More about “How to Immunize your Portfolio” as promised last month, here is how we continue to prosper your goals and preserve your future lifestyle.
We’re making progress in this challenging year. Despite the rampant hype in daily news, Canadian markets have been rebounding from a low on May 12th after two months’ decline, with US and World markets lifting tentatively from May 20th / 24th after five months on the slide. There was no shortage of alarm – even beyond these ten: war in Europe, food and fuel prices, global shipping delays, broader inflation, rising interest rates, looming elections, miss-match of skills and jobs, open hostility in social media, covid + monkey pox, and severe weather events.
SUNNY SAILING COMPARED TO MY BROTHER’S PICTURE IN LAST MONTH’S LETTER. STORMS PASS, SUNSHINE RETURNS, SAIL-ON !!
Impact on our investments is half or a quarter compared to the damage that hit world markets in recent months. For some weeks now equities have been edging higher (not bonds, see picture below). Is this permanent? Will it last? Another slip could occur before the uptrend is confirmed. My personal feeling and ongoing study says we will see healthy rewards in the second half of 2022.
Anyone who felt overwhelmed with broadcasts of doom from TV or websites this year, you weren’t alone. A quick google search of “2022 recession” yields over 1½ BILLION articles! Ask yourself where and why all that arises. Radio? TV? Websites? Promotions pretending to be news? All of the above. They’re all after our eyes and our ears because that’s what sells stuff or brings in advertising revenues. They sell fear. Other times greed. Fear and greed. You never hear those things from me because fear and greed are poison to your health and your money. Prudent investing offers confidence with a strong foundation, preserving wealth much better than fear. So now and always we keep focused on protecting your health and your money, and all the benefits for your future.
Recession? You may have heard economists predicted 13 of the past 7 recessions. Fear of recession arises much more than the real thing. Recent data releases give 75% likelihood of no recession this year. 2022 GDP growth is expected to range near 3% in Canada and the U.S. Inflation is showing early signs of easing. Employment is strong. Wages are up. Corporate earnings are beating expectation. Among all the data measuring economic growth versus recession, a recent study showed only one out of six “super factors” suggested recession while the other five key factors were strongly positive.
HOW TO IMMUNIZE YOUR PORTFOLIO.
#1 As above, Immunize your Viewing Habits and guard against media sites aiming to stoke fear and greed.
#2: Pay Attention to the Yield. “PATTY” is like our Life Income Mandates. Own things that continually earn a lot of money and faithfully return that to your account as income, especially if it is inflation-indexed income. In twenty-five years this has disappointed maybe twice but only for months, not years. PATTY includes dividends which rise with economic growth so you inevitably get paid more as the years proceed; same with Real Estate Income where commercial and other rents continue to pay more as years go on; and Infrastructure Income which includes contractual inflation-indexing. Taken together these are the reliable high-yield “widows and orphans” stocks your grandparents might have mentioned, and remain today as absolute foundations for pension funds and personal income for life.
#3: Be Careful of Bonds when interest-rates are rising. 1945 to 1982 was a drag on bond returns. 1982 to 2021 was the reverse, at times providing significant gains along with coupon payments … until interest rates hit an all-time low of zero (and less). Economic growth in a post-covid world today is moving interest rates higher – quickly just now to dampen inflation, then easing to a 2-3% range. 2022 has given little respite (government bonds down 10%) but some relief amid higher-paying corporate bonds and short-duration credit.
BOND MARKET DOLDRUMS IN 2022
#4: Own companies that keep growing even when times are slow, businesses with repeating and resilient profits, with strong defense where others cannot easily replicate such products or services. Picture the following. Our growth teams, both in Canada and the U.S., each build unique positions in just 30-40 businesses at a time sharing the following characteristics: essential products or services, with an endless stream of repeat clients, highly-skilled loyal staff, conservative management, environmentally sustainable, low-debt, strong and expanding balance-sheet, with a growing reach into markets nearby and afar; building cash-flows 25-40% a year, and the best times are when such companies have been missed by others so we can pick these up at fire-sale prices. Our portfolio teams don’t change the weather, the business cycle, front page news or market sentiments but they always make sure we own best-in-class businesses with increasing profits which promise lucrative rewards over the seasons ahead. No fads; no high-growth zero-earning disasters. Proven and repeatable results supporting long-term security.
SUMMARY.
Nothing fearful here, and in any event you already know it’s best to ignore fear and greed, and any other fads or flavours of the day. We design your plans to assure growth over time, to reduce turbulence in world markets, and especially keep the way forward safe and abundant. If sometime you were feeling less than confident, that would be a vital time for us to speak together, reviewing your needs or any changes, and our financial and investment planning that will continue to prosper your personal goals, your life income, and the lifestyle you want to enjoy.
- PS: reminder as shared in our April letter, in transitioning toward my retirement in three years or so we are further emphasizing the “team” approach of our services, and you will have noticed our firm’s president Whitney Hammond now shows on all financial statements. Reach us of course the same as you’ve done in the past. We’re all still here and we are forever grateful working with you and serving you.
Yours always in Financial Security for LIFE.
Be sure to introduce us if you know someone needing help.
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Brian@SovereignWealth.ca.
Certified Financial Planner, Certified Retirement Coach
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 Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.