Interesting headline and catchy, but we know stocks for the long-run can work for long investing periods. Otherwise, nobody would take on this form of investing risk for any reward…
That said, Swedroe does raise a few interesting factoids from his reference in the article about stocks in the long-run:
“Over the 150 years from 1792 to 1941, the performance of stocks and bonds produced about the same wealth accumulation by 1942.”
AND
“Results for the entire 227 years were weakly supportive of Stocks for the Long Run: The odds that stocks outperformed bonds increased as the holding period lengthened from one to 50 years. However, the odds never got much higher than two in three and increased only slowly as the holding period stretched from five years (62%) to 50 years (68%).”
The problem I have with such information, while interesting, is our modern economy is fundamentally different than 1942, let alone 1842, or 1792. I simply don’t see the value or point in referencing any stock market data that goes back 200+ years for the modern retail investor.
But I do agree with Larry in that stocks may not always beat bonds, at least over short or modest investing periods. I have participated in a bit of a “lost decade” in my own DIY investing past.
It could happen again.
Looking back at a broad measure of the U.S. stock market, such as the S&P 500 index, over the past 20 years, you would see (or experience as an investor) very different results from the first decade (2000-2009) and the second (2010–2019).
In fact, for large-cap U.S. stocks in particular, this “lost decade” from January 2000 through December 2009 resulted in very disappointing returns: an index that had historically averaged more than 10% annualized returns before 2000, instead delivered less-than-average returns from the start of the decade to the end. Annualized returns for the S&P 500 (CAD) during the market period were -3.18%.
Of course, we only know the results of stocks in hindsight after bad market periods are over and preferably for me, a few generations back makes sense to measure some relative stock market history vs. going back to horses and buggies in the form of a few hundred years…
What do I think? Is 100% equities investing at your peril?
No.
I remain invested in mostly equities at the time of this post with conviction although I do keep cash (or more recently cash equivalents on hand) and always have to some degree. Continue Reading…
Understanding the impact of financial education on wealth-building, we’ve gathered insights from Directors, Founders, and CEOs, among others, to share their experiences and lessons. From fostering open family financial talks to the importance of reinvesting profits for startup growth, explore the eleven valuable strategies these experts attribute to achieving financial independence.
Foster Open Family Financial Talks
Invest in Low-Cost Index Funds
Leverage Compound Interest Early
Learn from Real Estate Investment
Implement Simple Numbers Cash Flow Management
Educate to Protect Wealth
Invest Early, Understand Market Trends
Budget with The Total Money Makeover
Navigate with Financial Education
Avoid Emotional Investing
Reinvest Profits for Startup Growth
Foster open Family Financial Talks
I strongly advise families to prioritize open and honest communication about family finances. It is pretty common in most families to not discuss money. I am a firm believer that regular discussions about finances, budgeting, and investments will strengthen your relationship and prioritize a secure financial future.
Financial literacy is crucial, regardless of asset levels. As a CFP®, my role extends beyond managing investments or creating financial plans; I also serve as an educator for families. By providing personalized guidance and educational resources, I help families bridge the gap in financial knowledge and deepen their understanding of their financial situation. This empowers both the parents and children to contribute meaningfully and reduces the likelihood of misunderstandings or financial disagreements. This collaborative approach with your certified financial planner can provide personalized guidance and help couples navigate these important decisions together.
The more you save and the earlier you save, the better. Your future self will thank you!
You also need an emergency fund. You need to expect the unexpected. Have six months of expenses earmarked in a high-yield savings account.
The secret to building wealth is living below your means. You need to be clear on the income coming in and the expenses going out. Pay yourself first. The results of compound interest are powerful. As your income increases, lifestyle inflation creeps in. Avoid the urge to spend more as you make more. Save more. Invest the difference. Your future self will thank you. — Melissa Pavone, Director of Investments CFP, CDFA, Oppenheimer & Co. Inc.
Invest in low-cost Index Funds
Despite working in Financial Services for over 20 years, I’ve only truly educated myself about Financial Independence within the last few years.
