Nobody Likes to See A Negative Return

But when you take the necessary risk to get growth in your portfolio (see my series of blogs Why I write This Blog Part 1-3), which we all have to do (to stay ahead of inflation), there is a chance that it can happen from time to time (it happened in 2015 and again last year in global stock markets (see table above on the far right!). Unfortunately we are all human beings, charged with emotion and we are very attentive to pain, a negative return is painful and our first reaction to pain is to seek comfort from that pain. 

If you were an investor back in 2007-08, balanced portfolios shed something in the vicinity of 15-20% (partly depending on the fees and costs paid). In each of 2009 and 2010, they were up by close to the same. So by 2010, If you hung in there (many were scared off into buying low yielding GIC's and bond funds) you were back in the black and growing again!

As tempting as it may be to exit the pain of a negative return (because it lowers the longer run annual average too), it is the least wise move to make.

The balanced portfolio above is made up of 25% global equity (ACWI ETF), 25% Canadian equity (S&P TSX) and 50% Canadian Bond Index (XBB ETF). The combined performances of these benchmarks is highlighted in gold along the bottom (there are no fees or costs included in this analysis other than embedded ETF MER's).

2018 (1 Year) is not pretty. However it is only a point in time. Most of the negativity happened in the October through December period.

Here is how that same (more or less) table looked just 3 months prior:

The 5 year annual average return is almost 2 full percentage points lower at the end of December. Does that mean that you should flee your investment portfolio for GIC's? 

Absolutely not.

Sadly, with the global economy headed toward recession (natural end of cycle circumstances), the worst may not be over. That is our expectation at High Rock, we put a 50-60% probability that equity markets will move lower before they get much better. So we will continue to hold cash and cash equivalent (HISA funds) until we get the great buying opportunity we expect that we will see. 

We think that this could set us up for double digit returns in the future. You will not get those sitting in GIC's (especially if they are locked in and you have a change of mind / heart as many may when they start to see stock markets recovering, who knows what penalties you might have to pay to escape the clutches of that particular financial institution). 

As always, past performance is no guarantee of future returns, anybody who tells you otherwise is not only breaking the rules set out by the regulators, but is trying to sell you something that you likely shouldn't buy. But at High Rock we work darn hard (harder in difficult markets, believe me) to get ourselves the best possible risk-adjusted returns.

Negative returns in 2018 perhaps (but not as negative as fully invested portfolios), but it is, as I stated earlier, just a point in time. There will be better returns in the future, we believe (but do not guarantee!). Do not be frightened by the volatility, it presents opportunity. Most importantly, do not bail out, because once you do, you will likely not be able to get back in in time.