TheAnswerIs.ca announces the total return for the model portfolio from inception October 21, 2016 to October 21, 2018 is 14.78%. This total return is down almost 5% since the Q3 2018 model portfolio update on September 30, 2018, only 3 weeks ago. A very good reminder of the volatility of stock markets.
The corresponding total return for the Toronto Stock Exchange (TSX), for the period October 21, 2016 to October 21, 2018, as represented by the ETF XIC, is 9.94%.
The annualized return for TheAnsweris.ca model portfolio is 7.09%. Past returns are not indicative of future returns.
Looking at the picture above, the 14.78% total return for TheAnswerIs.ca model portfolio over the past two years is loosely depicted by the first two dots on the graph. As you can see from the number of dots on the graph, investing a long journey! Don’t get too excited by a good year, and especially important, do not get too depressed in a bad year, because at some point a bad year will come.
"Volatility in the up direction is not a problem – it’s the downward volatility that offers discourse." - Coreen T, Sol
Since 1900, a period of almost 120 years, there have been 32 stock market bear attacks, i.e. stock market declines of 20%-50% or more. Historically, bear markets occur about once every 3.5 years, and the last bear market in the USA was about 9 years ago.
"October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February." - Mark Twain
That is not to say a bear market is imminent.
"Stock market meltdowns are like natural disasters – they’re unpredictable and unavoidable." - Rob Carrick
But that at some point we should fully expect the stock market to drop at least 20% to 50%. The key 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 then go on to earn attractive long-term average equity returns.
"The investor’s chief problem and even his worst enemy is likely to be himself." - Warren Buffett
The absolute key is that money invested in the stock market needs to be invested for a minimum of 10 years, preferably longer, to provide time for the markets to recover from the next inevitable stock market drop. If money can not be left untouched for a minimum of 10 years, it is very risky / dangerous to invest in the stock market.
The AnswerIs.ca model portfolio is rebalanced once per year.
Over the course of the year the model portfolio accumulates cash from the ETF dividends / distributions. Further, some ETFs performed better than others. As a result, the model portfolio needs to be rebalanced.
To rebalance the model means buying more of the ETFs that have not performed well and selling some ETF’s that have performed well. It may seem counter intuitive to sell “winners” and buy the “losers”, but in effect this process ensures selling at high ETF prices and buying at low ETF prices.
Be patient long-term investors.