When the markets turn as volatile and confusing as they have over the past year, even the most patient investors may come to question the wisdom of the investment plan that they’ve been following.

As an advisor with over 22 years of experience, I’ve seen a lot of difficult markets come and go.
However, I can certainly empathize with those people who find the current environment troublesome and disturbing.

I would be pleased to help you out and to that end, here’s what I’d like to suggest…

A cup of coffee, and a second opinion.

By appointment, you’re welcome to come in and sit with us for a while. We’ll ask you to outline your financial goals – what your investment portfolio is intended to do for you. Then we’ll review the portfolio for and with you.

If we think your investments continue to be well-suited to your long-term goals – in spite of the current market turmoil – we’ll gladly tell you so, and send you on your way. If, on the other hand, we think some of your investments no longer fit with your goals, we’ll explain why, in plain English. And, if you like, we’ll recommend some alternatives.

Either way, the coffee is on us.

22 years ago, I learned a definition of the phrase “bear market” which has served me extremely well ever since. A bear market is a period of time during which common stocks are returned to their rightful owners.

When stocks of great companies are “re priced” at lower valuations does this mean that all of a sudden the management of these companies suddenly became stupid over night? Or that they suddenly stopped making the best product or service that they are noted for?

Of course not!

They are still showing up for work and continuing to manage their business to make profits and increase shareholder values…

While it is true that the economic and financial market news at the moment is difficult to digest and, on the surface, even more difficult to act on. But when you step away, it isn’t that different — or that much more difficult — than at any other time in the past several decades.

Now, without a game plan, one has nothing to act on and will simply invest by reacting to the latest scandals and market swings.

In the short run the stock market is a voting machine, and in the long run it’s a weighing machine.

As a voting machine, it responds to people’s emotions. There’s no literacy test for voting. You vote according to how much money you have, not according to how smart you are. So the stock market does some very silly things in the short run.

However, over the long run, it behaves quite rationally.

There is opportunity in every adversity…

And, you know, five years from now, 10 years from now, we’ll look back on this period and we’ll see that you could have made some extraordinary buys.

I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well.

Actuarial projections show that the average couple will live 30 years past their retirement.

The risk here is not losing their money, but rather outliving their money, as inflation erodes purchasing power by an estimated 3% per year. At that rate, it will take $2.40 at the end of the 30 years, just to buy what cost $1 today.

There is only one asset class that can historically be shown to provide the returns needed to offset this erosion of purchasing power. It might make one uncomfortable, but one needs a healthy dose of stocks in their portfolio to reduce the real risk of outliving their money.

If you think in retirement, bonds are safe and stocks are risky, it’s the other way around.

How can you fail to achieve all your long-term financial goals in an asset class that’s been compounding at 10 to 12% since Lindbergh flew the Atlantic?

So, now, what are you going to do about it?

Start by turning off CNN and begin reading the comics section of the newspaper instead.

Focus on your life and achieving your goals

It’s up to you!

You have my permission to begin now!

Still better!

Click me below for YOUR 2nd opinion appointment!

For any sports game to have a successful outcome there must be both a strong offense (to score) - and a strong defense (to protect)…

To be successful and to win in the “game of life” is no different!

However, in my experience, I have found that most Canadians are usually more interested in their investments - the offensive side - albeit the “sexier” side of the “duo”…

Little attention is spent on the defensive side - insurance. Sadly, often to their detriment…

Many Canadians are generally not aware of limitations in the health insurance coverage provided by their employers and government health plans. So when they are faced with a catastrophe such as a disability, an illness or premature death in the family many are forced to take funds out of their investment portfolios and RRSPs to help them cope…

Life insurance, critical illness insurance and disability insurance are designed to provide the necessary foundation (defense) to protect one’s family AND investments….

Investment plans are the “offense” in ones financial life – insurance in all it’s forms is the “defense”.

Below are excellent calculators designed to assist you in reviewing how well your “defense” programs are:

Life Insurance: http://www.manulife.ca/canada/ulcalcs.nsf/Ircalc?readform

Critical Illness Insurance: http://www1.manulife.com/canada/ulcalcs.nsf/cic?openform

Disability Insurance: http://www.manulife.ca/Canada/ilc2.nsf/Public/LB_disabilityins_calc

Or just go to my Website for all the links… http://www.howtobesetforlife.com/library/

Let us all know what you think here…

This past week I again got another referral who was looking for financial advice…

It was a referral from another existing and happy client – for which I am always pleased and grateful.

(Both for the happy client and also for their trust and confidence in putting my name out there.)

