Last year was one of the worst ever for a 60/40 balanced portfolio. Stocks and bonds were both down double digits and investors were understandably nervous about an impending recession.

I can’t tell you how many conversations I had with clients who wanted to abandon their perfectly sensible portfolios in favour of GICs paying 4-5%. The rationale? I can’t take any more losses and want to sit out for the next 6-12 months until things blow over or get back to normal.

The problem is there is no normal. Stocks and bonds are risky assets that move unpredictably in the short-term based on the collective market’s best guesses about the future.

Put another way, if everyone thinks there will be a recession next year then that risk is already priced-in to stocks and bonds now. 

Fast forward a year and stocks have had a surprising rally and reached all-time high levels. Once again I’m having conversations with clients who want to abandon their perfectly sensible portfolios in favour of GICs paying 5%. The rationale? Stocks are at an all-time high and I want to sit out the next 6-12 months in case there’s a market crash.

YTD returns from a globally diversified portfolio:

VBAL / XBAL: 9.23% / 9.46%
VGRO / XGRO: 11.40% / 11.63%
VEQT / XEQT: 13.49% / 13.77%

Just like everyone predicted this time last year.

— Boomer and Echo (@BoomerandEcho) December 5, 2023

Conversely, many chats with clients in 2021 made it seem like a portfolio of 100% global stocks (VEQT) was as boring as a 5-year GIC. They wanted high flying stocks, crypto, and thematic ETFs.

Investing should be incredibly easy. Buy the entire market with a risk appropriate asset allocation ETF and move on with your life.

And if we were all emotionless robots that would work out just fine. We’d understand that markets go up and down based on events outside of our control, but mostly trend up over the long-term and lead to successful outcomes if we stay the course.

But we’re not emotionless robots. We’re human and susceptible to emotions like fear and greed. It’s like we’re wired NOT to stay in our seats – like we need to take control and do something to side-step losses and capture higher returns.

Resist the urge to do something you may end up regretting next year. Understand that stocks and bonds are rallying because “the market” expects inflation will continue to cool, interest rates will fall, and the economy will avoid a major recession (the so-called soft landing).

But that consensus can change on a dime with a surprise inflation surge, massive layoffs, escalating global conflict, or something we’ve never experienced before.

Stocks and bonds reward us for staying the course through all of this uncertainty. That’s how investing works. 

Bottom line: Your investing strategy shouldn’t change based on current market conditions.

Promo of the Week:

Looking for a last minute gift for an avid reader? Here are two solid books I’ve recently read:

Same as Ever: A Guide to What Never Changes – the latest by Morgan Housel.

Going Infinite: The Rise and Fall of a New Tycoon – the latest by Michael Lewis.

Weekend Reading:

I was thrilled to join Shaun Maslyk on The Most Hated F-Word podcast to share my money story (from frugal to freedom).

Why are people so mad at Michael Lewis? The embattled author stops by the Freakonomics podcast to set the record straight.

Overconfident much? Dr. Preet Banerjee explains why when it comes to investing knowledge, perception doesn’t match reality.

Speaking of overconfidence, PWL Capital’s Ben Felix looks at the cost of investing hubris:

Here’s A Wealth of Common Sense blogger Ben Carlson on overcoming a cash addiction in your portfolio.

Advice-only planner Anita Bruinsma offers a terrific reminder about the generous donation tax credit.

Dr. Preet Banerjee analyzed 10 of the biggest firms on Wall Street’s calls for the last 10 years and compared them to how the S&P 500 actually did. The results? Not good!

Millionaire Teacher Andrew Hallam on why the FIRE movement began and is still gaining steam.

The always brilliant Morgan Housel on the difference between frugal versus independent.

Ben Felix is back again, taking aim at those absurdly high yield products marketed today. He says, “distribution yields are not investment returns, they are not sufficient to assess expected returns, and, in the way that they are used to market financial products, often to unsophisticated investors, they can be misleading.”

Mortgage broker David Larock explains why cooling inflation data is good news for Canadian mortgage rates.

Finally, a funny look into Norway’s massive $1.4 trillion sovereign wealth fund and why it asked the Norwegian government for permission to invest in private equity – a request that has been repeatedly denied.

Have a great weekend, everyone!