Episode 62: The Enemy Within | Market Update Event, Fall 2022

In this week's episode, we're sharing the single greatest destroyer of wealth. Care to guess what that is? This is an audio recording of our quarterly client presentation and market update.

What is Barenaked Money?

Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.

Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.

Announcer:
You're about to get lucky, with the Barenaked Money Podcast, the show that gives you the naked truth about personal finance. With your hosts, Josh Sheluk, and Colin White, portfolio managers with WLWP Wealth Planners iA Private Wealth.
Dan LeBlanc:
Okay, I think we're live. Hello, everyone. I'm Dan LeBlanc, founding partner and portfolio manager with WLWP. We're grateful so many of you could join us today for our regular market update webinar. And as usual, we'll be delivering a dose of good news, a from the hip discussion of the current state of the markets, which is obviously not all good news. And we've never been prone to sugarcoating anything, so we're not going to start today. And then we'll get into some interesting discussions around behavioral science.
We know times like these can be stressful, the discomfort is real, and we understand it, but we have filled mitigation into your portfolios because economic climates like we are experiencing now have always happened. Do we enjoy it? No, we'd much rather be able to always celebrate bull markets, but we understand the risk, and we do everything we can to manage them while striving to achieve your financial goals so that you can continue to feel confident and secure.
We hope today to remind you of the people, the processes and the measures we have in place to make sure we are positioned as well as possible to weather any storm. And some of you may have heard me use this analogy before. So, think about being on the flight, you're cruising at 35,000 feet, everything is smooth and comfortable. And then the pilot comes on and says you're about to enter some turbulent airspace, remain in your seat, fasten your seatbelt, it's going to get bumpy. But you have confidence in the pilot's ability to get you through the turbulence and land you safely at your destination. We're your financial pilot. It's been a little bumpy, but let's remain in our seats and buckled up. We're going to get through this turbulence. And on that note, I'll introduce Josh Sheluk and Colin White, my partners and fellow portfolio managers at WLWP. They'll take you through today's presentation. So over that, over to you Josh.
Josh Sheluk:
All right, thanks Dan. So as usual, we're going to kick it off with a bit of good news. Good news is still prevalent out there despite what mainstream media will have you believe. We'll cover a little bit about what's new, which is a lot these days. We'll give you a little bit of an outlook, not so much an outlook, but a look back, let's call it, on the markets. We're going to talk a little bit about human nature, revisit what the right advice is, and of course leave some time for questions.
Colin White:
Now, because I've been given a lot of the messier parts of the presentation to deliver, I'm going to deliver some good news, which has become a bit of a hallmark for us. So this is very, very close to my heart because it's very much part of my generation is that that hole in the ozone that my generation created in the 80s with a lot of hairspray is slowly healing. So, much so that it is predicted that by the year 2070 the ozone will have completely healed and we will not be irradiated off the face of the earth. So listen, this is good news on a whole bunch of fronts, but this is an example of the globe coming together and fixing a very real problem, cooperating and seeing a positive outcome because of that. So, congratulations on everybody for using yes, less hairspray and less refrigerant and having the ozone heal. So, now that we have gone through good news, we are going to get into it, as we say.
Josh Sheluk:
Yeah. So, we're going to start with a poll here to break the ice a little bit and should be launching that shortly on your screens here. So, we want to know how you're really feeling about things. We know stress levels might be a little bit high right now, but don't sugar coat it with us because we won't sugar coat it with you. Got the results rolling in here.
Colin White:
Ooh, look at this.
Josh Sheluk:
Look at this. Doesn't seem like too many people are very stressed, but there's a couple that are worried about what's coming next. Rightfully so.
Colin White:
Well, [inaudible 00:04:28]-
Josh Sheluk:
Hope people [inaudible 00:04:29].
Colin White:
I think we should shut this down Josh. We have all the wrong people on this presentation.
Josh Sheluk:
We need some more pessimists out there, is that what you're saying?
Colin White:
Well, that's what I was prepared for.
Josh Sheluk:
Well, why don't you tell people what's new Colin?
