Fall/Winter 2021 Newsletter

Christine Fortin - Nov 29, 2021


No Points Awarded for Difficulty

I’m always astounded at how in speaking with industry professionals the layers of complexity they add onto conversations around investing.  The concepts are really quite simple.  So, why?  Is it to make themselves appear smarter than others?  Is it that they want to provide the illusion that they have discovered the secret sauce?    Click here for my video on the reasons our industry complicates things.


Buy Now! Cash Return to Soar 18% in Just Three Years!

These types of comments pop up all the time in the financial news.  There is typically a spin to it that makes it complete garbage.  However, this time, with this title it would be true!

What is this magical investment?  Well, the S&P500 of course.  And the cash return in question is, of course, its dividend.
First Trust's Bob Carey, in “S&P 500 Index Dividend Payout Profile,”  pointed out that the cash dividend of the S&P 500 in the plague year 2020 rose to a new record high of $58.95. Data from Bloomberg indicate that total dividends paid this year will rise again, to an estimated $61.03. The estimates for 2022 and 2023 (as of 9/30/21) were $65.59 and $69.53 respectively.
Should these estimates prove out, the cash dividend of the index will have risen no less than 18% in just three year! (counting from year-end 2020).   I have not in my career seen any other high profile income producing investments that can credibly make that claim.
Of note, the 10 year Canadian Government Bond Yield (November 19, 2011) is 1.59% and won’t rise for 10 years.  
S&P 500 Index Dividend Payout Profile 

How Would a 20% Market Decline Affect You?

Last week, I saw a “news” item on my usual financial “news” website, to the effect that a high-profile market strategist was “warning” of the “risk” of a 20% decline in stock prices. Should we be concerned?  

I'd seen essentially the same headline, attributed to a different expert/guru/seer, the previous week. And another the week before that. I confidently expect to see it again next week. Somebody somewhere is always opining about a market decline of some significance. And financial journalism, which feeds avidly on anything that's even potentially negative, will be sure to pick up on it every time.

In many instances, one finds that the “expert” being quoted isn't even predicting such a pullback; he or she is simply making a case that—if this, that, and the other current economic/business trend continues—it might take a bite out of corporate earnings for the next couple of quarters. And if that were to happen, the equity market might back up, to discount the effect of said bite. But this is not a distinction that financial headline writers are apt to make.

Nor is it the distinction I'm encouraging you to make. Rather, I'm inviting you to ask a larger, better question. To wit:

“Yes, it's certainly possible that, at any given time, the equity market may pull back more than a little, or more than momentarily—say 20%. How would that affect me, in terms of my ability to pursue my long-term investment/financial plan?”

Let's assume, for example, that you are accumulating capital primarily for retirement. Collectively we have made a plan together that would—assuming no more than long-term average equity returns—endow you at retirement with a sum of capital from which you could begin to withdraw a lifestyle-sustaining income.

It should be clear to you that a 20% equity market decline would present you with an opportunity. As long as the weakness lasts—that is, until the long-term uptrend in equity values reasserts itself as it has always done in the past—your capital contributions will be purchasing shares at somewhat depressed prices.

This is actually a good thing. That is, as in every other aspect of our economic lives, it is better to acquire the things we will always need to own when and if they go on sale. Sadly, when it comes to accumulating equities, the salutary effect of market declines is somehow not intuitive.

Thus, the accumulating investor should always—with a little gentle encouragement us—be experiencing equity market declines as an opportunist rather than as a victim.

This situation is admittedly much more problematic in the case of people already retired, and withdrawing from the equities they accumulated throughout their working years. They have every reason to be acutely concerned about withdrawing from a declining asset base. The principle here is quite clear: upon discovering that you're digging yourself into a hole, the first thing to do is stop digging. Which simply means—as we have counseled—that you begin your equity withdrawal journey in retirement with significant cash reserves.

You might wish to consider holding, say, two years' living expenses in a cash equivalent. Warren Buffett has said that he's instructed the trustees of his wife's trust to invest 90% of the proceeds in equities and hold 10% in cash. The principle is the same, and it's sound: particularly in the early years of retirement, you need to be able to cut back significantly—and even stop altogether—withdrawing from equities. Cash reserves are the conceptual solution: I gladly defer to your advisor as to the specifics in your particular circumstances.

