Market Update November 2022
Happy Fall!
As we get ready to run into Xmas and the holidays, we thought it would be very helpful to give you an update on where the portfolios are invested and what we see for the market going forward.
As we all know, the world continues to experience a large amount of upheaval and with uncertainty comes worry. In our last letter we talked about being stuck between a rock and a hard place. To remind you, the rock is inflation, and the hard place is interest rates. With the cost of everything being high, interest rates naturally follow.
For this newsletter, we're going to introduce you to TINA (There Is No Alternative).
In the past ten years with falling interest rates, the idea of TINA - to stocks, came into being. The idea was that the rate of returns on fixed income was so low that there was no alternative to investing in anything but stock. With the rock and hard place scenario playing out and interest rates following inflation, there actually is an alternative to investing in stocks right now. (Bye, TINA!) Fixed income and GIC's that mature within 1-5 years now pay us between 4.5-6%. This looks quite attractive when compared to stocks, which have fallen around 20% this year.
As per our last newsletter, having avoided the drop in the stock market through selling from November to June, we had cash available to take advantage of these higher yields, leaving us with the highest amount of fixed income in your portfolio that we can have. Subsequently, the lowest equity allocation.
So why not just invest that fixed income allocation to GIC's alone and protect the capital in its entirety? Our answer would be this: in the case of things changing and equities becoming attractive, we can sell these bonds and buy into the stock market. This is not the case with GIC's - with a GIC they must be held until they mature.
So, what now? Now we wait. Now we collect the income from our bonds while maintaining the safest overall asset allocation within your portfolio.
As things change, we will change. As we did in March 2020, you will find us slowly changing the allocation to fixed income and moving it back into stocks.
The investment decisions made this year align with the three pillars of our investing style - protect what you have (preserve capital), invest for income, and achieve a reasonable rate of growth over time.
P.S. As we will say until we are blue in the face, please do not pay attention to the media. They report on the markets, not on your portfolio.