My inbox has been flooded lately with worried investors who feel anxious about the current market environment. It seems once again we find ourselves in unprecedented times.
While the future is always uncertain, the stock market is a forward-looking machine and is constantly gathering new information to assess the outlook of individual companies and the broader economy.
If you’re worried about the impact of tariffs, you can rest assured that millions of other investors share the same sentiment and that angst is reflected in the current price of stocks. Indeed, we’ve been hearing about tariffs for six months, and they have been in place (to some degree) for several weeks.
It’s easy to see why some investors might be spooked.
Tesla stock is down 34.43% YTD.
NVIDIA stock is down 14.90% YTD.
IBIT (Bitcoin Trust ETF) is down 13.85% YTD.
What about popular index funds?
XQQ (NASDAQ) is down 6% YTD
VFV (S&P 500) is down 3.51% YTD.
Worrisome, sure. But certainly not a March 2020 calamity, or a 2022 sell-off. Heck, at this point you can’t even say it has been a standard run-of-the-mill correction.
Instead it’s a stark reminder that markets don’t go up in a straight line, and that riskier assets that may have delivered outsized returns in 2023 and 2024 are not immune to corrections or crashes.
It’s also a reminder of why we diversify. Buy the entire haystack, as they say, rather than looking for needles.
Diversification means always having to say you’re sorry. When you own everything, you’re sorry that you hold the worst performing assets.
You’re sorry that you hold bonds when stocks are soaring.
You’re sorry that you hold international and emerging market stocks when US stocks have outperformed everything.
You might have even been sorry that you hold the S&P 500 when the more tech-heavy NASDAQ has been on fire.
It’s easy to have FOMO when risky assets are going to the moon. Your globally diversified portfolio probably feels too conservative – like you’ve invested in a bunch of boring GICs. Chasing winners feels good.
But when those riskier assets drop like a stone, a globally diversified portfolio acts as a parachute to slow things down and spread out the risk over thousands of stocks and dozens of countries.
Instead of feeling sorry that you own everything, you’re thankful to not be concentrated in the worst performing stocks, sectors, or regions.
Back to my inbox. When I’ve received frantic messages about the market I pull up a chart of VEQT (14,000 global stocks) and see that it’s up 0.44% on the year. VGRO (80% stocks and 20% bonds) is up 0.43%, not including dividends. VBAL is up 0.75%, not including dividends.
Hmm, that’s strange. What turmoil?
And it’s not like these globally diversified baskets have been stuck in the mud. Take a look at the returns in 2024 and 2023:
| VEQT (100/0) | 24.87% | 16.95% |
| VGRO (80/20) | 20.24% | 14.86% |
| VBAL (60/40) | 15.63% | 12.69% |
Not too bad.
Could it be the case that news headlines have been scarier than usual lately (take this ominously titled G&M article)? That’s possible.
Could it also be true that some investors got in over their heads chasing past performance and are actually seeing a sharper decline in their portfolios due to that concentration in riskier assets? Also possible.
I get it. You feel like a novice when your properly diversified portfolio is lagging behind the highest performing investments of the moment. It probably feels like reckless investors are getting rewarded while you patiently wait for diversification to “pay off”.
Well, here we are. That’s why you diversify. Maybe now it’s our time to shine.
This Week’s Recap:
It was truly an honour to get to chat with The Wealthy Barber David Chilton about navigating retirement and advice-only planning.
Thank you to everyone who reached out with kind words about the podcast. And to all of the new prospective client inquiries – please bear with us while we get through a backlog of messages and try to book discovery calls.
In my last article I wrote about when to be selfish and when to be generous in retirement.
Promo of the Week:
We had a wonderful time in Cancun last month, perfectly timing the escape of -30C weather in southern Alberta and then arriving back to positive temperatures a week later.
Now we’re busy firming up our Easter trip to Italy and our summer travel plans in the UK.
My wife and I each hold an American Express Platinum card and carry them with us when we travel. That came in handy at the busy Cancun airport when we can each get ourselves and a guest into the airport lounge for a few hours before our flight. Lounge visits can cost upwards of $50 USD per person these days.
If the Platinum card isn’t in your budget, consider the American Express Gold Rewards Card, where you’ll earn 5,000 Membership Rewards points per month that you charge $1,000 to the card (up to 60,000 MR points over 12 months). You’ll also get a $100 annual travel credit, plus 4 complimentary airport lounge visits each year.
Use my Platinum referral link, scroll to the bottom to “Explore Other Cards” and click the American Express Gold Rewards card for the unique referral offer for that card.
Weekend Reading:
Here’s Of Dollars and Data blogger Nick Maggiulli on how not to invest.
A Wealth of Common Sense blogger Ben Carlson looks at if international diversification is finally working.
Millionaire Teacher Andrew Hallam aks the question on everyone’s mind, should you shift your investments because of Donald Trump?
Jason Heath says tax and other pitfalls await when you inherit real estate:
“Unless you plan to use the property, ask yourself whether you would buy it with an equivalent amount of cash.”
Heather Boneparth answers a reader question: I’ve tried everything to get my spouse more involved with our finances. How can I get them to the table?
PWL Capital’s Braden Warwick looks at the characteristics of an optimal financial plan.
Here’s Andrew Hallam again on why saving money matters more than your investment choices.
Ben Felix explains why sequence of returns risk should be reframed as sequence of withdrawals risk:
If retiring cold turkey isn’t for you, consider a phased retirement that lets you scale back at work and ease into retirement before eventually stepping away completely.
For Globe & Mail subscribers – the singles tax of going it alone on saving for retirement.
Aravind Sithamparapillai explains what you need to know about RESPs when you’re about to have a baby.
Finally, Jason Zweig writes about the shocking last decision of Daniel Kahneman, the world’s leading thinker on decisions (WSJ subs).
Have a great weekend, everyone!
