I'm sure you know people who tell you that investing is not complicated. Simply buy "large blue-chip companies" (whatever that means), like Apple or Amazon, and hold them dearly. Nothing can go wrong. Done.
And please, don't ask these people about Lehman Brothers, Enron or Nortel, because it was so obvious that these companies would go bust. Really?
In the past 20 years, Apple gained +18,000%. $100 became $18,100.
See? Told ya! So easy.
Except that along the way, there were a few hiccups.
From the 82%-plunge for Apple to the 93%-gut-wrenching for Amazon.
Yup. Imagine the ride, from $100 to $7.
Honey, I'm down 93% but I'll hold on to it. Really?
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The Next Crash
Sorry to bring that up though it's not a question of if but when. Obviously, I have no idea when it will happen. What I know is that I am ready. It will be tough and the temptation to override the systematic rules, that these ETF Portfolios are made of, will be great.
Yes, we are presently heavily exposed to the US and that's the only good looking asset class in town so far. Since 2006, it's been the case 13% of the time. In other words, it has happened not that often. In 2016, there was only one month allocated to the US. 2017 was the year of Emerging Markets and we nicely surfed that wave.
So let's all take a deep breath and continue to follow the process.
No discipline, no glory!
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Cheap Ice Cream
Lots of people rely on financial advisors (FA) to manage their savings. That's wise. It usually costs them a flat fee, around 1% of their total assets. That's okay. Now, what about the cost of owning these assets? In plain english, what are the extra fees, also called Managed Expense Ratio (MER), of these funds? That's where it gets ugly.
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Exhibit 10 (source: Morningstar) shows that Canada, along Belgium and Taiwan, has one of the highest MER in the world, placing it at the bottom of the scorecard. On average, a Canadian mutual fund costs about 2% a year. If you do the math, that's about 3% of total fees per year. That translates into $300 in fees for every $10,000 invested, every year. If your investments return less than 3%/year, you are in the red and you'll have to work forever. So do yourself a favour, insist that your FA disclose ALL your fees. And remember, most (if not all) mutual funds can be replaced by ultra low-cost ETFs.
Even kids know that Costco offers cheaper ice creams than Whole Foods!
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ETF Portfolios 2018 Returns
As we are 3/4 in the year, let's take a look at our returns. Overall, I wish all years were like 2018. Double-digit returns for four of our portfolios, all beating (or matching) their respective indices.
For October, there will be no trade meaning that we keep our existing allocations in US stocks, Oil, Discretionary, Technologies, Canadian REIT and Canadian cannabis. Absolutely no exposure to Gold (-8.78%), Emerging Markets (-8.38%) or Long-term U.S. treasury bonds (-5.91%). May be next month, who knows, let's see where the future capital flows bring us.
How has it been for you so far this year?
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Whether your portfolio is managed by a 3-piece suit charging 2.5% a year or by a low-cost robo advisor, why not compare it with our ETF Portfolios?
Even better, ask for a free 30-day trial to access all our ETF Portfolios.
Then decide.
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Talk to You October 31st!
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