The Price of Chasing Performance

I hope you're enjoying the last few weeks of summer.

I wanted to start this month's Mah Mail with a simple question:

What worries you more?

• Underperforming the best-performing stock market for a few years, or
• Investing in a market that delivers little or no growth for an entire decade?

It's an interesting question because many investors today have become accustomed to looking south of the border for investment opportunities, and honestly, with good reason.

Over the past decade, the U.S. stock market has been remarkably strong. The S&P 500 has frequently been among the world's best-performing major indices. Even in years when another market came out on top, the S&P 500 often still delivered double-digit returns. Investors who stayed invested in U.S. equities have been rewarded handsomely.

As a result, many investors have come to view U.S. stocks as the obvious choice for long-term growth.

I'll admit, I'm not immune to the influence myself.

Like many people, I spend more time than I should scrolling Instagram. Between Blue Jays highlights, golf clips, and financial content, it's amazing how much investing advice gets packed into a 30-second reel. One thing I've noticed is that many financial influencers talk almost exclusively about U.S. investments. You rarely hear much about Canada, Europe, Australia, Japan, or emerging markets.

After a while, it's easy to start wondering whether diversification still matters.

That's where a lesson from Edward has always stuck with me.

Early in my career, Edward showed me what he called the "mountain chart," a visual history of market returns going back to the 1920s. It shows the growth of different asset classes and markets over long periods of time.

Like any young advisor looking at it for the first time, my eyes immediately went to the highest peaks.

The long-term returns from U.S. stocks were impressive. Looking at the chart, it felt like Edward was handing me the investing cheat code. Buy great U.S. companies, stay invested, and let compounding do its thing.

But then he pointed out something I had completely missed.

Scattered throughout the chart were long periods where U.S. stocks made very little progress. The most notable example was the decade following the technology bubble in 2000. Investors entered that period with tremendous optimism only to spend years simply trying to get back to where they started.

Edward then asked me a question I've never forgotten:

"How would a retiree feel if they retired at the beginning of one of those periods?"

Suddenly, the discussion wasn't about charts or investment returns anymore.

It was about real people.

It was about a retiree who wants to travel. A family hoping to leave a legacy. Someone counting on their investments to supplement their income. A decade of disappointing returns might be an inconvenience for a younger investor still saving and contributing. For someone who is retired or nearing retirement, it could be much more significant.

That conversation changed the way I think about investing.

The lesson wasn't that U.S. stocks are bad investments. Far from it. We continue to believe U.S. companies play an important role in most portfolios.

The lesson was that even the strongest markets can go through long stretches where they disappoint investors. Markets move in cycles, and leadership changes over time.

One of the advantages of working alongside Edward is that he's lived through multiple market cycles. He's seen periods when Canada outperformed. He's seen Japan become the market everyone wanted to own. He's seen technology stocks soar, collapse, and recover again.

His experience has reinforced an important truth:

The best-performing investment of the last decade is not always the best-performing investment of the next decade.

That's one of the reasons diversification remains such an important part of our investment philosophy.

Diversification doesn't guarantee higher returns every year. In fact, there will almost certainly be periods when a diversified portfolio lags behind whichever market happens to be leading at the time.

But that's not the objective.

The objective is to avoid becoming overly dependent on any one country, sector, company, or investment theme. It's about building a portfolio that can weather different economic environments and market cycles while helping you stay on track toward your goals.

As I think about my own retirement, hopefully still 15 to 20 years away, I often find myself asking the same question we discuss with clients:

What if the next decade looks different from the last?

Nobody knows the answer.

Maybe U.S. stocks continue to dominate. Maybe international markets have their turn in the spotlight. Maybe the next leaders emerge from places most investors aren't paying much attention to today.

History has a funny way of surprising us.

What I do know is that successful long-term investing is usually less about predicting the future and more about preparing for a range of possible outcomes.

There are lots of fun "what if" discussions in life. What if the Blue Jays win it all? What if Kawhi had stayed in Toronto?

But when it comes to retirement, the stakes are a little higher.

So I'd love to hear your thoughts:

What worries you more: underperforming the S&P 500 for a few years, or experiencing a decade with little or no investment growth?

As always, if you'd like to discuss how your portfolio is positioned and whether it's aligned with your goals, we'd be happy to have that conversation.

Warm regards,

John Mah
The Mah Investment Group

P.S. If you'd like to see the "mountain chart" that Edward showed me years ago, let me know. It's one of the simplest and most powerful illustrations I've seen of why diversification still matters.