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Wednesday, November 30, 2016 18:25
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There’s an interesting pattern on this blog packed with deplorables. I write about bonds. They trash bonds. I explain preferreds. They tear ‘em up. I discuss REITs. The deps nuke them. I offer weightings for a balanced portfolio. They diss balance. I proffer diversification. They pick stocks. I explain rebalancing. They wanna day trade.

If I weren’t on a mission from God to save you all, I’d give up. But, alas. Can’t. It’s a Sisyphus thing.

Well, kids, today a few words on why, during 2016, the investing approach and philosophy presented here was the correct one. It’s been a corker of a year, after all. Commodities collapsed last winter and Canada slumped into recession. Then Alberta incinerated. After that came Brexit. Then an oil surge. Stock markets flirted with record highs for months. Terrorists tore up Paris, Nice, Orlando while Syria burned and ISIS raged. Trump defied all odds and became the first inexperienced, Tweeting, goofy billionaire president. And now we stand on the precipice of more change. Rates are about to pop. Trade’s in trouble. OPEC blinked. Donald is crazy.

The question is simple for many people: how do you possibly preserve wealth, yet make it grow, in an insanely volatile world like this?

Well, hate to say I was right. But I was right. If you went through 2016 with a properly balanced and globally-diversified portfolio, then you’ve protected your capital in bad months, grown it in the good ones, and ended up with a return somewhere around 6%. Keep on doing that for a decade or two, and life will be sweet.

There is one big lesson here the deplorables need to learn. Never exit an asset class. You have no idea what’s coming around the corner. Nor does any fancy financial advisor-cowboy who says he can “add alpha” by beating the market. He can’t. You can’t. Almost every fund manager on the globe can’t. But you can have a portfolio that lessens volatility and has a long-term track record of consistent gains.

So just because interest rates are rising and bond values falling as yields increase, is no reason not to own bonds. They keep volatility down, balance equity drops and provide some income. When Brexit hit, for example, stocks screeched lower and bonds streaked higher. People with a nice balanced 60/40 portfolio barely noticed the commotion. Just make sure you have the right combo of bonds (a little government, some corporate, some high yield and real return) and the correct durations (short).

Just because Canada was in the crapper back in February was no reason to dump maple and go all-America. Commodity prices recovered, and so has our economy. Look at the latest GDP numbers, a scorching 3.5% with a big surge in exports. So far this year the TSX is ahead 15.93% – one of the best performers in the world – so abandoning Canadian growth assets along with the deplorables here nine months ago would have been a losing strategy.  Make sure you have the right weightings for your growth assets (Canada 17%, US 21%, international 18%, alternative 4%).

Just because the US election was a massively weird thing pitting two of the worst candidates since politics was invented against each other and promising no good outcome, was no reason to dump equities and go to cash. Or, worse, run to gold. Kneejerkers who did that lost big. And while most of the world thought Clinton would rip Trump, and was shocked when the opposite happened, investors with a balanced portfolio needn’t have worried about the outcome. If markets tanked (like Brexit) then fixed income would soar. As it turned out, the opposite happened – which was even better. Meanwhile gold was creamed and cash did nada.

Just because oil cratered to $27 last February, then recovered and ended up in a mid-$40 swamp with supply overwhelming demand, was no reason to desert the energy sector. Look at what happened this week – the OPECers agreed to production cuts, resulting in a 9% surge in crude in a single day and romping oil companies in the same week the feds okayed two pipelines.

I could go on (and will eventually). But there are solid reasons why people who actually want to preserve their capital and still have solid growth, need to own all of these assets, and in the correct proportions. The goal is to have a portfolio with 40% fixed income (half a variety of bonds, half preferreds) and 60% in growth stuff (real estate trusts plus equity exposure to Canada the US and the world). That’s balance.

Then, unless you have at least seven figures to invest, eschew stocks and go for index ETFs. Picking a handful of individual companies is gambling, not investing. Buying mutual funds, meanwhile, is often a sign of mental defect (or you like paying fat commissions to your salesguy BIL). This is diversification.

Keep a little cash (5%) and never any GICs, since they’re tax-inefficient, low-yield and illiquid. And always worry about taxes. Interest, like rent or your salary, is decimated. Dividends are a lot sexier. Capital gains are a tax gift.

Mostly, though, stop reading this blog. Or at least the comments section. Ignore the news. Don’t listen to TNL@TB. Or the gold crazies. Or the zero guy. Set up a balanced portfolio. Get a golden retriever.

Just chill. You’re gonna need it.


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