Fortunately, I had been doing most things right all along; saving a decent proportion of my salary each month, using tax-efficient savings vehicles, maximizing my employer’s pension contributions, etc. Where I messed up, to some extent, was in what I was investing my hard-earned savings in.
Being a sucker for actively managed funds, individual stocks, etc., has hampered the growth of my portfolio over the years. I am now invested exclusively in low-cost index-tracking funds, and I wish I had decided to do this years ago.
My eyes were finally opened to the low-cost passive index tracker approach when a friend recommended I read a book called The Little Book of Common Sense Investing by John Bogle (the founder of Vanguard). It’s a great book that totally changed my outlook on investing. — Jonathan Wright, Founder, Aiming For FIRE
Leverage Compound Interest early
I have built wealth and achieved financial independence primarily through financial education. It has provided me with the necessary tools for making informed investment decisions, managing risks effectively, and optimizing tax strategies. Financial education has been an important platform for understanding the dynamics of the market and developing a disciplined approach to saving, investing, and spending.
The most valuable lesson I ever learned was about compound interest. Compound interest can turn modest savings into substantial wealth over time. The key is to start early, save consistently, and reinvest earnings. Even small amounts saved regularly can grow exponentially due to the compounding effect, highlighting the importance of patience and discipline in wealth building.
Another critical lesson is the importance of living below your means and investing the surplus wisely. It’s not just about how much you earn, but how much you save and invest that counts towards building long-term wealth. When you prioritize savings and investments, you create a buffer for unexpected expenses and have the potential to achieve financial independence sooner. — Sherman Standberry, CPA and Managing Partner, My CPA Coach
Learn from Real Estate Investment
When I was growing up, my grandfather gave me an excellent financial education through his example. He was a real estate investor, and thanks to his investments, he was able to retire early while helping my brother and me pay for college. I decided to follow his example and started buying real estate after college.
Now, my portfolio is worth seven figures. The big lesson I learned from my grandfather is that to be truly financially free, you have to find a way to earn money without having to work all the time. And with real estate, that’s possible. — Ryan Chaw, Founder and Real Estate Investor, Newbie Real Estate Investing
Implement Simple Numbers Cash Flow Management
We run a fast-growing small-business law firm and are devoted fans and implementers of Simple Numbers by Greg Crabtree. I frequently give copies of the book to our clients, and they invariably thank me later.
Greg’s advice about how to view your cash flow and responsibly manage it has been foundational to our and our clients’ success. — Matthew Davis, CEO, Davis Business Law
Educate to Protect Wealth
In co-founding Silver Fox Secure, I’ve directly observed the impact that financial education has on protecting and building wealth, especially among vulnerable populations. A key lesson that stands at the core of our mission is the critical role of preemptive measures in safeguarding one’s financial health. Through our work, we’ve implemented comprehensive identity-theft protection and credit-monitoring solutions that not only serve as a defense mechanism but also educate our clients on the importance of regular financial oversight.
One pivotal example from our experience was helping a group of seniors who were targeted in a sophisticated phishing scam. By providing them with personalized education on recognizing such threats and monitoring their financial activities through our services, we turned a potentially devastating situation into a valuable learning opportunity. This incident underscored the importance of proactive financial education, showing that knowledge is as vital as the technical solutions we offer in preventing financial exploitation.
Furthermore, our efforts have highlighted the necessity of tailored financial strategies to address specific risks associated with different demographics, such as active military personnel and individuals with mental or physical disadvantages. By focusing on the unique vulnerabilities of these groups, we’ve developed targeted educational materials and monitoring strategies. This approach has not only protected our clients’ financial assets but has also empowered them with the knowledge to make informed decisions about their financial security in the future. Through these experiences, I’ve learned that combining cutting-edge technological solutions with personalized education fosters a robust environment of financial independence and security. == Jenna Trigg, Co-Founder, Silver Fox Secure
Invest Early, Understand Market Trends
Financial education has been at the core of my journey in founding BlueSky Wealth Advisors and helping others achieve financial independence. A crucial lesson I’ve learned, and often share, is the importance of early investment and the power of understanding the market’s long-term trends. For instance, an initial $1 investment in the stock market in 1926 could have grown to over $13,000 today, despite numerous economic downturns along the way. This emphasizes not just the value of patience and perseverance in investing, but also the vital role of financial knowledge in distinguishing between short-term noise and long-term growth opportunities.
