Warren Buffett (the world’s greatest investor) once exclaimed that ‘if your company has an economist on the payroll it has one too many employees’. And of course you can look to the headline of this post for another telling description of the use of economics in making investment decisions. We can put any ‘market guesser’ in the economist category. And in the annual parade of investment buffoonery economists and investment firms sign up to demonstrate how wrong they are. They volunteer to do this every year. But they have to, getting it wrong is their job. As an investor you can turn the investment tables on them and ignore all of their guesses.
Market prognosticators have set spectacular records for ‘wrongness’ over the last few years. After guessing that 2022 would be a positive year for stocks (it wasn’t, markets were down by over 18%), they came up with this for 2023.
Swing and a big miss
2023 delivered over 26%, I think that’s missing the mark by 700% or something? There were predictions of meager returns again for 2o24. Oooops! In 2024 we’re up almost 27% heading into the last full trading week of the year. And Santa’s coming, wink wink …
Thanks to Lance Roberts (no relation) for the post and guesses on Seeking Alpha. Here’s what you can ignore for 2025.
Now where can I place a bet that the above table is wrong? I’ll even turn it into a parlay and bet that everyone one of them is wrong. Making any investment decision based on that graphic would be like putting your money on the guess for the weather in Quebec City for the month of May.
This is good …
Stock markets mostly go up
What do we know about investing? Stock markets mostly go up but they don’t always go up. Here’s a table for returns previous to the 2022 wrongness. Average annual returns are about 10%. Good luck finding average in this table.
Stock markets are the most productive wealth builders in history. It’s those green years that can build wealth beyond our dreams. Those red years try to knock you off course. We don’t know the colour scheme for next year or the next decade, or the next 20 years. But if history repeats those green years will continue to outweigh those red years. History repeating means the world will experience economic growth over time. I’m making that bet.
Here’s the wealth building over the last decade …
As I’ve repeated dozens of times on this blog …
Get an investment plan and stick to it like glue
By way of the stock markets (or sensible stock portfolios) you become a part owner of so many wonderful productive and profitable businesses. Exchange traded funds have taken this profitable venture to a new level. By way of one ticker symbol (IVV) you can own 500 of the largest and most profitable and innovative businesses on the planet – in the U.S. of A. You can own those 500 companies for a total cost of just 0.05%. You can do the same for the stock markets of Canada, England, Europe, developing markets, etc. etc.
Heck, you can enter one ticker symbol (VT) and own the stock markets of the entire developed world. Keep in mind, that is a U.S. Dollar ETF. Canadian Global ETFs are also available.
Stocks and ETFs, the hybrid approach
Most Canadian self-directed investors like to build a sensible Canadian stock portfolio and then cover off the rest of the world with a global ex-Canada ETF such as iShares XAW.
You can build your own ETF portfolio or enter one ticker symbol to own one of the wonderful managed, global asset allocation ETFs.
More and more Canadians are finding the better way …
There’s more than one way to build wealth. Find the approach and risk level that suits you. What will then determine your success rate is the amount that you invest on a regular schedule, and your behaviour. Your ability to ignore all of the guesswork and noise so that you can stay the course.
Here’s our post on the personal finance basics …
Oh look, I just found $888,000 in your coffee.
And speaking of noise
And in case you’re wondering what happened last week. Here’s an AI summary –
Federal Reserve Chairman Jerome Powell’s remarks today contributed to a stock market decline due to several key points he made during his press conference. Powell indicated that the pace of interest rate cuts would likely be slower in 2025 than previously anticipated, primarily due to inflation pressures that remained higher than expected. He specifically noted that inflation “underperformed” year-end expectations, suggesting that the Federal Reserve would need to maintain a cautious approach to monetary policy tightening. Moreover, Powell emphasized that it would be premature to make conclusions about how potential Trump tariffs could drive up inflation, adding another layer of uncertainty. He also highlighted that while the economy is performing well, the Federal Reserve would not rush to undo its efforts to control inflation by cutting rates too aggressively in the coming year. These statements collectively signaled to investors a longer period of higher interest rates, which typically dampens market enthusiasm, leading to the observed sell-off in stocks.