Colin White:
Well, listen, again, we don't sugarcoat things and that's what we hold ourselves like to be. We're going to try to educate. So to be honest, since last time we talked, there was very little good news to be had with regards to what's gone on in the last little while. But I think it's important that we understand and accept that. And there's an expression that Catherine very minimally disagrees with, but I think it brings a bell with a lot of us. Truth is like poetry, nobody likes poetry. So this is one of those times nobody's going to like the truth, but we think it's important to walk around in an event just to understand exactly what that is.
So, inflation, it's a thing, and it is wearing out its welcome, as is talked about here. Now, I attended a luncheon presentation, the Tiff Macklem, the governor of the Bank of Canada gave a few weeks back and he gave his insights. So the remarkable thing was his tone. He was very, very adamant that they were going to defeat inflation, get it back to that 2% target. And he also said that they got a completely wrong Initially when inflation began, it was seen as something that was transitory or something that was going to end as the pandemic restrictions came off. But in December of last year, the bank of can stopped using transitory or transition inflation as part of their descriptor. Then this year they've moved on from that to accept that yeah, inflation is indeed a thing. So again, like I said, it was a little remarkable with how forceful he was And this is actually leaked into the political side, which is the part that you really don't want have happen.
Because Central Bank policy should be a fiscal policy you or it should be a bank policy rather than government fiscal policy. Those should be two different things. But the bank is really, really set on giving you the under control. Therefore they're, they're going to keep going down the path that they're going to have. And when you sit and take a look at all the different measures that they use and everything they look at, it was actually quite, it was a good presentation. They look at things from many, many different angles and even with all that information, it's important to point out and they say themselves that they got it completely wrong and have adjusted course more recently.
So, if they get it wrong, it's okay if other people get things wrong from time to time too, that's just going to happen. So we're going to go ahead and take a look at exactly how down, down, down it has gone because this is what everybody's feeling right now and it's truly a remarkable time. And I'm going to talk about it a little bit now and Josh has got some other indicators before just to validate what everybody is seeing and feeling with her right now.
Here are some various asset classes, and or geographies to consider because typically when things are bad there is somewhere to hide and there's always somebody with a theory. So, as you can see, Canadian stocks, US stocks, international stocks, gold, real estate, bonds, long term bonds, Bitcoin, personal favorite, and you can tune in to be Barenaked Money and listen to the podcast that Josh Sheluk made fun of Bitcoin for quite some time now. Copper, Canadian dividend, stock soil, Canadian banks, everything is down significantly. So, this is one of those times that you can take a look back and we'll talk about this later. I'm really, really confident that gold is going to protect me in times of inflation. Are you sure? It really hasn't worked out that way. For those who were fans of Bitcoin saying Bitcoin is the new goal that's going to protect me. Not really. Real estate's always going to do well, not really.
Now again, that doesn't mean any of these things by definition, but except Bitcoin are necessarily bad investments. But to think that they have some irrational superpower to protect from losses at all times, that's not warranted and that's what's truly uniquely bad about this situation. The diversification normally afford you some former protection, but that really hasn't happened this time through. And furthermore, for those who are sitting on Ken, the inflation that we've seen has dramatically eroded the value of that cash. So, even in cash, well you can say I didn't lose anybody. It has lost purchasing power and if you leave it sitting in cash, it's likely to continue to lose purchasing power over time.
So, good choice, bad choice. Sell low and buy high is not a strategy. We've done the math, that's a bad thing. So again, things like this happen, making a need knee jerk reaction to try to pull away from the pain, which is part of our DNA, is not necessarily a good thing. The other thing is that timing cash flow is impossible to do it accurately and effectively. So, we saw one day where there was a negative consumer price index number, instead of 8.1 and came out 8.2% or something seemingly fairly small. Market opened up immediately sold it off two or 3%, but then partly through the day it began to rally and ended up two or 3%. The total move top to bottom that one day was 5.6%, one of the largest top to bottom moves seen in the market. And that all happened on the same piece of news.
So, even if you were accurate in saying I think inflation's going to be better or worse similarities, even if you got that part right, you would've also had to figure out where this tug of war was going to end within the market. So even if you get the direction of a particular indicator, it's not the only indicator, it doesn't happen in the volume. And assuming what's going to, what the market reaction is going to be is a big leap. Cause markets are forward looking and so they're going to take that information and they're going to extrapolate it, the grand aggregate, everybody's going to extrapolate it. So it's very, very difficult, impossible to do it consistently and effectively over long term. Even if you get it right 19 times, get it wrong once you're going to wipe out all of the gains that you would've made while having gotten a break that many times in a row.