In the realm of education investment, I’ve observed the significant impact financial education has on making informed decisions regarding one’s or one’s child’s educational future. The story of my client’s son, Sammy, who pursued a $200,000 education in a competitive field only to start with a $30,000 salary, underlines the importance of weighing the value of a degree against its cost and potential debt burden. It’s not just about getting any education but making educated financial decisions regarding that education. This example highlights the necessity to have a financial plan that incorporates smart strategies towards education funding to avoid jeopardizing one’s financial independence. Continue Reading…
Boating is an adventure at any age, but it often becomes a lifestyle for retirees. If you’ve ever considered trying to save up for a boat one day this could be a good read. With a couple of these financial tips, you’ll be well on your way to living your boating dream!
Adobe Image courtesy Logical Position/Visionsi
By Dan Coconate
Special to Financial Independence Hub
Retirement is a time for relaxation, adventure, and a well-deserved break from the toils of work. For many, it’s the perfect time for ticking off items on the bucket list and enjoying activities they couldn’t do before, such as boating. Setting sail on serene waters has a draw that’s hard to resist, especially once you’ve reached your golden years, but it can unfortunately be an expensive hobby. With these financial tips, investing in a boat for retirement is within reach.
Why Invest in a Boat?
Investing in a boat can offer several benefits depending on your interests as well as your lifestyle. In many cases, the most common reasons as to why one would invest in a boat is for recreation/leisure, family time, and adventure!
In the financial world, large purchases are seldom one-dimensional. However, they can be gateways to new experiences or investment opportunities. A boat, with its allure of freedom and tranquility, often blinds potential owners to its financial complexities. With a good understanding of your needs and what’s available, you can spend your glory days in luxury and comfort.
Don’t forget that investing in a boat depends greatly on the individual themselves and what they are comfortable in affording. As great as it is to own one, you don’t want it to feel like you’re being submerged by a financial burden especially towards your later years in life. Find something that you can truly afford and go from there.
Understanding the Cost of Ownership
As mentioned above, owning a boat depends greatly on the individual themself and what they can afford. The financial commitments of boat ownership extend far beyond the initial purchase price. From understanding the dos and don’ts of marine craft maintenance to preparing your vessel for foul weather, upkeep can turn the investment into a bottomless expense if not managed wisely.
Here are some common costs that every prospective boat owner should consider:
Purchase Price: The upfront cost varies widely based on the boat’s type and age.
Maintenance and Repairs: Regular upkeep, including engine maintenance, hull cleaning, and repairs.
Docking Fees: Charges for mooring or storing your boat at a marina or docking facility.
Insurance: Protection against accidents, theft, and natural disasters.
Fuel: Operational expense that can fluctuate with usage and fuel market prices.
Safety Equipment: Initial purchase and replacement costs for items such as life jackets, fire extinguishers, and flares.
Understanding these costs is imperative, as they can tally up faster than the wakes behind a speedboat.
Legal and Financial Considerations
There are also key legal and tax-based implications of boat ownership. When considering the various forms of state and federal taxes on a boat’s purchase, operation, and potential resale, the financial burden can become relatively heavy. Annual or biennial fees can add up and make it difficult to ascertain the full price of boat ownership beforehand. Continue Reading…
Since the beginning of the year, Canadians saw the Bank of Canada maintain the overnight rate at 5.00% as inflation eased to be less than the upper end of the Bank of Canada’s inflation-control target of 3%.
Amidst this economic backdrop, Canadians who participate in defined benefit (DB) pension plans may be interested in the financial health of their DB plans.