For the week, the S&P (SP500) was down 1.99%, the Nasdaq was -1.78%, and the Dow was -2.25%. Canadian stocks fell 2.5%.
Asked and answered: Don’t know
- How will stocks perform for the rest of the year? A: Don’t know.
- What will Donald Trump do ? A: Don’t know.
- What will the Fed do in 2025? A: Don’t know.
- What will the Bank of Canada do in 2025? A: Don’t know.
- What will happen to the Canadian Dollar in 2025? A: Don’t know.
- Where will bond yields be in 2025? A: Don’t know.
- Where will oil prices be in 2025? A: Don’t know.
- What will happen to bitcoin in 2025? A: Don’t know.
Am I staying invested in 2025? A: Darn right!
Economics is interesting. The markets are fascinating. Politics is infuriating. Just remember, it’s all for entertainment purposes only 🙂
More Sunday Reads
I’m going to be selfish and kick things off with my update on the Vanguard VRIF ETF. VRIF is a retirement portfolio that delivers a monthly income stream, hence the letters – RIF. You’ll see that the income and the ETF price (value) have both made a full round trip, essentially back to where they started. VRIF ran into the unexpected inflation spike in 2022.
Join Retirement Club, kicking off in mid January of 2025. It’s a series of monthly Zoom calls, monthly newsletters plus a resource hub to ensure that we’re ‘doing retirement right’. Use the Contact Form to send me an email, and I will forward the outline. There is a modest fee.
At The Retirement Manifesto Fritz looks at 7 hidden traps of retirement. That’s a very good post. We have to have a life plan as much as a financial plan. Retirement is life by design. To be happy you will likely need a life filled with purpose and rich experiences. You will need to replace some of the ‘good stuff’ that you did get out of your working years.
Tax considerations heading into 2025
Also on the retirement front Jonathan Chevreau looks at Retired Money: Tax Brackets, Income Thresholds, Inflation Factors & other things retirees need to consider going into 2025. Here’s an encouraging string of sentences, referring to delaying CPP while you draw down your RRSPs / RRIFs in quicker fashion.
Referring to Golombek’s article, Ardrey says that using federal brackets only, taxpayers can receive $57,375 of income and pay very low rates of taxation, especially when the $16,129 basic personal amount is considered.”
Retirees under age 70 can defer CPP and OAS until 70 and try to live on withdrawals from their registered plans instead. With no other income, taxpayers could have almost $50,000 of after-tax income, or $100,000 for tax-paying couples.
This CPP and OAS enhancement is one of the greater retirement hacks.
If CPP and OAS are both deferred to 70, payouts will be higher by 42% and 36% respectively.
We eventually replace more risky income (RRSP/RRIF) with pension-like income (CPP and OAS). And in aggregate it can increase the amount of income you can generate over your retirement. More income, less risk. What’s not to like. Of course, you’ll have to run the software to make sure that’s the right path to your optimized cash flow plan. This will be one of the early explorations for Retirement Club.
Dividend Hawk looks at his dividends received and the news of the week for his stocks. We both shared in the Qualcomm (QCOM) dividends. You’ll also find a collection of Seeking Alpha posts.
Here’s the podcasts and posts of the week at Banker on Wheels.
Terrible start date for American retirees?
On Seeking Alpha I offered …
I will follow up with more on the valuation issues (and on that post) for retirees on Cut The Crap Investing, later next week.
On Early Retirement Now – Small Cap Value – diversification or diworsification?
Cap gains for ETFs …
Tapping Out Early looks at the capital gains distributions for various Canadian ETF providers …
And on the same topic, Loonie Doctor prescribes that we should look out for these (not tax friendly) phantom distributions …
And here’s the link to the post.
R.I.P. legend Rickey Henderson …
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ETFs / Stock Portfolios / Retirement Strategies / Wealth Creation
Join Retirement Club
Retirement Club will start in mid January. It is a series of monthly Zoom calls, monthly newsletters, retirement portfolio updates, a resource hub and more. Use the Contact Form to send me an email and I will forward the Retirement Club outline.
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Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It’s a great place to build your stock portfolio.
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That cash went into my TFSA account to buy some bitcoin, ha.
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