Risk tolerance and investment balance | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Risk tolerance and investment balance
January 6, 2018
10:03 pm
Rick
Member
Members
Forum Posts: 694
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

Edit by admin: this thread was split off from a TFSA discussion.

Way back in my twenties, when I dabbled in the stock market, the first thing I was told was "If you can't afford to lose it, don't invest it". I think that has been forgotten in these days of mass investing and mutual funds. I am now at the stage of managing my life savings to last the rest of our lives and hopefully leave some to the kids. I can't afford to lose any of it, so cash, RSP and TFSA GICs are about all the risk I'm willing to take.
There was another saying that struck me. I can't remember where or who said it, some Warren Buffet type I think. Memory's not as sharp, so I'll paraphrase. It went something like " An average person playing the stock market is like bringing a knife to a nuclear war.

January 6, 2018
11:10 pm
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

sf-laughNever heard that one before!!

Funny how advice changes over time, as we convince ourselves that more risk is acceptable - with the aid of our friendly-faced "advisors".

Nowadays, they would say to your 20-yr-old, "You must invest in the stock market for long term gain or else (panic! panic1) you'll never be able to "afford" to retire; and you shouldn't sell your investments" (ever, apparently.

In retrospect, the current version of advice might have been best applied 40 years ago.

So, then, the question now is, when today's 20 yr old reaches retirement, what great advice will they wish they'd been given in 2018?
Hindsight is a terrific asset. Wish I could have some of the 2040 issue! I'd settle for 2030. ..

January 7, 2018
12:34 pm
Norman1
Member
Members
Forum Posts: 1850
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Rick said
Way back in my twenties, when I dabbled in the stock market, the first thing I was told was "If you can't afford to lose it, don't invest it". I think that has been forgotten in these days of mass investing and mutual funds. …

There was another saying that struck me. I can't remember where or who said it, some Warren Buffet type I think. Memory's not as sharp, so I'll paraphrase. It went something like " An average person playing the stock market is like bringing a knife to a nuclear war.

Loonie said
sf-laughNever heard that one before!!

Funny how advice changes over time, as we convince ourselves that more risk is acceptable - with the aid of our friendly-faced "advisors".

Nowadays, they would say to your 20-yr-old, "You must invest in the stock market for long term gain or else (panic! panic1) you'll never be able to "afford" to retire; and you shouldn't sell your investments" (ever, apparently.

I've heard both. The second one is about "bringing a knife to a gunfight."

"If you can't afford to lose it, don't invest it" comes from people who don't understand the difference between gambling, speculating, and investing. With that mindset, it is not surprising such people are not successful when they "invest" what they can lose with as little care as they "invest" a bucket of quarters at the slot machines.

The Canada Pension Plan Investment Board is an example of people who do understand the difference. About $190 billion of its $380 billion in assets is in stocks. I highly doubt that CPP can afford to lose that $190 billion invested in stocks.

As for "bringing a knife to a gunfight", one doesn't have to participate in competition with the larger investors in the stock market. One can participate alongside with them.

I don't think the advice has changed over the decades. One will end up with a better retirement by investing in equities. Just make sure one is really investing and not speculating or gambling. The challenge is that many don't understand the difference.

January 7, 2018
1:12 pm
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Good point, Norman1. If equity exposure is a constant staple of the large, conservative pension managers then that's a clear sign to others with less expertise. Same with Ontario Teachers pension plan, lots of equity investment exposure over the decades, and great returns. It could probably lose a fair bit and still beat what they would have had with a 100% GIC portfolio, especially when we've had decades of low interest rates (and if that's not a signal to someone to be at least partly in equities then likely nothing will be).
P.S. Anyone can look up and see what equities are held by these pension plans, though it doesn't show what their purchase price was. Of course you could review them regularly and see what new equities have been added and get an idea of the price paid. Problem is it would be impossible to get the same level of diversification, pension plans usually hold numerous equities (that's what ETFs and mutual funds are for).

You have to take into account that some (many?) of the folks drawn to a site dedicated to HISAs may be pathologically risk and/or fee averse (not saying there's anything wrong with that!) thus will always be pointing out the pitfalls, so it's probably not the place to come for advice re investing.

January 7, 2018
1:50 pm
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Bill said

You have to take into account that some (many?) of the folks drawn to a site dedicated to HISAs may be pathologically risk and/or fee averse (not saying there's anything wrong with that!) thus will always be pointing out the pitfalls, so it's probably not the place to come for advice re investing.  

You also have to weigh in age and circumstance. When I pulled the plug at age 40 I completely divested of all equities - I no longer needed to hit the home run SO my focus flipped completely to capital preservation, taking whatever was offered to me in the bond, GIC, and HISA markets - no regrets.

January 7, 2018
2:13 pm
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

There is really no comparison between what large pension plans can and should do with what is suitable for individuals in various circumstances. This will be very obvious if one does indeed look at the invesetments of such plans, as I have done in the past.

Pathological? sf-laughsf-laugh
By definition, pathological has to do with disease. If you're "not saying there's anything wrong with that", then I guess you think disease is good or at least OK. If not, be more careful with your language.

