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9.78% Investment Return in the Past 6 months - What About You?

Financial news is often dominated by market milestones. You may even get notified on your phone within seconds of the Dow or the S&P/TSX Composite hitting a record. All this market sound and fury can make even the most staunch “buy-and-hold” investors begin to question their financial strategies:

“Should I ride the wave and buy more stocks?” “Is the market overvalued? Is it time to move money into bonds?” “What’s in store for 2017?” “Now what?”

We believe that milestones such as Dow 20,000 or S&P/TSX 16,000 are the perfect occasions to remind yourself to stick to your investment plan. Because, quite frankly, the question you should ask isn’t “Now what?” as much as “So what?”

It’s not about a closing-bell number

The markets are uncertain and cyclical. Long-term success can’t be measured at a single closing bell.

In our experience, the majority of investors tend to have portfolios balanced between equities and bonds, so any kind of comparison with — or reaction to — an all-stock index is bound to disappoint. And, don’t forget, the best-known benchmarks are often poor proxies for the broad market. For example, the Dow Jones Industrial Average represents only 30 stocks — not exactly the type of diversification we believe in.

The real benchmark for your success

What matters is that you’re making progress toward your goals. Your investing plan needs to account for your financial needs and aspirations, risk tolerance, tax circumstances, spending needs and expected savings, among other things. All those factors help inform a diversified asset allocation that’s right for you and your goals.

Investing can be emotional. So it’s understandable that at times it’s hard to maintain a long-term perspective and a disciplined approach. That’s why you need to keep your emotions in check and try not to chase returns or overreact to an arbitrary market milestone.

In the end, reaching your long-term financial goals is the only milestone that truly matters. And staying focused and tuning out the daily market news — both good and bad — can help you get there.

Our outlook for 2017

Despite recent strong performance of markets in Canada, the United States and elsewhere, our expectations for global stocks and bonds remain guarded. Key to our modest expectations are fairly high stock valuations (although we believe the Canadian equity market is fairly valued) and the low-interest-rate environment, which we continue to believe is here to stay.

We expect modest portfolio returns across all asset allocations when compared with the robust returns experienced since the depths of the Global Financial Crisis. Our projections for annualized average returns on a 60% equity/40% bond portfolio with a mix of Canadian and foreign securities for the next decade centre in the 2%–4% range, below the actual average real (inflation adjusted) return of almost 5% for the same portfolio since 1971.

We encourage investors to focus on a disciplined investing approach, seek out low-cost strategies and prepare for reasonable market return expectations.

Discipline is what it takes to block out the noise, commitment is what it takes to walk the path to financial success and patience is what it takes to reach the goal.

Clement Chung, CFP, CLU

Certified Financial Planner

www.clementchung.com

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CLEMENT CHUNG, CFP, CLU

Certified Financial Planner

Fee-Based Financial Planning
Burnaby & Metro Vancouver

©2018 by Clement Chung.