Recently I was asked by someone referred to me: “Do you also advise on life insurance?”
My answer was a definite “yes.” Life insurance is in fact just one part of the comprehensive services we have always provided (please see the “wheel” just below). Services that include other forms of insurance, including disability and critical illness, along with financial planning, will and estate planning, advice on trusts, and of course the portfolio management and prudent overall management of your wealth that I bear personal responsibility for.
To deliver this complete breadth of services, we leverage the combined power of RBC’s internal experts and the top external experts in Canada, resulting in a dream team that provides your family with the absolute highest quality of advice available.
Here is a short feature on the value offered by one of our team members, our Will and Estate Planning Specialist, Andrew Sipes.
ANDREW SIPES
Andrew loves the insurance business. But it’s not the products themselves that he loves. It is the opportunity to learn about his clients. About their spouses and kids. About their lives as a whole – and how insurance can help them reach their most cherished goals.
That would certainly account for Andrew’s core purpose: To focus on people, and provide the optimal solution for their unique circumstances.
Fundamentally, Andrew is an educator. “If I hadn’t chosen the insurance business,” he says, “I would probably be a teacher. As a Will and Estate Planning Specialist, my role is to educate clients on which situations these products are for, and how you make them work – or not.”
Andrew supports our clients with a wide range of insurance planning needs. Two areas in which there is especially high demand from our clients are:
1. Clients transitioning their business to their children. Insurance can pay the tax bill that will arise from the transition upon the parents’ passing, avoiding a liquidity crisis that would otherwise require the children to take loans or sell assets.
2. Clients who have sold their business, and the children are not taking over. For clients who wish to leave some of the proceeds of the sale to their children or grandchildren, insurance can protect, from future taxation upon the clients’ passing, the income stream that results from reinvesting those proceeds.
These are just two scenarios from a very wide range in which Andrew’s expertise is of great value to our clients. If you would like to discuss anything with Andrew, just let us know and we will be happy to arrange a private consultation.
BAD NEWS IS AN INVESTOR’S BEST FRIEND
Amid the highly volatile markets we have been experiencing in 2022, it is again a great time to talk about the folly of trying to time the market. That is, of trying to buy when the market is at the bottom, and sell when it is at the top. During times of great volatility, more investors try to time the market because they are anxious when markets go down, fearing the value of their investments will not come back up. They are also anxious when markets go up – fearing they will again go down, and wanting to avoid that drop.
There can also be a degree of fear in clients’ minds about deploying cash to make further investments, which can become paralyzing and cause them to remain on the sidelines in the hope of investing it when the market bottoms.
The problem is that timing the market is virtually impossible. Investors will be much better off to heed the advice of one the world’s greatest value investors, someone whose principles we follow closely: Warren Buffett (current net worth: $110 billion).
During the 2008 financial crisis, the S&P 500 dropped 20% in the week of October 6 to 10. On October 16, Buffett wrote a now famous op-ed in the New York Times. His message?
"Bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price."
Buffet made clear that he was buying American equities. Why? “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
He continued (the bolding is mine):
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
“You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.”
“TIMING" VS. “TIME IN”
Here is another powerful truth: It’s not about timing the market. It’s about time in the market. As proof, see the graph below. It shows three hypothetical investors, each of whom invested $10,000 in the S&P 500 (which we consider to be index most representative of the market overall) in 1989. From there, they went on to contribute $1,200 per year to their investment, but in three very different ways:
Hypothetical investor #1:
The yellow line represents the hypothetical investor who perfectly times every market low since 1989, i.e. who made their annual investment at the precise moment of the market low every single year they contributed. Of course, we recognize this is virtually impossible, so this example is highly hypothetical indeed. By 2022, this investor’s portfolio is worth $309,915.
Hypothetical investor #2:
The grey line represents the hypothetical investor who is the opposite of the first. In an attempt to time the market, investor #2 has been wrong each year and invests the annual $1,200 contribution at the absolute height of the market. By 2022, this investor’s portfolio is worth $271,444.
Hypothetical investor #3:
The blue line represents the hypothetical investor who is systematic. Rather than try to time the market, investor #3 simply makes the $1,200 annual contribution at the end of January every year. By 2022, this investor’s portfolio is worth $292,549.
Here’s the main thing I hope you will take from this graph: If we compare the difference in market value between perfect market timing (which again, is virtually impossible) and the systematic approach, the divergence in ending portfolio values is just 0.18% annually.
In other words, it is time in the market that counts, not timing the market.
TIMELESS ADVICE
A key component of our long-time strategy is to invest in companies that stand the test of time. Companies such as Johnson & Johnson, which has paid a dividend for no fewer than 60 consecutive years – a dividend they have increased in every one of those 60 years. We call companies like J&J great compounders: high quality companies that generate stable, consistent returns and protect your capital by consistently growing their dividends, thus compounding your wealth at a superior rate over the long-term.
DON’T EXPECT AVERAGE
Market volatility and variability is normal. It is part of the process, and it always has been.
Take a look at the chart below, which shows the S&P 500’s annual returns between 1926 and 2020. You can see that returns are, basically, all over the place. And here’s what we see: opportunities to capitalize on market downturns by buying stocks at, as Warren Buffett put it, a marked-down price.
This is exactly the strategy we have been using for many years, and upon which we executed in the first quarter of this year and again this month. That is when we added some attractively priced companies to our clients’ portfolios (it turns out Mr. Buffett was taking advantage of bargains at the same time), which is why we continue to outperform the market.
As we look forward to 2023, we of course continue to scan the market for mispriced assets.
YEAR-END TAX PLANNING
Hard to believe, but the holiday season – and end-of-year – is almost here. We discussed year-end tax planning in the October edition of Marche Monthly; please have a look here (see “Opportunities at Year End”) and let us know if you have any questions about our approach.
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We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.
Want to discuss any aspect of this month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call or email.
Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated
tyler.marche@rbc.com
1-416-974-4810
www.tylermarche.com
WHO WE ARE
Tyler Marche, MBA, CFP, FCSI – Senior Portfolio Manager and Wealth Advisor
Tracy McClure, CPA, CA, CFP – Financial Planner
Joy Loewen – Associate
Jean Jeevaratnam – Administrative Assistant
Karen Snowdon-Steacy, TEP – Senior Trust Advisor
Steve Mogdan, CPA, CA – Financial Planning Specialist
Andrew Sipes, CLU, CFP – Will and Estate Planning Specialist
Alleen Sakarian, LL.B., TEP – Will and Estate Specialist
WHAT WE DO