So again, it's very, very important to not make knee reactions to what's going on right now. So what can you do? What are the ways that you manage through these? Alluded to the fact that we expect these kinds of things to happen. We expect markets to fluctuate, we expect have downturns. How do you manage that? Well the first one isn't, hasn't really helped us as much this time as it normally would, but diversification remains important. Cause most of the time that does provide a protection against things going sideways. So that remains key. And the example I sometimes use the people is to point out that when you get really, really confident, again it's not what you don't know is going to hurt you is what you think. For sure it just isn't. So if I came to you back in January of 2020 and said, Hey, interest rates are really low, commercial real estate's really hot.
I can get you 6.4% yield. Let's plow 40% of your portfolio in the commercial real estate January of 2020. All of my math and assumptions may have been right but I didn't predict the pandemic. So the pandemic hit completely blows up a few sectors, then you realize you've made your portfolio unnecessarily fragile. So diversification remains key going forward even though it hasn't helped a whole lot this time around. The other thing again, we'll actually end with a bit of a comment on this as well is making sure you keep a cash rich, keep enough money on hand that you can pay your bills for the next little. We always want to make sure that you have, depending on your situation, three to six months living expenses or if you're living completely off of your assets, maybe a year or two worth of payments set aside so that's not exposed to the market. Those are reasonable and smart things you can do to try to mitigate what's going on but not going to completely protect from what's going on for sure.
Josh Sheluk:
So, a state of the markets, as Colin said, it's been a bit of a unique year, not totally unprecedented in some senses, but unique for sure. And again, as Colin said, we don't want or hope things will go this way during the year, but we do play in for them sometimes and we do expect them to happen sometimes We just don't know in advance when that is going to be, when those times are going to be add some color to the inflation numbers that we've been seeing recently. Inflation definitely a problem. You hear call and talk about tack in the Bank of Canada saying that they definitely want to give back to that 2% target inflation. Now that 2% target has been set for a long time now, multiple decades. What this graph here is showing you is if you look at that dashed line over the last 12 years, that's the path that 2% inflation would take.
That light blue line that you see there curving up towards the end, that's the path that inflation actually has taken here in Canada over that same period of time. So if you want to sleep 12 years ago, woke up today, you'd say, Hey, guess what? We're bang on that 2% inflation number over the last 12 years. Some years has been lower right now. Yes this, it's higher for sure. Now that doesn't mean that 8% inflation right now is a good thing, doesn't mean that it's not creating some stresses or some issues out there. We'd ideally like it to have 2% inflation every year all the time. But it hasn't been the reality. But again, taking a bit of a zoom out type of view, longer term view, we've come right around that 2% mark. And importantly, if you reflect back on what this means for you and your financial situation, if we did a financial plan for you 12 years ago and we forecasted 2% inflation, we would be pretty much bang on right now.
Some years would've been actually looking better off than that. And so to take extrapolate out what we're seeing today, the 8% inflation and say, well it's going to derail my financial plan, which is 20 years long or 30 years long, or to take 8% inflation and say, Well this is going to last for the next 10 years, it's going to be catastrophic. That's probably not the case. It's probably not the case. If you think inflation's going to be 5% per year for the next 20 years, then yeah maybe we need to revisit the financial plan. But I think that's highly unlikely. We think that's highly unlikely and in most cases this last year is probably not going to derail anything for you financially. Now as startling as the inflation numbers have been, some of the returns from bonds have been equally as startling, maybe even more so the top graph that we have here, the orange line shows the growth of bonds over the last 32 or so years since 1990.
And so you can see it's been a fairly steady up trend with a few pullbacks along the way except it's hooking down towards the end of that graph. So recently the pullback and bonds has definitely been noticeable to say the least more interesting for me than that top graph is that bottom graph which shows you the declines in the values of bonds over this same 32 or so year period of time. And the last year and a half has been far and away the biggest period of declines over this 30 year period. And if we extended this back further, we would still see the same trend. This year has been by far the biggest and most, well the biggest pullback that we've ever seen in bonds, really just to put it flat out. So that's tough and that's especially tough because for more conservative portfolios they typically have more exposure to bonds which tend to be more stable. And this has been one year where that really just hasn't been the case.
