All posts by Graham Bodel

“I’m nearing Retirement and the stock market is at an all-time high. What should I do?”

On October 19 Fortune published an article with the headline:

“30 Years after Black Monday, the Dow Hits an All-Time High”. 

The article goes on to speculate:

“only time will tell if we have another crash ahead of us. But in the meantime, investors seem to think that skepticism and caution may be just what we need to avoid one.”

Connecting the all-time high to the Black Monday crash from over 30 years ago smacks of the kind of fear-driven nonsense that characterizes much of financial markets journalism these days.  The article raises the temperature further by pointing out that:

“this marks the fourth thousand-point milestone for the Dow this year, painting a very different picture than what was seen in 1987.  According to the Wall Street Journal, the Dow had never before hit more than two of these milestones in a year.”

Transforming meaningless data points into blood-pressure-raising insights is a coveted skill for both market journalists and stock market analysts alike.  After all it’s their jobs to get people to act: stock analysts to compel trades, journalists to direct readers/viewers to the skilled money managers that advertise in their pages or on their programs.

I’d be a poor headline writer.  The first one I came up with, “Dow Hits an All-Time High more than 500 Times Since 1987 Crash” wouldn’t inspire much fear or anything else.  The fact is that markets go up most of the time as is clearly displayed in the index data series shown at the top of this blog,  courtesy of Dimensional Fund Advisors. Continue Reading…

The hardest thing about being a stock investor

Stock market investors face a difficult challenge. While long-term stock market returns are quite attractive, in the short-term returns can be quite volatile.

This volatility can be difficult to stomach at times, especially when accompanied by worrying news flow.

Adding to the angst for Canadian investors can be the volatility of the Canadian dollar, yet it makes sense for Canadians to diversify globally.  It is important from time to time to review the historical evidence to help us manage our behaviour and stick with our investment plans.  Let’s review some of the long-term evidence:


“Long-term stock markets returns are quite attractive”

  • The average annual return of the S&P/TSX Composite index of Canadian stocks over the 60 years between 1957 and 2016 is 9.1%
  • The average annual return of the S&P500 index of large cap US stocks over the 91 years between 1926 and 2016 is 10%
  • The average annual return of the MSCI EAFE index of developed market stocks outside North America over the 47 years between 1970 and 2016 is 9.1%
  • Exposure to small-company stocks and low-valuation stocks has led to higher performance levels than that of market capitalization weighted indices over long periods of time

“In the short-term returns can be quite volatile”

Continue Reading…

Unfair or not, get ready for these 3 big corporate tax changes

“We see these approaches to managing people’s affairs through a private corporation as creating an unfair playing field … We’re trying to tighten these loopholes to make sure that it’s fair.”

Doesn’t sound like taxes for small business owners are going down, does it?  The above is from federal finance minister Bill Morneau’s July 18 announcement outlining some of the measures the government is proposing to help level what they perceive to be an unfair playing field.

Since the announcement we’ve been thinking about the potential implications of these changes and digesting comments from a variety of different tax experts.  We agree with one expert who opined that “fairness is subject to personal interpretation.”

Unfortunately adhering to these proposed changes won’t be subject to personal interpretation so the bottom line is that we encourage all small business owners, especially those using private corporations in conjunction with saving for retirement or for the benefit of their families as a whole, to seek expert tax advice ahead of these changes coming into effect.

How did this come about?

Taking a step back, the reason that small businesses were given preferential tax treatment in the first place was to encourage them to reinvest in growth opportunities, employ more people, contribute to the Canadian economy in a more meaningful way and that would be good for Canada – hard to argue with that.

Of course all rules, especially tax rules, end up with unintended consequences.   The current government feels many small business owners and their families have been taking advantage of opportunities (loopholes) in the legislation that allow for further savings when it comes to their personal taxes. Furthermore, they seem to be particularly concerned about the increased “corporatization” of certain professions that has taken place over the last 10 to 15 years in order to reduce tax bills. As not everyone is a small business owner, the tax advantages are deemed to be unfair to those who aren’t.

What are the specific areas that are deemed to be unfair?

1.) Income sprinkling

Income sprinkling is a strategy where a business owner looks to save tax by distributing income, dividends and capital gains to other members of his or her family in order to take advantage of multiple sets of graduated tax rates (i.e. pay other family members who are in a lower tax bracket) or exemptions, in order to lower the overall family tax bill.   Continue Reading…

It’s tough managing money: somebody has to do it, but not necessarily you!

Protecting and growing your retirement nest egg is one of your most important financial responsibilities.  Ensuring that your nest egg is sufficient to fund your lifestyle in retirement often means putting at least part of it at risk in the stock market.

Unfortunately, too many people are swayed into believing that being a successful stock market investor means you have to actually beat the market.  Beating the market is really, really difficult, especially over longer periods of time.  It’s a tough job, but why is it so difficult?

Picking outperforming stocks is hard

A recent article from one of our favourite authors and commentators, Larry Swedroe, highlights some data points from studies that indicate why stock pickers might have such a tough time beating the market:

  • The Russell 3000 Index of the largest 3000 US stocks delivered an annualized return of 12.8% between 1983 and 2006
  • While that’s an impressive return over that period and achievable for anyone investing in a Russell 3000 Index fund (if there was one in 1983!), trying to beat that index by picking stocks would have been a formidable task – here’s why:
    • the median annualized stock return was only 5.1% and the average stock actually lost money, -1.1% annually
    • 39% of stocks lost money
    • half of the stocks that lost money lost at least 75% of their value
    • 64% of stocks under-performed the Russell 3000 Index
    • just 25% of stocks were responsible for all of the gains.
    • only 48% of stocks returned more than one month Treasury bill returns

No wonder it’s so difficult to beat market indices. Outperforming stocks are really hard to find!

Even the pros find it difficult

Continue Reading…

Don’t panic, Mom’s money is safe with an “advisor”

Toronto’s big banks: CBC puts focus on misleading job titles

“Integrity has no need of rules.” – Albert Camus

“If it is not right, do not do it.  If it is not true, do not say it .” – Marcus Aurelius

Words to live by, no?  Unfortunately, the financial services industry in Canada doesn’t tend to screen for existentialists and stoics.  I’d take Marcus Aurelius or Seneca as my financial advisor any day, even if they weren’t one of the rare advisors in Canada who are required by law to act in their clients’ best interest.

The headlines have been ablaze in the last few weeks with furor over alleged mis-selling at Canada’s banks.   Most recently, CBC’s Go Public investigators published a piece about misleading job titles:  a grand conspiracy perpetrated by the Canadian financial services industry in which the English language is manipulated to dupe unknowing consumers.  (See: ‘I feel duped’: Why bank employees with impressive but misleading titles could cost you big time)

“What’s in a vowel?”

Specifically, the authors suggest that by calling their employees “advisors” with an “o” instead of “advisers” with an “e”, banks are intentionally granting staff license to engage in all sorts of nefarious product mis-selling and conflicted behaviour.   Continue Reading…