January 2019 Sovereign Wealth Letter

Many are glad seeing 2018 has passed.  For investments everywhere the year was a roller coaster.  On the other hand it offered unique advantages, so let me explain.  Our clients for the most part are either saving today to build future wealth, or they’re withdrawing savings for retirement income.  In young and middle-years (accumulators) 2018 offered rare opportunity to buy valuable investments at lower costs.  The difficulty arises however for people taking income from falling asset values.  Peak to trough the U.S. plummeted 19.8%.  Pinnacle to pit, Canada’s market fell 17.2%.  Europe and elsewhere dropped 20-30%.  Bonds too were off 2% to 6% for the year.  Ninety percent of investable assets fell in 2018.  For a few pictures of what happened and where we are now click this link to slideshare or have me send you the slides.

Best of times, Worst of . . .

Younger clients in their 20s, 30s, 40s can remember me saying you’ll be happy in two events:  when markets rise, also when they fall.  When values go up people naturally feel happy about it.  When markets fall however this is a unique opportunity for you to buy more for your dollar while things are on sale.  2018 offered sale prices, both early and later in the year.  As time goes on the jagged thread of daily markets gets pulled into a straight line moving upward at 6% or more (check the picture down below).  Investing regularly – especially monthly – is most effective.  So while building your savings, there are “no bad times.”  Downswings accelerate your future wealth.  Keeping in mind your goals of freedom and personal independence, family education, future retirement, and comfort while aging, up-and-down seasons are all part of the pathway to secure your future!

Later by our 60s, 70s, 80s, 90s people are drawing out monthly income for personal needs and lifestyle.  So in 2018 imagine someone drawing $5000/month by selling units at $108 which fell during the year to $90.  Their income in the earlier instance was satisfied by selling 46 units a month, but later they had to sell 55 units to get the same income.  Selling when prices are low can be dangerous so we arrange your “income reservoir” to keep your monthly income away from the roller coaster.  If you’re wondering what fell from $108 to $90 it was one of Canada’s biggest and most successful financial services companies.  As we'll see in a moment, combining “life income mandates” with a healthy “income reservoir” reduces downswings while allowing long term growth.

News reports described 2018 as a year that “nothing worked”.  It happens.  Since 2008-2009 markets were also down heavily in 2011, 2015, 2018.  Other years are generous as you can see in the last slide here or in this picture.  The process clearly works.  . . . 

LIM and More  . . .

Life Income Mandates are built to provide high-income with lower-risk (like the picture above).  It’s a strong foundation for financial security at any age, and there’s MORE as we’ll see in a moment.  I’ve built out and shared these mandates over the past 20 20 years – if you need more about it ask me for further resources.

These clear mandates carefully protect against deep slides when markets fall, sustaining income while muting the risks that are raging in the news.  For instance, 2018, two of our positions in global infrastructure income dropped 4-5% as global markets dropped 20%.  Our real estate income mandate includes a Canadian property fund that rose +4% and a global fund that retracted -3.5%.  Bond and fixed-income holdings combine government and corporate, Canadian and foreign, negative-duration, high-yields, commercial loans, real-return, thus safeguarding income (and the income reservoir) at lower risk than the surrounding turbulence.  In combination also with dividend income these mandates greatly reduced risk while outperforming wider indices and benchmarks.

Talking about “MORE”  . . .

When others are beached at low-tide we can ensure you always have water below and wind in your sails.

Along with LIM we also keep an edge for growth and momentum.  In your accounts you’d spot this as mid- and smaller-cap equity, far-east, emerging/frontier markets, special positions led by unique teams.  You might assume those managers faced the steep declines of 2018 just like all the boats in bay will fall in an outgoing tide.  Yet our teams reduced the downside while also responding quickly as new year opportunities came into view.

An example is Mackenzie Canadian Growth team headed by Dina DeGeer, down only 1.3% last year.  How did they manage this when the world tumbled?  With half invested in Canada and the rest internationally they culled the fund to only 29 unique holdings positioned for low debt, strong growth, rising earnings, exceptional management.  They outperformed Canada’s TSX by 10% last year and by 50% over the past five years. This team rigorously evaluates their universe for cash-flow and earnings, debt, inventory, staff and management practices, governance, currency risks, supply chains, product design & development, dividends and growth, ultimately rejecting thousands of stocks to own only a few dozen at a time, selling when target-value is reached and replacing with another to repeat the same process.

Next Steps in 2019  . . .

Most important is that we speak regularly to review your investments, any questions, and life changes that can affect your goals & needs.  For your accounts, we stay focused on the objectives of your financial plan.  Life events are vital as well!  Can you reduce debts?  Are your expenses rising?  Is someone in your family needing your help?  What about milestones such as buying or downsizing a home, pausing for further education, launching into retirement, increasing travel, or setbacks in health!  We discuss all such experiences because in the final analysis, your wealth must carefully serve your personal needs and goals in all the seasons of life.  This focuses entirely on YOU … today and always, aligning wealth to the lifestyle and values you hold dear.

PS:  thank you again for comments on the November and December letters touching Eldercare Planning and Registered Disability Savings / Trusts.  These unique areas of planning will help someone you know.  Let people know -- we are always grateful to serve your financial and personal wellbeing.

Yours in Financial Security for LIFE!

Brian

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Yours in Financial Security for LIFE!

Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500

627 Guelph Line, Burlington, Ont. L7R 3M7.  1-877-937-3500

Brian@SovereignWealth.ca

Author:  A Lifetime Of Wealth — And How Not To Lose It  (2013). Protecting Life, Loved Ones, and Future Dreams  (2013). Your Business, Your Retirement: Halton Retirement Study (2015) .

** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Franklin Templeton.  Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.

 

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