Many who follow my blog know that I am a big fan of passive investing with Index ETFs. Take a look at my article “What does passive investing mean?” if you want to know more.

The equity markets were up almost across the board in 2019 so anyone invested in index funds (ETFs, roboadvisors etc..) had a great year. For example, if you had an 80% equity, 20% fixed income type growth portfolio of ETFs you would likely have achieved over a 17% return in 2019!

However, whether our portfolio did great (like last year) or poorly (like the year before), our perspective should be the same. I wrote an article on November 1, 2018 after the market dropped significantly. The advice I gave then is valid whether your portfolio is up or whether it’s down in the short term. The letter encourages investors to stay the course and to not allow their emotions get the better of them.

See below for the letter to investors that I wrote dated November 1, 2018 after the S&P500 had dropped 6.9% and the TSX had dropped 6.5% in the month of October:

Dear Investor,

We invest in equity markets in the hope that our money will grow at a decent rate of return, helping achieve life goals. The most common long term goal is to have enough saved for retirement.

As discussed in previous meetings, the estimated returns for your long term growth portfolio is roughly 6% based on your asset allocation and projection guidelines. This estimate is not relevant however to short term time frames and subject to fluctuations in the market.

VOLATILITY IS THE PRICE WE PAY AS EQUITY INVESTORS TO ACHIEVE THESE LONG TERM RETURNS.

Two of the most critical keys of investing are to:

1) Keep your emotions in check

2) Stick to the financial plan

Tune out what the media or “experts” say and keep your focus on the plan and the fact that these investments are for retirement. Retirement is 20 to 30 years from now! I know it can be scary in the short term seeing your portfolio in Red but try to mentally expand your time horizon (adjust your perspective). What happened (or didn’t happen) in October 2018 will not mean much to you when you’re 65. There will be A LOT of ups and downs between now and then but sticking to your investment system is your best bet to achieving your goal. You will lower your chances of reaching your retirement goal if you try to time the market or make emotional decisions.

My recommendation is to continue to keep your portfolio balanced and globally diversified by using index funds while keeping your fees low (0.2%-0.5%). Re-balance once or twice a year or when you add lump sums. Don’t stay in cash, use expensive mutual funds, don’t try to buy your own stocks.

One last note: You are also entering the prime of your career and you’re in the accumulation stage. So when you continue to invest regularly during market dips, you're getting a discount and buying low! I love sales.

Keep calm, and index on!

Your friendly fee-for-service planner,
Nicholas Hui, VAVE Financial Planning