It is hard to believe golf season is over, hockey
season has started and the Blue Jays are still creating excitement. How time
flies. I hope our October newsletter finds you well.
September ended up being a small negative month for
almost all our portfolios. This is the first time in a while we have had two
negative months back to back. Canada continues to lag behind the rest of
the world. The TSX(Canada) has a net negative return for the year of -7.0%.
The S&P500(USA) is now up 8.83% while Europe has a gain of 9.7% this
year. Overtaking Europe now is Japan, with a gain in their stock market
of 16% so far this year. These returns are all expressed in Canadian
dollars and therefore include our gains from a declining Canadian Dollar.
As of the end of September our 12 month rate on all our conservative
portfolios is now close to long term averages while our more aggressive
portfolios continue to exceed our expectations for long term returns. Please
remember this because the news is going to make you convinced that the sky is
falling. (source:Fidelity Investments:Datastream)
What is normal?
When we are planning with clients we try to define
what a reasonable long term rate of return would be for their particular risk
level. As we experience the highs and lows that markets provide on a yearly
basis it can be tempting to wonder; "when on earth are we going to receive
this average return"?
The amazing thing with markets is that they
actually rarely have "average" years. Let's say we thought a fair
long term return on the equity portion of our portfolio was say 7-9%. A
return in that range has only happened 3 times since 1970 in the world equity
markets. In fact, 64% of the time world equity markets have given us
returns greater while only 29% of the time they have been less.
To get an idea of how far from average returns can
be, since 1970 the TSX has had such incredible annual lows of -25% in 1974,
-25% in 2001-2002, and -33% in 2008. It has also had incredibly big years such
as: +27% in 1972, +29 in 1978,+44 in 1979, +30 in 1980, +35% in 2009. Amazingly
from 1970 to 2011 the TSX returned an average of 9.1% (source:Libra Investment
Management)
So rest assured that when we are having years that
do not fit into the average, they are very common. Long term averages
actually take the LONG TERM to play out.
Our goal is to set reasonable expectations with you
and then work hard to provide you with returns that minimize the highs and lows
and give you the highest probability of succeeding by getting you the average
return for your situation.