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Advisor Commentary​

4 Visuals to Remember on Your Investing Journey

In a world of ever-changing markets and economic uncertainties, to effectively navigate through short-term market fluctuations, which is an inevitable and in fact natural part of investing, it is crucial that investors remain acutely focused on their long-term investment objectives. In this edition of our newsletter, we present four insightful visuals that shed light on the power of long-term investing, the potential pitfalls of market timing, and the importance of staying invested even amidst market volatility. These visuals serve as a reminder that while short-term uncertainties may create a “reason to sell,” the true value lies in maintaining a disciplined investment approach, remaining committed to a well-diversified strategy, and harnessing the potential of the market’s long-term growth. So, let’s dive in and explore the lessons these visuals have to offer for successful wealth management.

1) The Long-Term Power of Markets

Our first visual examines the growth of a $100,000 investment over a 30-year period from 1990 through 2022. It reveals the performance of different asset classes during this timeframe and emphasizes the significance of long-term investing and asset allocation. The standout performer was the S&P 500, with an impressive annualized return of 9.74%, showcasing its potential for substantial wealth creation despite occasional market volatility.

For those seeking stability and income, long-term bonds provided a reliable option with an annualized return of 5.99%. They play a crucial role in diversifying a portfolio and protecting against equity market downturns.

2) The Value of Staying Invested,
Even Through Volatility

The second chart examines the growth of a $100,000 investment over a 20-year period from 2003 through 2022. The “Buy & Hold the S&P 500” strategy achieved an impressive annualized return of 9.79%, showcasing the potential for consistent growth by staying invested in broad-based equities.

The impact of moving to cash during market events is also explored. Moving to cash for one year at the bottom of the 2008 Financial Crisis resulted in a lower annualized return of 6.82%, incurring a cost of 2.97 fewer percentage points per year compared to the buy-and-hold strategy. Moreover, moving to cash at the bottom of the Global Financial Crisis and holding it for the entire period yielded a negative annualized return of -0.30%, highlighting a significant decline in returns and a permanent loss of capital.

This visual shows that timing the market or moving to cash during market downturns may result in missed opportunities and potential underperformance.

3) The Effect of Missing the Best Market Days Over the Last 25 years

The second chart examines the growth of a $100,000 investment over a 20-year period from 2003 through 2022. The “Buy & Hold the S&P 500” strategy achieved an impressive annualized return of 9.79%, showcasing the potential for consistent growth by staying invested in broad-based equities.

The impact of moving to cash during market events is also explored. Moving to cash for one year at the bottom of the 2008 Financial Crisis resulted in a lower annualized return of 6.82%, incurring a cost of 2.97 fewer percentage points per year compared to the buy-and-hold strategy. Moreover, moving to cash at the bottom of the Global Financial Crisis and holding it for the entire period yielded a negative annualized return of -0.30%, highlighting a significant decline in returns and a permanent loss of capital.

This visual shows that timing the market or moving to cash during market downturns may result in missed opportunities and potential underperformance.

4) There’s Always a “Reason to Sell”

Our final visual, titled There’s Always A “Reason to Sell”, examines the performance of the S&P 500 index since October 1989. The index has delivered an impressive cumulative total return of 2,100% (including dividends) over this period.

The title of the visual highlights an important aspect of investing—the existence of reasons to sell or exit the market can always be found. However, this data serves as a reminder that despite the various reasons that may arise, the S&P 500 has proven to be a resilient and profitable investment over the long run.

For fact-based investors, the data in these four visuals is clear and demonstrates that attempting to time the market or reacting to short-term uncertainties can hinder investment returns and potentially lead to missed opportunities. Instead, staying invested and focusing on your long-term objectives provides the best chance for consistent growth and wealth creation. By adopting a disciplined approach and remaining steadfast in your investment strategy, you can navigate market volatility with confidence and achieve long-term success.

QROPS – UK Pension Transfers to Canada

Do you or someone you know have pensions in the United Kingdom?

A Qualified Recognized Overseas Pension Scheme (QROPS) is an RRSP domiciled in Canada and offers several benefits for individuals who have accumulated private pension funds in the UK and are considering transferring them to Canada. Here are some potential benefits of a QROPS:

  • Flexibility: A QROPS can provide greater flexibility in managing your pension funds. They often offer more diverse investment options compared to UK-based schemes, allowing you to tailor your investments to your specific needs and risk appetite.

  • Tax advantages: A QROPS is a Registered Retirement Savings Plan (RRSP) so the investment growth within the plan is tax free until time of withdrawal which could be 10-15+ years.

  • Currency options: A Canadian QROPS can offer the advantage of converting the funds within the plan from British Pounds to Canadian Dollars which mitigates currency risk and allows for easier financial planning.

  • Estate planning: A QROPS can facilitate estate planning by providing options for passing on pension assets to your beneficiaries in a more tax-efficient manner. Depending on the jurisdiction, a QROPS may also offer greater flexibility and potential tax advantages at time of inheritance.

  • Consolidation: If you have more than one UK private pension, by transferring to a QROPS you can consolidate your retirement savings in one plan, making it easier to manage and potentially avoid potential complications associated with multiple pension plans.

This Quarter’s Recommended Read:

The Book of Money

A clear and concise guide to the workings of the global economy. The Book of Money will help readers understand what is happening and how it affects them. It is a practical, understandable guide to all the nuances of the world of finance written for the lay reader.

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