For myself, I am quite happy with the fact that the CPP and the other pension plan which affects my family are able to make the kinds of infinite-horizon investments which they do make. I am aware of what percentage of my retirement income is dependent on them, and consider it an appropriate amount. There is no need or motivation for me to enter topsy-turvy markets, with my limited horizon.

January 7, 2018
2:15 pm
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Very true, once you've got the pile you need then any risk is too much. As my youngest son keeps telling us, "once I've hit my number I'm quitting, cashing in, done." I tease him that our "needs" are more elastic than we like to think but (probably like you, Top It Up) he seems to have the focus to march to his own beat instead of comparing himself to what the Joneses might have or are up to.

January 7, 2018
2:50 pm
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Loonie said

Pathological?
By definition, pathological has to do with disease. If you're "not saying there's anything wrong with that", then I guess you think disease is good or at least OK. If not, be more careful with your language.

From Webster's New World College Dictionary -

pathological [path΄ə läj′i kəl]
adj.
1. of pathology; of or concerned with diseases
2. due to or involving disease

3. governed by a compulsion; compulsive [a pathological liar]

January 7, 2018
4:28 pm
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

No worries, apology accepted, Loonie.

January 8, 2018
10:36 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 1654
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

While I might disagree with word choice, I have to agree with Bill a bit here in terms of the necessity to take a bit of risk re: long-term retirement investment assets. For instance, if Save2Retire is in his 30s or early 40s (or younger) and transitioned everything to Simplii Financial HISAs, I think that's a mistake and I think it's incumbent upon us to provide any investor education/advice that we can. For Loonie, while he may not earn an annual return that is high enough to prevent depletion of capital taking into account minimum annual RIF rates, he may have enough retirement assets that he's OK with that and may want to actually draw things down quite a bit, to limit the tax impact upon his death (sorry to be morbid here, Loonie). sf-cool

Cheers,
Doug

January 8, 2018
3:33 pm
savemoresaveoften
Member
Members
Forum Posts: 62
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

I dont like to associate owning equities to be the same as taking risk.
Having some equities in one's portfolio is just prudent when it comes to protecting against inflation. Obviously loading up on penny/speculative stocks is gambling and not investing. Building a good equities portfolio of big blue chips names with dividend track record is what everyone needs.
Yes HISA and GICs guarantees your principal, but most people do NOT have enough principal to begin with and need to grow the principal to ensure adequate funding for retirement. This is especially true for millenials when a good pension plan is not the norm anymore.
With 10year yield at ~2% vs >5% 10+ years ago, you need 2.5 times more principal to get the same interest, a painful truth.

January 8, 2018
6:54 pm
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

There is no doubt some truth in what has been said, but I find it a precarious model that says that you must invest in equities in order to have a retirement worth having. To the extent that people are persuaded of this, they will remain invested in these things regardless of whether the companies or indeed the market itself remain good or not.
As soon as you start making it sound inevitable that people must do this and that this will remain a good investment, you increase your vulnerability if something else happens out there. It starts to sound like the thing that is sustaining it is confidence.

not much point in comparing to 10 years ago, when stock prices were at bottom. Those folks had already lost 25 to 50% and had to make it up before they could consider competing with fixed-income over the longer term. The only "term" that makes sense for comparative purposes is actually your own personal "term", i.e. when are you going to invest and when are you going to cash it in? and what will your annualized return be? Most people would find that difficult to calculate, and it's always speculative because they always still have money invested when they try to figure it out.
Don Bortolotti did a chart about a year ago showing insignificant differences over 10 years , not worth the risk. Sorry , I can't find it at the moment, but I remember it because I questioned him about it in person.

Times change, and ideas about what is the perfect investment strategy change. Several decades back, dividend stocks were considered uninteresting and only for old folks on fixed incomes, and mutual funds were "hot" regardless of fees of 2 and 3% annually, even back end load (often with fees up to 8%) was considered justifiable. I can even remember when mortgage funds were hot one year, but you don't hear about them any more. Right now, it's ETFs, robo-management and large cap dividend stocks. I remember when dividends were rediscovered and were considered novel again. This too shall pass.

I'm not saying what people should do, just that they should take a really hard and long look to separate the hype from the realities. This is extremely difficult. Don't allow yourself to be driven into something because you think it's the only thing you can do. Take risk seriously, on all fronts.

January 10, 2018
8:19 pm
Norman1
Member
Members
Forum Posts: 1850
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said

not much point in comparing to 10 years ago, when stock prices were at bottom. Those folks had already lost 25 to 50% and had to make it up before they could consider competing with fixed-income over the longer term. The only "term" that makes sense for comparative purposes is actually your own personal "term", i.e. when are you going to invest and when are you going to cash it in? and what will your annualized return be? Most people would find that difficult to calculate, and it's always speculative because they always still have money invested when they try to figure it out.

I've found actual results not to be the case. One of my accounts that I have not added to or removed from is now just under 3X what it was at the start of 2007. Almost 100% in equities a full year before 2008, going down through the crash of 2008, and during the subsequent recovery.

My results are not that far out. The S&P 500 Total Return is now about 2.36X what it was since the start of 2007.