So, bonds are bad, but we keep saying it's been a really challenging year and as Colin alluded to, there's, there's not a whole lot of places to high. Now I know this graph's maybe a little bit small for everybody to interpret, but what each of these dots on this graph shows you is one calendar year and we're plotting the returns of bonds and the returns of stocks for that calendar year. So as you go further to the right, that means that calendar year has experienced better returns in bonds and it as you go further up, that means that year is experienced better calendar year returns for stocks.
If you go left, that's bad. If you go down, that's bad. If you go left end down, that's double bad. And right now, 2022, we're in that red circle there to the bottom left of the graph. So again, it has been a little bit unprecedented this year has been, when you look at stocks and bonds together, been very, very challenging. And again, we pair these portfolios or these asset classes together in a portfolio because almost always, if you look at this graph going back 50 years or so, almost always, either stocks or bonds is doing well. Both of them are struggling this year, which is very unusual.
So what about housing? Everybody seems to follow the trends in real estate across the country and certainly over the last 20 years or so, people have really relied on real estate to grow their wealth. Not the case over the last 12 months and since a peak earlier this year, real estate's down double digits and percentage terms. Now this is houses that A actually sold, doesn't do anything for people that put their house on the market realize they're not going to get anywhere close to what they wanted and pulled it off to market should be a fairly reasonable gauge.
But housing as you from region to region can be very, very different. But I guess bottom line here is something that has been a bit of a boost to wealth over the last 20 years is right now going the other way. Now I realized going through this yesterday that this is an extremely negative, the last few slides, it doesn't feel good right now, but there is sort of a positive view on this and that when things go down in price, you're buying them at a discount, you're buying them at a lower price and your return expectations should be better going forward.
So, that is one takeaway that we can rely on here because that is certainly true for bonds, probably true for stocks, and maybe even true for real estate, as well if you look far enough of. Now, that said, we're going to launch our second poll here. What is the biggest destroyer of wealth? And again, I'm going to launch the poll here. Now Colin, I can really speak to the second one there, but teenagers, how about that? How does that do for you?
Colin White:
Well see, we all suffer from recency bias when it comes to teenagers. So the more recently you've had a teenager in the house, more apt you are to think that it is absolutely the worst thing ever. So my teenagers are now in their twenties, just fade it from me a little bit, but ooh, ooh, ooh. I think we're getting the answer we expected this time, Josh.
Josh Sheluk:
Yeah? Yep. And recency bias right on hand here, Colin. Economic downturns is what most people are think.
Colin White:
Well, it's a trick question. It was a trick poll. Ha ha, we've got you. The biggest destroyer of wealth is you. And when I say you, I mean us. By us I mean people. So people's behavior is actually one of the largest destroyers of wealth. It's not necessarily what's happening in the roads, how we react to it and how we react to it. That's basically the whole story. And we can trace that back. It actually has archeological roots. And for those who follow me closely or have listened to me over the years, this is a story I often relate when time things are like this. And congratulations, if you've been with me long enough to recognize what story comes next. And we've been through enough downturns, I've told you this story. We have a close relationship that I truly value. It came from a presentation I attend at one time where there was anthropologist on stage and he was talking about how we developed as a species.
And the way he laid it was three groups of people sitting around a campfire. And the C two tiger shows up, one group gets up, they run, some of them get away. So they get to stay in the gene pool, bunch of them stand up and they fight. Well some of those win and they get to stay in the gene pool, the group that just sat there to see what was about to happen. Well they all had eaten. So they got removed from the gene pool. So as we sit here today as a fully functioning member of a very advanced society, the only two options we have are the fight or flight. And honestly, in modern times, that doesn't always serve us well. In fact, if you go forward and take a look at southern high performing athletes or some people who perform at very high levels in academia, chess, whatever you want to talk about, being dispassionate is something that is very, very important.
For example, professional golf, there is the doping and professional golf, it largely revolves around things like Adderall or beta blade, beta blockers. Things that completely suppress the body's ability to produce adrenaline. So what they want to do is completely remove that flight or flight physical response to allow somebody to concentrate on the task at hand. And it is so compelling at the absent highest levels that it is a form of cheating. So if you want to take that into your own life, the more you can reduce your fight or flight when it comes to executing on very technical tasks, the better you you could perform. So lack of adrenaline is actually a super power that you will, maybe I've gone too far with that trust superpower. Is that too far?
