December 2015 Sovereign Wealth Letter

2015 is a year that tests how we invest and the results we achieve.  Many markets including Canada are down 10% this year.  Our investment program has protected against such loss, as our results currently range +/- 2%.  Two things I want you to receive in today’s letter include:  (a) what we mean by “risk”,  (b) how we focus to overcome risk.

What’s the thing about Risk?

Pic _ risk _ overcomingRisk means different things to different people, doesn’t it?  One driver speeds up before a light turns red – afraid of being delayed.  Another slows for amber, wanting a smoother ride.  Investing is a bit like this, and the risks clearly differ in the mind of each person.  This is why we talk about your personal thoughts on money and life.  It’s vital that we maintain a clear understanding of what “risk” means for you and in your investment profile.

Mid-2008 opened a period when world markets dropped 50-to-70%.  Twice a decade we see markets drop at least 25% and most people don’t want to face losses like that!   “Plain vanilla” is this year's drop with the TSX down 10%.  This isn’t like Dairy Queen vanilla, but with soft employment, weak trade, and a persistent slump in energy and metals, we’ve had a tough time generating growth.  Even our banks are down >10%.  There’s been little relief this year.

Each month I review client accounts.  Excluding deposits or withdrawals, I get an eagle’s view of how our plans are faring compared to wider markets.  I cannot personally move markets up or down -- nor do I have a crystal ball to forecast them.  No one does!  But our core strategies have proven to reduce risks in tough times, and sustain growth in good times.  This is vital, for failing to grow means running out of money – and too much risk also means running out of money!   We need to sail a safe course between the cliffs of risk and growth.

Too little risk can mean running out of money.
Too much risk also means running out of money.

2015 is a strong year to test our Life Income Mandates.

As you know dividends are among five mandates for life income.  And while Canadian dividend funds have lost 9%, global dividend funds have gained that or more.  Global Infrastructure and Real Estate funds have also been strong.  As a result we have accounts that are positive this year, or down slightly.   Unlike a Greek ferry captain we have steered a steady course through stormy seas.  2015 will likely close down, yet client accounts will prove more resilient …perhaps between -2% to +2%.  That is a success in such a year as this.

Economic forecasts continue to predict better numbers just around the next corner. …or the next corner after that!  Oil was to rise last spring (until it fell again).  Europe seemed to be steadying (but monetary easing is still necessary there).  A gentle rise in U.S. interest rates will show confidence, yet this too has been long delayed.  Other economies are a mix, devastation in Brazil and Russia, growth in China and India.  All told, our major partners at CIBC, GWL, Dynamic, Makenzie, RBC, Templeton, forecast growth ahead in 2016 and 2017 as I’ve highlighted in my monthly letters.

Two people were talking about Risk...

There’s a story I share when we’re setting up or reviewing accounts.  We generally mention four people in this story.  I’ll abbreviate this to Al and Beth.   They’re the same age yet have vastly different views about risk and return.

In 2008 Al was upset that his investments were down 4%.   Even in 2006 and 2010 with growth near 10% Al felt he was taking too much risk.  Al says 4% loss outweighs any benefit of 10% gains.  He’d feel safer making 2% if there was no risk.   But “no risk” is a fallacy!   Avoiding risk today won’t even pay 2%.  So Al's real danger is that he runs out of money by earning so little.   (He needs a focus on “income” that combines “mandates” with an “income reservoir”.  Eg. see Sticky Money.  This supports income and lasting security through the years ahead.)

Beth invested through those same years but her experience was different than Al’s.  She was less concerned in 2008 with values down 15% for her income-yield was at an all-time high.  In other years Beth’s account gained strongly and her long term average growth is in a range of 6-to-8% per year.  Like Al, Beth says she has many years to live, and wants enough money to cover needs that will arise along the way.  Beth believes her risk is actually lower than Al’s because it’s safer to earn 6-8% with some fluctuation (than to earn far less and run out of money).

Are you more like Al or like Beth?  Are your friends more like Al or Beth?  What views shape your sense of investing?  Would you willingly lock-in a guarantee of 2% or 3% if it were available, knowing inflation will steal that away from you?  Or would you prefer a journey which will fluctuate at times, yet pay you a sustainable income from global dividends, rental income, tolls and other fees, in a portfolio of blue chip enterprises, diversified infrastructure and real estate?

My thesis and proven belief is, these principles to support and sustain income take the financial risk out of aging.  Especially in times like 2015 our results consistently show we’ve reduced risk in order to raise your yield and increase your resources for the years ahead.

A Grinch for December?

Even the Grinch turned saintly and his heart grew three-sizes (after learning his attempts to destroy Christmas were futile).  Most years we have a substantial rally in November and December, issuing in what is favourably called a Santa Claus rally.  It pauses for tax-loss selling and such adjustments and then resumes in the new year.  I think we’re seeing a grinchy-green December this year ...and if so, then it will pass.

Pic _ risk _ rising from2016 and beyond

Often one year’s losers become next years’ winners.  What saved us in 2015 was a strong income-focus that reduced our risks.  What strengthens us in 2016 is this vital income-focus to accelerate our recovery and sustain wealth in the years ahead.   If our banks have fallen 10-15% they will rise again as they always do.  If energy and materials have fallen 75% and more, they will recover because the world inevitably needs energy and resources to build cities, industry and infrastructure.  If world markets quaked at a rising US$ they’ll soon power forward with stronger exports.  The future is brighter …it always has been.  And if we can range -2 to +2% in a year when markets fell then this is clear evidence we’re on track to resume growth in the seasons ahead.

Easy-to-enjoy New Year Resolutions!

Here are two places you can visit to add fun, energy, and longevity to our life.  Global insights from my friend Dr. John Todor are at where you can subscribe freely to his 55+ blog and tour his site for healthy and enjoyable ideas on aging.   And at home here visit Silver And Gold Magazine …the winter edition has just arrived at Silver And Gold Magazine.  I welcome you to enjoy!

Celebrating Light and Love.

This season is many things to many people.  In whatever way you and your family celebrate I wish abundant peace, love, and goodness to you and your dear ones …and a healthy, happy, prosperous year ahead.  Reach me anytime that we can be of help.

We are forever grateful to serve you and your financial wellbeing for life and beyond... Let me know anything we can be doing that enriches or enhances our service to you right now.   Yours always,


Brian Weatherdon, MA. CFP. CLU. CPCA. CRC. MDRT.  905-637-3500 x 223
627 Guelph Line, Burlington, Ontario. L7R 3M7.   1-877-937-3500 FREE x 223 
Ret.Coach SEALAmazon: “A Lifetime Of Wealth — And How Not To Lose It.”
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** 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. For information on near 10,000 investment funds and other financial structures please feel free to contact me directly. Returns shown are from Morningstar and other major financial news media. Research is sourced from leading sources including GLC, RBC, CIBC, Franklin Templeton, Mackenzie, and a wide range of highly reputed firms. 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 serve alongside your legal and accounting advisors with whom we can best protect your financial security and advance your goals. We are grateful always to receive your comments and questions.

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