I hasten to add that getting out of equities altogether can't be the answer. Your mortal enemy in retirement isn't the occasional equity “volatility.” It's the relentless, grinding, inexorable increase in your cost of living over decades in retirement.
This issue is not relevant when your cash flow generated during retirement exceeds your expense.  In this case, you revert back to the same position is the long term equity accumulator.

A preponderantly fixed-income approach to a rising-cost retirement not only fails to solve this problem; it exposes you further to it. You will need the potentially rising cash dividends of mainstream equities to fight off inflation—which they've historically done superbly. Just in the last 30 years, for example, while the Consumer Price Index about doubled, the cash dividend of the S&P 500 increased nearly fivefold. (Would I be piling on if I pointed out that the Index itself is up more than 10 times in those 30 years? If so, I apologize.)

The issue, then, when the perennial warning/forecast of a market decline surfaces yet again, is not to wonder if it's accurate or not. It either is or it isn't; there's no way to be sure. The question is: how would it affect me? If you're accumulating, it's an opportunity. And even if you're withdrawing: you can be holding significant cash reserves, if needed, to ride it out.

You can't predict, but you can plan.


Behavioural Finance: 4 Things to Know About How We Invest

Institutional investors have long had an unofficial rule they call the Odd Lot Theory.  Its premise is that when small and odd-lot investors (those who purchase investment shares in odd lots rather than in multiples of 100) buy, that is a signal for larger investors (those who buy in multiples of 100 or more) to sell. Does it hold true?   


Does it hold true?

Of course, individual investors can be successful stock pickers. But why do so many individuals underperform the markets over time? That’s a question that economists and psychologists have been studying for more than three decades. What they’ve discovered is that when it comes to investing, rational choices don’t always apply. What investors know, and what they actually do are often very different.
If you ask us the largest portion of our roles, we would say that it is Ensuring Adaptive Wealth Counsel to Ensure Financial Goal achievement. 
If you ask us the second largest portion of our roles… we would tell you unequivocally that it is behavioural finance.   Ensuring that clients are doing the right thing at the right time, and not doing the wrong thing at the wrong time.  Sounds simple?   An approximate 2.5% per year of investment returns can be attributed to ensuring that emotions don’t come into play when making decisions.  There are some common behaviours to be mindful of.

Mind over money

So what are these behaviours and what can you do to avoid them?

Consider the following:

Overconfidence vs. Optimism

Optimism is a great thing to have in life, assuming it’s grounded in reality. Yet many investors overestimate their ability to beat the market, even when they have failed to do so in the past. Overconfidence can keep investors from meeting their goals because they may save or invest too little if they overestimate returns. It can also keep them from learning from their mistakes.

Rather than letting overconfidence derail your long-term plans, experts suggest taking a steadier route to building financial security by adopting a consistent monthly investment plan. Although dollar cost averaging doesn’t guarantee a profit and can’t protect against loss in a declining market, it can help you ease into the market, buying more shares when prices are lower and fewer shares when prices are high. Over time, this can help lower the total average cost per share you pay for your investments.

Chasing the Herd

Remember the dotcom bubble of the late 1990s, early 2000s? Like many investing fads, the driving force behind this behaviour is the tendency for individuals to mimic the actions (rational or irrational) of a larger group. But as so many investors painfully learned, chasing the herd can be risky. That’s because focusing on short-term performance can hinder your potential long-term success.

The lesson here? Before you jump on the bandwagon, do your homework and remember: Past performance does not guarantee future returns. Understanding what you’re buying and why is essential to making the right decisions for your unique circumstances and long-term investment goals.

Overcoming Investment Losses

Behavioural finance teaches us that as investors, we tend to value gains and losses differently. In fact, some studies suggest that people feel a decline in the value of their investments twice as keenly as they do an increase of the same value. As a result, many investors are more willing to sell their winners than they are to dump a losing investment.
If you recognize loss aversion as part of your behaviour, how do you overcome it? Start by: (a) building a broadly diversified mix of investments to help soften the impact of market volatility on your overall portfolio; (b) rebalancing your investments on a regular basis to ensure your portfolio is right for your particular goals, risk tolerance and time frame; and (c) keeping your focus on your overall progress, not the short-term ups and downs of your portfolio.