The Mercer Pension Health Pulse (MPHP) is a measure that tracks the median solvency ratio of the defined benefit (DB) pension plans in Mercer’s pension database. At March 29, 2024 the MPHP closed out the year at 118%, an improvement over the quarter from 116% as at December 31, 2023. The solvency ratio is one measure of the financial health of a pension plan.
Throughout Q1, most plans saw positive asset returns coupled with decreased DB liabilities, which resulted in an overall strengthening of solvency ratios. In addition, compared to the beginning of the year, there are more DB pension plans with solvency ratios above 100%.
In other words, Canadians who participate in DB plans are likely to have seen the financial health of their DB pension plans improve over Q1.
Inflation in Canada and interest rates
Canadian inflation eased to 2.9% in January, which is less than the upper end of the Bank of Canada’s inflation-control target of 3%. It is the Bank of Canada’s expectation for inflation to remain close to 3% during the first half of 2024 before gradually easing. On March 6, the Bank of Canada continued its policy of quantitative tightening by maintaining the overnight rate at 5.00%. On March 19, Canadian inflation for February 2024 came in at 2.8%, which ignited industry speculation on the timing and amount of a cut to the overnight rate.
In addition, on April 10, the Bank of Canada announced that it was maintaining the overnight rate at 5.00%. The next scheduled date for announcing the overnight rate target is June 5, 2024. Continue Reading…
Time is on my side, yes it is Time is on my side, yes it is
Now you always say That you want to be free But you’ll come running back (said you would baby) You’ll come running back (I said so many times before) You’ll come running back to me
— The Rolling Stones
The Rolling Stones’ iconic hit, “Time Is On My Side,” is a testament to the power of patience. Its lyrics remind listeners that even though things can seem challenging, eventually everything will fall into place. Although this message may be conceptually appealing, it is increasingly ringing hollow with many investors.
Discipline is one of the most important principles of successful, long-term investing. Successful investors tend to stick to their knitting, even during times when this entails avoiding “hot” stocks and underperforming over the short or medium term.
However, even the most disciplined investors have their limits, which have been sorely tested over the past decade, courtesy of the blistering appreciation of mega-cap growth stocks. Such companies are largely represented by the aptly named Magnificent 7 (MAG7), which includes Apple, Microsoft, NVIDIA, Meta, Alphabet, and Tesla. The “pain trade” of prolonged, MAG7-related underperformance has been pervasive across investment styles, countries, and active management in general.
Value managers have been caught in the wrong place (or style) at the wrong time, to say the least. As the table below demonstrates, growth stocks have left their value counterparts in the dust over the decade ending in 2023.
S&P 500 Growth Index vs. S&P 500 Value Index: 2013-2023
This incredible dispersion has caused investment styles to dominate investment acumen to the point where even some of the best value managers have underperformed some of the worst growth managers. Alternately stated, there has been little, if anything that a value-based investor could have done to avoid getting outrun by the growth trade juggernaut that has dominated markets over the past 10 years.
The effect of the tremendous run of MAG7 companies has also had a profound effect on the relative performance of different countries and regions.
Comparative Returns: 2013-2023 (in USD)
To put it mildly, the S&P 500 Index, which its heavy exposure to MAG7 companies has turbocharged, has left non-U.S. indexes in the dust. The bottom line is that if you were underweight U.S. stocks, you were doomed to underperform.
Lastly, the MAG7 juggernaut has cast a dark shadow over active management (more on this later). According to Morningstar, during the decade ending in 2023, 90.2% of U.S. large cap managers underperformed their benchmarks. When it comes to active equity strategies, most clients’ experiences have been less than inspiring, if not disappointing.
From Big is Bad to Big is Beautiful
The dramatic outperformance of mega-cap companies over the past 10 years stands in sharp contrast to their longer-term historical pattern. Over the past several decades, underweighting the very largest stocks has been a winning bet. Since 1957, the 10 largest stocks in the S&P 500 have underperformed an equal-weighted portfolio of the other 490 stocks by an average of 2.4% per year. Continue Reading…
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