No-one got those kind of returns from GIC's during the same period.

Don Bortolotti did a chart about a year ago showing insignificant differences over 10 years , not worth the risk. Sorry , I can't find it at the moment, but I remember it because I questioned him about it in person.

I suspect those ten-year periods included 2008. My interpretation of such a chart is that it takes a crash like 2008 to bring long term equity returns down to the return on GIC's and bonds.

Times change, and ideas about what is the perfect investment strategy change. Several decades back, dividend stocks were considered uninteresting and only for old folks on fixed incomes, and mutual funds were "hot" regardless of fees of 2 and 3% annually, even back end load (often with fees up to 8%) was considered justifiable. I can even remember when mortgage funds were hot one year, but you don't hear about them any more. …

Those changing strategies are for trying to beat the market. One doesn't need to beat the market.

Most of the additional return from equity investing comes from actually investing in (and not speculating or gambling in) stocks instead of GIC's. It used to involve stock selection as only large investors can afford the commissions to buy all 300 or 500 individual stocks that made up a broad index. Now, it as easy as buying an ETF or mutual fund that tracks a broad index like the S&P 500 or the TSX 300.

January 10, 2018
8:57 pm
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

It was precisely those ETFs where Bortolotti found his results , as that's what he specializes in. It did not look good for his approach so he had no reason to manipulate the result. Yes, it would have included 2008 because it ended at end of 2016. However you slice it, it's a fair period of time.

Each to their own. The future is unknown, and that's what counts now.

January 11, 2018
5:31 am
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

I'm no longer active in the daily stock market BUT I will say that no one will get a POP in their retirement savings by simple toying in GIC/HISA market, especially when Canadians owe $1.71 for every dollar of disposable income they have.

The last article I saw, projecting what one will need for their retirement, came with the caveat ...

ASSUMES A 6 PER CENT RATE OF RETURN

and you ain't getting that from GICs.

January 11, 2018
10:02 am
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

I agree, Top It Up, no markets, no POP. But again, the facts won't matter to the pathologically risk-averse, those folks will be driven by their fears, their compulsive worry about the risks of investing in the markets. So to me a good idea is to figure out if you're in that group (and I imagine a site like this would tend to attract some folks like that) and then you can save yourself a world of time in your life by ignoring anything having to do with investing and concentrating instead on saving via HISAs, GICs, etc (of course, you'll need to have a plan to handle the feelings of envy you'll inevitably have towards those around you who are "winning" in the markets). As in many things, our psyche overrules reason and it's a good idea to pay heed to that, IMO.

Of course if you're expecting a substantial inheritance that might reduce your need to take risks too. I've seen some reports that inheritances represent a significant part of many folks' net worth later in life.

Or the best investment might be getting a job with a public sector paycheque - the present value of your pension when you get it may very well be your biggest financial asset.

January 11, 2018
10:14 am
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Bill said

Of course if you're expecting a substantial inheritance that might reduce your need to take risks too. I've seen some reports that inheritances represent a significant part of many folks' net worth later in life.
  

I read this sometime ago -

"There is a reason why the friendly people who bring you food and drinks at restaurants prefer to be called servers and not waiters. A “waiter,” it seems, has another meaning that’s not looked on too kindly. They are the people who are “waiting” on an inheritance to fund their retirement, and about two-thirds of Canadians fall into that category, according to a new study."

----------------

And from a BMO survey -

"Less than half — 40 per cent — were counting on an inheritance, while 34 per cent hoped to win a lottery. Twenty-eight per cent say they expect to get financial assistance from their children or other family members."

January 11, 2018
11:05 am
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Further complicating the current low returns on GIC/HISA accounts for retirement planning, are the abysmal statistics of OAS and CPP payout amounts to individuals. The fixed OAS rate is $585 per month, and while the maximum CPP payment is $1,134 per month, Canadians only received an average of $641 per month.

You do the math.

January 11, 2018
11:51 am
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

I believe if you wait until age 70 (keep working!) CPP max is $1610 and OAS is $798, not including any supplements.

January 11, 2018
11:58 am
Rick
Member
Members
Forum Posts: 694
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

Top It Up said
Further complicating the current low returns on GIC/HISA accounts for retirement planning, are the abysmal statistics of OAS and CPP payout amounts to individuals. The fixed OAS rate is $585 per month, and while the maximum CPP payment is $1,134 per month, Canadians only received an average of $641 per month.

You do the math.  

Isn't the $641 so low because the majority begin drawing CPP at 60? If it is an "average", then a considerable amount of people are collecting quite a bit less. Also, to get maximum payout, you would have to have made maximum contributions for your whole career. I managed to stay close to maximum contributions throughout my working life and I get 718.00 per month starting at 60.

Top It Up said
"Less than half — 40 per cent — were counting on an inheritance, while 34 per cent hoped to win a lottery. Twenty-eight per cent say they expect to get financial assistance from their children or other family members."

That's some good retirement planning right there. sf-confused Have PERSONALLY seen peoples' inheritances turn out to be significantly less than what they were "planing" on... right down to inheriting debt. Plan on receiving nothing and you won't be disappointed.

No permission to create posts

Please write your comments in the forum.