhile, another crosscurrent was fighting the tide of bad news - one year bond returns. We have been busy calculating the 2008 returns for those of you with December 31 year-ends for your Annual Report. While the individual equity holdings are littered with -30%s and -40%s, the bond portfolios typically have returned between 8.5% and 10% for 2008. Depending on the degree of bedrock safety built into your asset allocation strategy, that will counteract the -30%s quite nicely.
Depending on the specific asset allocation and specific holdings, we are seeing 2008 returns in balanced portfolios around -5%, with some running from -10% to -14%. In November we gave a presentation on the state of the investing world and approximately 50 of our clients attended. With the cooperation of FYI Seminars, our Learning Division, we subsequently reproduced that presentation digitally for the rest of you on our website. You can catch what you missed by clicking on our Investment Study Group link. |
 Long Term Perspective
In these times, the shell-shocked investor will hear the predictable mantra from the investment community about taking the long view. What isn't clarified sufficiently in those discursives is that it needs a 180 degree view, meaning both forwards and backwards in time. You need to look backwards in your investing history to see where that got you to before the current bear bit.
In the famous long term perspective, the bear is the normalizer for the past excess returns that went before. This is why we provide long term compound return statistics in your annual report - to normalize market returns and keep you focused on longer norms, not the current market euphoria or panic.
For instance a pure 100% equity account lost 38% in 2008, but it's 15 year compound return has been 9.9%. A balanced portfolio lost 14% in 2008, but it's 14 year compound return has been 7%. Globally, and on average, across all of our portfolios, we have seen a cumulative loss from September through the end of January of approximately 12%.
Long-run cumulative, compound returns also provide the needed perspective. The investing history of the entire 20th Century shows, for instance, that the 100 year compound return of the Canadian equity index was 6.4% after inflation (which ran 3.1% for the century). Therefore the 100 year nominal return was 9.5%. Real bond returns, by comparison, returned 1.8% after the 3.1% inflation.
Excluding the first two decades of the 20th Century, the Canadian equity compound return that accumulated decennially from 1920 to 2000 varied between 7.1% and 15.5%.
If you joined the equity train at different decades through that one hundred years, your real compound return would have varied between 5.3% and 7.2%.
In conclusion, we must all exhibit sang-froid in stepping our way through this particular time.
Source: Triumph of the Optimists: 10 Years of Global Investment Returns. Dimson, Marsh & Staunton |
 Important Deadlines
March 2nd is the deadline for 2008 RRSP contributions. We also encourage you to get on with setting up your new tax-free savings account.
| |
|
|
|
