Boring Works   

 

I have been meaning to write a blog post for a while now as I am way behind in providing an update. Since my last update in June markets have been turbulent – to say the least! October was a brutal month for the markets – according to our monthly Global Insights this was the “steepest global monthly downturn in more than six years”.    My own thoughts are going to sound like a broken record and are the reason for my title of this post – “Boring Works”.

I don’t have the mentality or the personality to have a daily stock market commentary show like Jim Cramer’s “Mad Money” on CNBC, nor do I have the requisite new idea every day to be a “talking head” on BNN. Rather I take a relatively simple, tried and true approach that is deceptively difficult to maintain and even more difficult to promote. I don’t talk about pot stocks. I don’t care about Bitcoin. I candidly don’t care what the RBC Wealth Management Target Price is on Suncor. What I care about is process, proactivity, high quality and conviction in creating (and continuously upgrading) portfolios that are built to last.

 

While this doesn’t make for interesting small talk at a dinner party or in an elevator, it means me and (more importantly) my clients can sleep at night. In the short term, everything seems important – Trumps latest tweet, a new high in Canopy Growth, the latest moves by the Fed, rising rates … the list is endless.   In the long-term it turns out most of this stuff is just noise.

 

What really matters are the fundamentals and paying the right price. If you could look back on the headlines 20 years ago, you would see the same kind of volatility and the same kind of stories. Not tweets, but certainly headlines. You would also see that markets have risen significantly since then. Not in a straight line, but upwards none-the-less.

 

It is absolutely fair to be nervous about the state of the markets, especially if you are recently retired and/or planning on retiring soon. My point is you should take the reins and be proactive about how you prepare for this rather than reacting to the latest news.

Make a written financial plan to give you the peace of mind of knowing you won’t outlive your money (and/or so you can plan some strategies to get there if you find out you’re not ready yet!)

 

Undertake a Retirement Income Plan to map out where your income is going to come from in order to make sure you are not paying too much in taxes and to see whether there are any techniques you can employ to optimize your portfolio and take the strain off of your investments.

 

Set up your Portfolio with a cash and Fixed Income “safety bucket” to draw from when the Market is down. Make sure this part of your portfolio is truly safe, even though the rates sound terrible (they are). That is the current price of safety and it is starting to creep up. You can now get a ladder of GICs that pays more than 3% on average over 3 and 5 years. That is not bad for the safe part of your portfolio.

 

Have an Equity component that fits with your own unique risk tolerance and that you can stick with even when the market takes a hit. This happens all the time in markets. Sometimes it is a “pullback” and other times it is a “sell-off”, but either way it happens on a somewhat regular basis. Without some short-term downside you could never expect to grow significantly over time. You cannot have one without the other.

 

Within the Equity component make sure you own the highest quality companies at fair prices. This may be in a portfolio of individual stocks, ETFs and mutual funds and/or a combination of all of these. Make sure you have a mix of Canadian, US and Global stocks and that the portfolio is rebalanced regularly to trim the winners to buy more of the laggards. Over time, each of these companies, sectors and/or countries will have its turn at the top (and the bottom).

 

It won’t be as fun as picking the “next big thing” but I can promise you it is much more fun than trying to decide when to sell a once-high-flying name that is “rolling over” (Such as Nortel, Blackberry, Valeant and Crescent Point Energy to name a few).  

 

If you have done most (if not all) of these things, you should be feeling okay about what is going on. While it isn’t any fun, it isn’t anything unexpected and at least you were prepared for this possibility in advance. While it likely means you won’t be seeing me on CNBC or BNN any time soon, I promise to continue being boring.

 

Feel free to reach out to me directly at jeff.ker@rbc.com or 416.231.6528 if you have any comments on this and/or anything else on your mind.