Successful long-term (bucket three) wealth management is very simple in theory, but very difficult when combined with life’s emotions – both good and bad. We all have different goals and dreams, fears and expectations, that readily derail the theoretical. This is very similar to staying fit, very simple in theory – watch what you eat and follow an exercise program, but very difficult to stick to when a mouth-watering thin crust pizza gets delivered to your door while you’re lounging on the couch watching your favourite TV show! The graph below is derived from our Dividend Growth Strategy, which invests in 30 high quality North American businesses that feature growing profits and dividends.

The red line shows what could have happened to $2 million (before fees) for John and Jane Doe from Jan 2010 to December 2023, it grows to just under $8 million. The orange line is a GIC at 5%, and we assume no taxes are paid (wishful thinking!).

 

Here are the simple conclusions:

• Owning stocks (pieces of businesses) for the long-term makes more sense than owning GICs
   
• High quality businesses or stocks go up and down in the short-term, but up over the long-term

 

Most difficult though are the day-to-day realities that seem to make sticking to your plan so hard:

• From 2011 to 2013 John and Jane's money didn't grow, so they called their advisor and told him that their friend made money and they were changing strategy and their advisor, i.e. this is not working!
   
• In March 2020 John and Jane's portfolio dropped from $5.5 million to $4.5 million, and John realized that if the media was right their portfolio would soon drop to $3.5 million and then $2.5 million, and then they would be out of money by the end of the year! They went to cash and waited for the storm to clear.
   
• In 2022 John and Jane read that a recession was practically imminent, and the US stock market sold off 22%. They thought, here we go again, and worse they heard that this was the worst it had been since 2008, so they bought a 5% GIC with their new money.

These three really short stories are examples of what makes investing hard, and they repeat themselves week after week, and year after year in real life because investors are only human and they worry.

 

So what is a rational person to do?

1. Stay focused on the goals that you laid out in your plan and stop looking at your portfolio every day.
    
2. Take your friend’s and the media’s advice with a grain of salt. They don’t live your life and they certainly don’t have the same financial goals and aspirations. Take a media fast, it's good for your health.
    
3. Remember that the world has always worked out its problems, and it will again.
    
4. Don’t abandon a well-thought-out strategy when it falls out of favour, things always come back in favour when the ill-considered flavour of the day/week/month is forgotten.

We welcome your questions, and we hope you have a great month!

 

Randy, Ian and Harrison

 

Chart source: R&R Investment Partners, AMA Composite Performance Reporting (Gross of Fees). GIC calculations: wowa.ca/GIC-calculator. As of December 31, 2023. These calculations and projections are for demonstration purposes only. They are based on a number of assumptions and consequently actual results may differ, possibly to a material degree.