Making Informed Decisions

Behaviourists have demonstrated that when it comes to making investment decisions, most people are strongly affected by “anchors,” or points of reference, that may or may not be relevant to the decision at hand. In other words, they tend to embrace information that supports their view rather than seeking information that contradicts it.

If your Personal Info is Compromised

Cyber criminals are taking advantage of Covid-19, our remote work and our personal devices. If you suspect a hack, take these actions immediately.

Signs that your data may have been stolen

• Messages from a service, store or institution that there has been a breach
• Inability to access your social media on any technology, or unusual information is appearing in your feed
• Charges on your credit card that you didn’t make, or money has disappeared from your accounts
• A “locked” message on your device with a demand for money before it will be unlocked

 Act quickly to take control of your devices and data

Depending on the type of cyber crime or data breach you’ve discovered, there are a number of steps you can take to limit the damage. The Canada Anti-Fraud Centre lists several steps, including:

• Contact your financial institutions
• Contact the police
 • Report the incident to other agencies and organizations

In addition to the above, consider contacting any technical support you have, and potentially seeking legal representation, too.
Technical support

Immediately remove the infected device from your network by turning off its Wi-Fi and unplugging any cables attached to it. If you are unable to turn off the device’s Wi-Fi, consider turning off the router it uses.
Contact your business or personal tech support and tell them to immediately secure as much as possible, including other devices on the same network.
Legal representation

Identity theft or other cybersecurity breaches could trigger legal issues for you. Keep detailed notes from the moment you discover the hack.

Guard your data with protective technology and anti-cyber crime practices

While scientists and governments are working to develop and distribute vaccines, cyberscammers are spreading fraud and misinformation. Protect yourself by developing good anti-cyber crime practices, and be sure to install (and maintain) protective technology.

Click here to visit the Canadian Anti-Fraud Centre Website.


Sports and Entertainment

We are proud to say that our team has been designated as one of the two Wealth Management leads on the Athlete Advisory Team in BC, which focuses on providing all-encompassing solutions for professional athletes locally and across the continent.  Do you know the rate at which NFL players go broke? What about NBA players?   The unfathomable income is not all it is cracked up to be.

When we were initially asked to be a member of this high-level team, we knew this was a great opportunity, as it is well known many young athletes struggle to begin their careers on the right financial foot. We know that over 78% of NFL players, and 60% NBA athletes are broke within 5 years of retirement, and that one third of the NFL lives pay check to paycheck. Although the NHL does not track these numbers, it is also replete of examples of players who’s lack of financial literacy and trusted advisors led them to losing all of their money (Evander Kane, Theo Fleury, Jack Johnson, etc.)

This seems almost impossible to an outsider looking in, as the yearly income can seem almost unfathomable. How can someone making such a large income fail to prepare for what seems like an obvious upcoming decrease in income. Surprisingly, many of the main issues’ athletes face financially are quite relatable to the average working-class individual or business owner. We know the 5 main culprits causing these downward spirals are;

  • Living beyond their means

  • Forgetting about the future

  • Bad investments

  • Keeping up with their peers

  • Trusting the wrong people

When we begin to dissect these causes, we can readily see that this is not just a professional athlete problem, but a societal problem that begins with a lack of financial literacy taught at a young age. The prevalence of this issue is just magnified when looking at professional athletes because their income level and notoriety is that much greater.

Team Updates

Its been a really busy year for our team on the accomplishment front.
Spencer obtained his insurance license.  Now, a fully licenced team we can all engage in tax advantaged strategies for our High Net Worth clients as well as finding ways to cover those pesky unrealized capital gains on properties.
Spencer obtained his CFP!!!!  Congratulations for obtaining the top Financial Planning designation in Canada
Spencer is also working on becoming an Associate Portfolio Manager by end of 2022. 
Christine has obtained her associate Portfolio Manager designation, to be transitioned to a Portfolio Manager early 2022.  This is the highest designation for professional money management for North America.
Christine has become US licenced with the SEC.  We are able to provide wealth counsel and wealth management to our clients’ friends, colleagues, and family who reside in the USA.
Sofia will be the first one on our team to venture outside of Canada since Covid started, taking a well -deserved vacation in January…   maybe next year Spencer and Christine will follow her lead.
Christine’s son has been engaging in cooking classes!  It has been of great benefit to mom and dad on weekends 

Christine and her family spent some time this summer on Saltspring Island, and they caught “the big one”.

Spencer got engaged!