When we complete a financial plan and set up an investment policy for the families that we work with we typically find that a modest rate of return (net of fees) is required to make their financial lives work and to achieve their goals. We have also found through years of working with investors that their self assessment of their risk tolerance and what it actually turns out to be are two different things. It's one thing to say, “I have no problem with a 20% pullback”, it’s another thing to find out that your $5 million portfolio is currently worth $4 million, or your $10 million portfolio is currently worth $8 million, and this is often exacerbated by media messaging that the end of the world is coming when markets are on a pronounced downturn.

The other side of the spectrum is thinking that we are satisfied with reaching our goals until we go to dinner with that one friend who loves to regale us about his investments that are up 100%, but neglects to mention the ones that are down 50%. This may ruin our dinner, but more importantly from a financial standpoint, it introduces investors to their second worst enemy, FOMO: Fear of Missing Out! Paraphrasing Benjamin Graham, the investor’s worst enemy is himself and their second worst enemy is FOMO.

What We Believe

We believe, and history shows, that market declines are a temporary interruption of the permanent uptrend. We also believe, and history proves, that government economic policy of targeting 2% inflation shrinks your purchasing power by 2% per year, or cuts your purchasing power in half over 20 years. This truth is highly unlikely to change, and it is why investing for growth over the long-term with a good portion of your capital is astute and a recognition of the reality of being a smart investor. (see our June 1, 2023 blog post for a refresher: How Governments “Pay” Off Their Debts in Three Simple Pictures (https://woodgundyadvisors.cibc.com/randy-yozipovic/blog/31551750-governmentdebtpay).

We also believe that a cash bucket is the best antidote to stymie the effects of market declines - you are not forced to sell at the wrong time, which keeps your mind strong for weathering economic storms. We also understand that at times like these, when everyone has had a pretty good year investment wise, you may wonder why you hold cash, why you diversified, why you had any risk controls, and why you were not more aggressive. Well the answer is simple, we don’t find out who is swimming naked until the tide goes out and we don’t want insurance until the house burns down, but by then it is too late to buy it.

Despite some daunting economic events, including the difficulties of COVID, government shutdowns, and rising interest rates and spiking inflation, the last five years have been good to investors running the gamut of risk profiles. Regardless, and this is not a prediction but a fact, markets don't go up in a straight line, so keep some cash, keep debts and spending in check, and proactively prepare for how you will behave when the next routine pullback happens. It could be next week, next month or in three years - no one knows. What we do know without a doubt is that you have a real life with certain needs and expenses so that is where we always focus our planning, to help you live your life and reach your goals.

Successful investing is not a competition, it is about reaching your goals so you can live your life.

Happy New Year, and we wish you a healthy, joyful and prosperous 2025.

Randy, Ian and Harrison