As you know, I use “data gathering” worksheets to be completed before an appointment…it really hasn’t changed much over the years except now it’s “electronic” vs. “paper”.

You can get a copy for yourself here:
http://howtobesetforlife.com/Reports/SetForLifeStarterKit.xls

The point is that on tab 3 – Your Financial Objectives, this family had listed their objectives as:

Short term goals:
Take a vacation if possible
Paint inside and outside of house
Do home renos

In the next 3 years:
Buy a new van
Buy a new TV

Long term:
Be able to afford to send the kids to University
Have the house paid off
Retire early – if possible and have significant savings to
sustain out standard of living…

The reason to save/invest more money:
To live comfortably and have more cash flow!

I dare say that these financial goals are similar for everyone and are in fact “universal”.

We all want to create safe and secure, rich and rewarding lives for ourselves and our family!

These are the fundamental reasons that we all buy homes, save and invest…

To provide security now and to build for the future!

Right?

However, the distractions to these noble goals come by listening to the financial media depicting what “the markets” are doing. Because of this many individuals fall prey to the headlines and “sound bites” and over come with emotion change their “game plan”…often to their financial detriment.

See The Market Cycle Of Emotions - Chart
http://HowToBeSetForLife.com/images/MarketCycleOfEmotions.jpg

The engines of wealth creation (real estate, stock and bond markets) do not always purr along like a well tuned sports car.

Unfortunately, there are times when they sometimes behave quite erratically – to the point that you may feel that you are strapped into a 1970’s Gremlin – running on 3 cylinders, with black smoke spewing out of the back. Remember those cars?

Now, please don’t get me wrong: I’m not trying to talk the market up, any more than I’d try to talk a forest fire down. It will burn until it’s finished burning.

If it bothers you, stop watching it!

If it bothers you, stop listening to it!

Do what really matters!

Concentrate on your financial goals – they haven’t changed have they?

Well, if that’s the case don’t “second guess” your saving and investing strategy – stay the course…

It’s not like you need the money today – right?

To realize (and pay for) your medium and longer term goals you probably still have 5, 10, 20 and often 30 years or more ahead of you!

Right?

Remember, you will be spending the rest of your life in the future – your future!

What will it look like? Everything you wanted it to be and more?

Or not.

It’s your choice!

What you do about it now will have serious and long lasting implications as to how your future and your future lifestyle will look like.

Remember, we only get once chance at living our life – this is not a “dress rehearsal”!

So, let’s get back to the matters at hand…what really matters…

More fully engage with your family, friends and co workers…get out and enjoy a fine restaurant meal, watch the kids play a game of baseball, appreciate a superb sunset…

Reconnect with your life!

Find joy in it and in living it!

And remember to laugh along the way.

Let others do the worrying – it’s not a productive thing to do.

I was a few months shy of age 50 when the markets topped out last October, and now I’m 6 months older .

But my goals are exactly the same:

I still need to secure a retirement income which will rise at a pace that is greater than the cost of living for at least 30 years - maybe closer to 40, if you look closely at my wife…

I still have to be ready to backstop my aging parents - even if I’m convinced they’ll never need it…in the funding of my “adopted kids” educations. And I’m still determined to leave legacies to my favorite charities such that they won’t soon forget that I was here on planet earth.

And again, in this time of uncertainty, I can be absolutely sure of one thing - exactly as I was in 1987 and 2002: whenever and however this thing burns out - I’ll be investing at prices neither you, nor I, nor anyone else will ever see again.

Remember, markets don’t lose us money – it’s our reaction to the markets that lose us money - or make us money - it just depends what we do!

This conversation is missing YOUR voice…
Take a few moments and let us know what you think!

It’s déjà vu - all over again…

I had only been in the business for 1 year when “Black Monday” hit the markets…

I thought that the world was coming to an end…as did some of my clients at the time!

I had had no experience with market downturns before and so continued (fortunately) to counsel my clients to “hang in there”…

As you may recall, on Monday, October 19, 1987—now known as Black Monday—the Toronto Stock Exchange 300 Composite Index (TSE 300) dropped 407.20 points that day to close at 3,191.38—losing 11.3% of its value.

In the United States, the Dow Jones Industrial Average tumbled 508 points to close at 1739 - losing 22.6% on Black Monday alone.

Now, fast forward 21 years…

I have been through all this stuff before – and I am older (unfortunately) but wiser (fortunately)…

Still, on Monday, September, 15, 2008 – the Toronto’s S&P/TSX composite index (TSX) dropped 515 points that day to close at 12,254.32 losing 4% of its value.

On the same day in the United States, the Dow Jones Industrial Average tumbled 504 points closing at 10,918 losing 4% of its value.

