Markets
The start of 2022 is upon us and, with that, brings a new set of expectations and a new set of metrics from which we derive our relative performance. In our industry of professional money management, our success (and failure) are measured each year from New Year’s Day to just after Christmas. After two unbelievable years of success, many investors are wondering how it is possible that markets can continue their lofty ascent. How long can these “double digit” market returns continue without an uncomfortable reversion to the mean. As investment professionals, should we be revisiting the old maxim that “Cash is King”?
“How many millionaires do you know who have become wealthy investing in savings accounts? I rest my case. – Robert G. Allen
Allocating your investment holdings into savings accounts is not a long term strategy. Given current interest rates (competitive rate of 0.9%) it would take 80 years for your investment to double. Furthermore, at this rate of interest, in order to achieve the equivalent income of a minimum wage earner, you would need to invest $3.3 million dollars. Also of note, these figures represent amounts before the erosive effects of both taxation and inflation.
$3,333,333 x 0.9% = $30,000*
*Based on earning $15/hour for 40 hours per week for 50 weeks
As an alternative, it would be optimal to invest in high quality companies, with strong competitive positions in their respective industries. These companies also tend to pay dividends (usually much higher than the current return on a savings account) and these dividends grow along with profit and cash flow of the business. However, investing in equities requires patience as it takes time. It also requires acceptance of some price volatility in the market. It is consistently a possibility (rather, a likelihood) that the stock market may correct by as much as 10% at any given time. These declines are periods of opportunity to contribute to your ownership of quality companies that will protect your wealth against the eroding effects of inflation.
“The big money is not in the buying or the selling, but in the waiting.” – Charlie Munger
Taxation
For those of you who are beginning the year with tax planning in mind, I salute you. As a friendly reminder, any fees that are incurred in a Non-Registered Investment account are deductible. Furthermore, if you have paid interest to invest in Non-registered investment account, it is also deductible. For more clarification on this, we are always glad to schedule a time to discuss your tax planning.
Here is a link to CRA on deductibility of interest
Personal
Last week, I cut my own hair; it was a mistake. Not only did I do a poor job as a barber, I also ended up spending an hour and a half cleaning the bathroom and being subjected to ridicule by my loving family. After time spent reflecting on this poor decision, I have decided to hire a professional for future haircuts. I do not expect this to prevent ridicule, but at least I won’t have to clean up after myself.
On the ski slopes, I tried out my first black diamond and I am still alive. It was -29°C and there was a point in time that I thought I had dropped a couple of fingers because I couldn’t feel them anymore. I spent about 40 minutes between runs pretending to wait in the bathroom line so I could warm up my body. It all reminded me of ‘winter warfare’ exercises during my stint in the Canadian military. This extensive training and classroom learning has helped me prevent hypothermia and stay comfortable while enjoying the outdoors. There was an acronym C-O-L-D that we used to train us to not get hypothermia; I will share that below for those of you planning to be active over the winter:
C clean (keep your clothing clean)
O overheating (sweating will make you wet and that makes you cold)
L layer (dress in layers)
D dry (keep your clothes dry to stay warm)
For those of you staying active during Covid, don’t forget to stay warm and don’t overexert yourselves if you are shoveling snow.