Managing Expectations

Last month I wrote a blog called "Perspective On The Bull Market for Stocks". Possibly, as it was the middle of August, some of you may have been enjoying summer vacation and not wanting to stress yourselves with reading my drivel. Smart move. Now that we are back "to school" or work, it appears that a few of you are looking at the progress of your investment portfolios year to date to find that they are not a whole lot changed from the beginning of the summer, or for that matter, the beginning of the year.

Another blogger / financial advice giver (way more popular than me and a significantly more prosaic writer) continues to suggest (without the disclaimer that past performance is not a guarantee of future returns) that a globally diverse and balanced "60/40" portfolio works best. 

As I stated in my August blog: a 60% global equity portfolio (as measured by the All Country World Index ETF (ACWI) combined with a 40% Candian Bond Index ETF (XBB) portfolio would have grown at about 5.5% annual average compound return over the last 10 years.

However, my friends, this does not mean that in the future you can expect to see a 5.5% return each year. you are likely going to have some disappointing years of under-performance (like 2011, 2015 and 2018 thus far) as well as some fantastic years of out-performance (like 2009-2010, 2012-14, 2016-17), which average out, over time to that 5.5% annual average compound return.

Look at equity global markets for 2018 (to date):

The light blue line in the above chart is the All Country World Index. It is basically flat on the year. The Canadian S&P/TSX (not on the chart) is lower by about 5% and China (part of Emerging Markets) is down about 23%. Only the U.S. is up and it is not broadly up, it is led by a few key stocks.

So it is tough to imagine how a broadly and globally diverse portfolio could be anything but flat.

The Canadian bond index is down, but with interest included (i.e. Total Return, it is also flat.)

Canadian High Yield (which High Rock clients will likely have some exposure to) is up on the year, so far by about 3.8% (DEX High Yield Bond Index). So if your portfolio is positive, that is the reason.

My portfolio is positive on the year, not by a lot, but still positive and my portfolio has the exact same assets as my business partners Paul and Bianca and the rest of our clients (but possibly with different allocations of those assets).

The year is far from over, so who knows how it will end. We suspect that there will probably be the potential for a great deal more volatility into the end of 2018 and on into 2019 (for global economic and geo-political reasons) and we will be prepared to take advantage of investing opportunities as they arrive. We do not believe in the buy and hold "60/40" as our prose filled (tells a darn good story) blogger/advisor does, so we will have plenty of cash equivalent assets on hand to be able to put those opportunities to work.

We do invest for the long-term because most of us have a considerable amount of time left on this planet and many of us also want to leave a growth oriented (better than fully taxable GIC's, which do not keep up with inflation) portfolio to our beneficiaries when we depart.

Oh yes... and the disclaimer: past performance is no guarantee of future returns, but at High Rock we work really hard to get our clients the best possible risk-adjusted returns.