TheAnswerIs.ca Inc. announces a total return for the Model Portfolio from inception October 26, 2016, to September 30, 2022 was 46.30%.
The corresponding total return for the Toronto Stock Exchange (TSX), as represented by the ETF XIC, was 49.87%.
The annualized return for the TheAnswerIs.ca Model Portfolio for the 5.93 years since inception was 6.63%.
The trailing 3-month total return for TheAnswerIs.ca Model Portfolio was negative 3.85%. The trailing 12-month total return for TheAnswerIs.ca Model Portfolio was negative 10.33%.
Past returns are not indicative of future returns.
Global stock markets have turned challenging yet again.
Year to date, the Canadian Stock Market has dropped 13.1%, but has outperformed global markets which are down approximately 24%. The relative Canadian outperformance is largely due to Canada’s heavy weighting in Oil & Gas.
Downturns are inevitable, but since educated investors expect them, there is no need to panic. All investors have learned after the 2008 Financial Crisis, and more recently the 2020 Pandemic, that the key to successful investing in the long-term, is not to sell into a market downturn. If anything, if cashflow permits, a wise investor will increase periodic investments after markets have dropped 15% to 25%, or more.
Personally, during times of declining stock markets, I find it helpful to focus on the dividend income my portfolio is generating. During this recent stock market decline, TheAnswerIs.ca Model Portfolio dividend income did not decrease. It actually increased, and by quite a bit.
In Q3 2021, TheAnswerIs.ca Model portfolio generated $765 in dividends, and in Q3 2022, dividends increased to $910. That is a “pay raise” of 19%! That increase likely exceeds any raise you got at work this year and is also much higher than inflation.
With interest rates rising and the economy slowing, we could well be on the cusp of a recession. Importantly however, on a percentage basis, dividends typically decline much less than the total value of a portfolio.
Over time, dividends rise, and those dividend increases drive portfolio capital values higher.
For example, in the first 12 months of TheAnswerIs.ca portfolio existence back in 2016, the portfolio generated $2,722 of dividend income. However, for the most recent year, the Model Portfolio generated dividend income of $4,065, an increase of 49%, and well ahead of inflation over the last 6 years.
So when the stock markets gyrate, wobble and decline, focus on the stability of growing dividend income over time, which will eventually support a portfolios’ higher capital value as the stock market recovers. TheAnswerIs.ca Model Portfolio is designed to collect dividends every single month, whether the market decreases or not. The monthly drip of income helps an investor stay focused on the long-term.
For some helpful reading on how to cope with declining stock markets, please have a look at Risk vs Volitilty - Managing a Bear Market and also Can a Bad Day in Global Stock Markets be a Good Day for you?
The key to investment success is to make sure any money invested in the stock market can be left untouched for a minimum of 10 years, and preferably much longer. Not selling into a stock market downturn will ensure time for a portfolio to recover and provide potentially attractive long-term average equity returns. Five years before one slows down working, and begins to draw money from their portfolio, one should move a significant portion of their portfolio into Fixed Income.
Invest long-term and prosper.