Then within those larger groupings are sub-groups, such as large-cap companies, small companies or emerging markets. For example, a good mix today for the growth side might be 16% Canadian, 18% American, 17% international and 9% commodities and alternative assets. Then you carefully establish the proper weightings of the asset classes. First you elect to have both growth assets and safe stuff in the same mix – I like 40% fixed income and 60% growth. This is what a balanced portfolio seeks to avoid. It’s why the greatest selling binge in recent memory came in March of 2009, when markets bottomed and the herd threw itself off the cliff of despair. They bail when prices collapse and fear takes over. They buy when things go up and the greed clicks in. So they dabble a bit in buying equities some buddy talked up as a sure thing, and they get their privates cut off. Trouble is, most Canadians think nothing exists between GICs and stocks. So, why wouldn’t you want to have a piece of it? The world is simply growing its way – slowly – out of the mess that brought us 2008. Not even any lasting consequences from almost five years of intense monetary stimulus by government. In short, there is no crisis and won’t be one. Consumer confidence is up in the States, and the deficit is the lowest it’s been since 2007. Markets, and the investors who form them, believe the US recovery is the real deal, with house prices up 10% annually, corporate profits edging up 8% at the end of 2013, steady employment gains, no debt ceiling crisis in Washington and a central bank that thinks things are peachy enough to strip away stimulus spending. The 6% correction we saw last month was viewed as a buying opportunity, so investors moved in and bought stuff on sale. Last week the US stock market gained about 2.5%, and sits just below an all-time high. So, they buy houses instead, creating their own unique risk. This shocks people who have never invested, get all their advice from, have no idea where to find an ETF or a preferred share and believe anything above a brain-dead GIC rate of return involves eating a gun. Over the past four years that balanced account gave off an annualized 10%, and over the last decade – which included the biggest stock dump since Al Capone – an investor who ignored all the turmoil would have made just north of 7%. During the year, the price of fixed income assets (like REITs and preferred shares, as well as bonds) fell as central bank tapering took hold, but still the balanced investor did fine, at around 11%. The TSX gained 9.6% in 2013 and the Dow was on steroids, with a return of almost 30%. That came after I mentioned a balanced portfolio last year should have given an investor at least a 10% return. “Instead of spouting this gibberish as if it were a fact, perhaps you could back this up by something, and explain why, if you are able to beat the market in this way, you waste your time writing this pathetic blog.” Without fail, when I talk of average returns from a balanced portfolio, somebody tries to break my other leg.
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