The TSX’s drop on September 15, 2008 was 100 points less than that of October, 1987 yet the index only gave up 4% vs. 1987’s 11%.

For the Dow, it had almost exactly the same point drop as October, 1987 – however, the index only lost 4% rather than 22%! In other words, it lost 5 times less than the magnitude of the loss in 1987.

So do you see what these numbers are telling us?

That both the TSX and the Dow stock market indexes have increased so much in value over the past 21 years – that a 400-500 one day point does not slice off as much shareholder value as it once did…

Did you know that?

Here is what is really interesting…

Over the past 21 years, the TSX composite index has grown in value from 3,191 to 12,254. A gain of 9,063 points or 284%!

And

Over the past 21 years, the Dow Jones Industrial Average index has grown in value from 1,739 to 10,918. A gain of 9,179 points or 528%!

Also, during this time frame – among other things, the markets have had to digest and deal with the news of:

1990: Iraq Invades Kuwait
1994: The Mexican Peso Crisis
1997: Asian Currency Crisis
1998: Russian Debt Default
2001: September, 11 – Attack on New York’s World Trade Centre

Each of these was a huge event at the time.

Yet, we’ve seen markets recover from each of them, sometimes more quickly than many anticipated. Of course, there’s nothing to say that what we’ve seen in the past will always repeat itself in the future. But, generally speaking, that is what happens.

What’s the worst scenario?

Three or four months until a market bounce back isn’t unusual after some major setback.

In fact, it took only two years for the Dow to recover completely; by September of 1989, the market had regained all of the value it had lost in the ‘87 “crash”.

So, in spite of all the events that have shaped our world and affected our stock markets in the past 21 years – the amount of time that I have been in the financial services industry:

$1,000 invested in the TSX over the past 21 years would be worth: $10,336 for a profit of $9,336.

And

$1,000 invested in the Dow over the past 21 years would be worth: $14,727 for a profit of $13,727.

When the market tumbles, the pain of the resulting losses compounds investors’ overreaction: the injured just want to stop the bleeding. The problem, of course, is that pulling your money out on such a willy-nilly basis leaves you vulnerable to a different sort of pain — the bellyache you’ll feel when stock prices bounce back.

If only we had the foresight to sell before every market downdraft and then get back in just as the good times roll again. But that’s tough to do.

Missing just a few good days of performance can significantly reduce your overall returns…the longer you hold an investment, the less volatile it actually becomes…

For instance, someone who missed the 30 best days on the S&P/TSX from August 2002 to March 2008 would have been left with only slightly more than they began with ($10,489, compared with $10,000 originally invested, for example). Staying invested over the entire period would have resulted in more than twice that amount, $22,950.

Wouldn’t you be better off missing the equivalent down days?

Of course!

Which ones did you have in mind?

Given that both big up and down days represent less than 1% of the days considered in the average market, the odds against successful market timing are staggering. Its right up there with winning the lottery!

Sure, things look bad and only the cheeriest of optimists think that North America isn’t in recession. But these economic setbacks don’t last forever.

In nine of the past 10 recessionary periods, stocks bottomed about halfway through the actual economic downturns.

The only exception was in October 2002, when shares hit their lows nearly one year after the 2001 recession officially ended - and it’s fair to assume that the September 11 terrorist attacks made a very big difference in that instance.

What was the average duration of these 10 recessions? 10.4 months.

That doesn’t seem that long to wait…and don’t forget that you are not invested in the broad indexes!

Your portfolio will have various and different elements or asset classes working for you.

These each will be going through their own individual cycles.

This gives your portfolio a much calmer ride…yes, less returns than the broad stock market indexes in great years – but, preserving the value of the portfolio in lousy years…

For a more in depth analysis of the markets in historical context, read what I wrote recently here at:

http://www.howtobesetforlife.com/articles/the-andex-chart-what-it-means-to-you-and-me/

Remember, markets don’t lose us money – it’s our reaction to the markets that lose us money!

So – don’t worry – be happy!

Enjoy life!

It’s a great one!

This conversation is missing YOUR voice…Take a few moments and let us know what you think!

I just wanted to let you know that I just recorded
and unloaded the audio for:

“The Top 10 Canadian Home Ownership Myths - Exposed!”

You can listen to it here on the blog at:

http://howtobesetforlife.com/audios/

Or the “direct link” is here - just click too play…

http://howtobesetforlife.com/Audios/Top10MortgageMyths.mp3

Make sure to turn up your speakers because the recording came out on the
quiet side…

However, I trust that the recording will be of value to you…

Once you listen to it let me know what you think -

Take a few moments and let us know what you think here!