I’ve often been asked to provide a stock market forecast for the coming year. The requests came from clients, consulting firms, the media and without fail, my father-in-law. On this investment question, I’m happy to report that I have a perfect record. I never once provided a forecast, not even when trying to curry family favour.
I’d like to say it took great discipline and fortitude to be so consistent, but it wasn’t that hard.
The odds of getting a one-year forecast right are very low. Consider the following numbers.
On our company website, we have a tool called the Volatility Meter that shows returns for various index portfolios going back to 1960. When I dial up an all-equity portfolio (50 per cent Canadian and 50 per cent Global) and look back over six decades, the annualized return (including dividends) is 9.6 per cent per annum.
If I’d offered up a typical forecast using a range around this average (8-11 per cent), how many times would I have been right? 10? 15? Maybe 20? How about two — 10.6 per cent in 1977 and 10.4 per cent in 1982. Two out of 60.
Embedded in the 9.6 per cent were 18 years over 20 per cent (including 2019), 13 in negative territory and a whole bunch that weren’t in most forecasts.
This analysis prompted me to think about what I could offer that had better odds of success. I came up with one recommendation that’s guaranteed to produce better investment outcomes — hire yourself as the CEO of your portfolio. That’s right. The buck stops with you, so start playing the role.
Successful CEOs are all about time management and delegation. Where can they most effectively allocate their time and resources to get the best results. It’s through this lens that I’m going to suggest what your priorities should be for 2020 and beyond.
Long-range planning
At the beginning of the year, it’s imperative that you review your investment plan that covers all your financial assets (including pensions). Whether it’s a crinkled page in a notepad or formal document, it should address the following:
• What’s the purpose of the money — retirement; education; travel? There can be more than one.
• How long will the money be invested? It’ll be different for each purpose or bucket.
• Is your mix of cash, bonds and stocks (asset mix) still appropriate?
• How much will you contribute (withdraw) each year?
• Is your provider and investment approach still the best fit for your skills, experience and available time?
• Who will be a steadying influence when markets get rocky?
These answers are your investing foundation. They provide a roadmap and will inform every decision you make. If doing this seems daunting, don’t despair. It gets easier each year.
Taking care of business
Being a CEO is not all glamour and glory. Administration is an important part of the process. In your case, this means developing a schedule of contributions (withdrawals) and ideally setting it up to happen automatically. The more automatic (and less emotional), the better.
You need to stay on top of your registered and non-registered accounts. Are your assets as tax efficient as they can be? How much contribution room do you have?
And if you have any forgotten accounts or lazy money, you need to decide which bucket they’re going into.
Feet to the fire
CEOs have a process for monitoring their team. For your portfolio, it doesn’t need to be weekly, or even monthly, but at least twice a year you should spend some time on your statement. Make sure your asset mix is where it should be and assess your long-term returns. And don’t forget about the fees and commissions. CEOs look at both revenue and expenses.
Make a list of questions to ask your advisor for your next call or portfolio review. Remember, you’re delegating — not abdicating — responsibility.
Strategy
Down your list of priorities is something many investors spend all their time on. It’s the fun part — buying and selling stocks, funds and ETFs. It’s important to do this adequately, but it comes after the asset mix and administration has been attended to.
And what do you know. I haven’t left any time for predicting the market, which is consistent with your new role. CEOs spend little time focusing on things that are unpredictable and out of their control. If you want to increase the odds of success, you’d be advised to do the same.
Tom Bradley is President of Steadyhand Investment Funds, a company that offers individual investors low-fee investment funds and clear-cut advice. He can be reached at tbradley@steadyhand.com.