Josh Sheluk:
That would be an interesting answer to that question. What superpower would you most like to have? Lack of adrenaline?
Colin White:
There you go. See actually, there you go, Catherine, write that one down. But we're going to use that with the team. So I want everybody to meet Steve. I'll be play very, very close attention here because we're going to ask you a question about Steve in a second. Now Steve is, I'm going to have to read this because this is very particular, this is very, very important. I get this right. So excuse me, when I look down, he's very shy, withdrawn, invariably helpful, but with little interest in people are in the world of reality, a meek and tidy soul. He has a need for order and structure and a passion for detail. So did you everybody internalize that? Let's go to a poll. Do you think Steve is either a librarian or a farmer?
Josh Sheluk:
Now, I think that this is the most interesting poll I think of the day here.
Colin White:
Well they may be honest us. They may think that we're setting a trap for them.
Josh Sheluk:
Well, reverse psychology you think?
Colin White:
Yeah, this is not a good control group.
Josh Sheluk:
Yeah. Smarter than the average group, right? That's what you're saying?
Colin White:
Well we've already tricked them once, so I think they're on edge.
Josh Sheluk:
So, we were coming in with around 70% of the votes thinking that Steve is the farmer and about 30% of the votes thinking that Steve is a librarian. So it's an very interesting question and the answers are even more interesting for us. And studies have been done about this a long time. The answer is that it's far more likely that Steve is a farmer and the answer has nothing to do about Steve. But just that the fact that there are far more farmers in our North American society than there are librarians by some measures saying a factor of 10. So if you're just looking at purely the detail that we have from Steve, Steve is a person, he's more likely to be a farmer. Everything else is just noise. And this question's so interesting because we provide extra info, we've provide extra context for you thinking that it's helping you to provide an answer.
But really it's just tricking your mind into providing something that you associate with maybe being a librarian. And we call this information bias. So the idea that more information helps us make a better decision, which in a lot of cases is just not true. And actually more information can actually be detrimental sometimes because more information makes us feel more confident about our decision, about our answer, which again may not be true. And this has been studied in professional gamblers as well. Horse betters. So you give these horse betters more information, more information, more information, confidence about their bets goes way up, but their results don't get any better.
So, this trend towards overconfidence can be very damaging because soon as you get too confident in one outcome happening. When you're predicting the future that's leads you susceptible to making very poor decisions. And it's ripe in our industry, in our society right now because you read something on the global mail, then you turn it on the tv, you see the same thing on CTV, then you hear from your friends and then you see it on TikTok and all of a sudden you get really confident that it's going to happen next. And with information bias at hand, it may not be so absolute.
Colin White:
Well, the other thing is that recency bias plays in and this is the likelihood you're going to pay more attention to what most recently happened. So we've had both things happen within our client base or someone calls up and says, Oh my god, you guys made us more money this year than our last advisor did over the last five years. That's absolutely amazing. You guys are the best. And then a year later the accounts down. It's like, if we keep losing money like this, I'm going to run out of money in five years. It's like just stop. No, neither one of those is useful for making decisions, but it's because it's smoked very recent, it's very raw. The emotions are highest and you want to hang onto it and listen. I'm saying some really, really earnest people look at their state and go, Look, I'm down 10% in the last year, that means I'm going to run up money.
Because it keeps going down like this. It's like, well in order for you to lose all of your money, every company is going to go bankrupt on the same day. And if that happens, I think we have bigger trouble than your account going to zero. Cause we're probably back in capes sitting each other with sticks. And I don't think that's going to happen. But again, it's difficult to break out outside of that because we put a disproportionate amount of weight on what's happened most recent. And we live in a time, back to Josh's point on the last slide, where you can get as much information as you want. It's like you let around into people.
It's like, Oh, no, I read about gold like five or six hours a day. I read everything there is to know about gold. Yeah. And it's not going to help you predict what happens next. But again, it's that confidence because they've spent so much time at it that obviously I read everything that's happened recently, I understand all of it, therefore I know what's going to happen next. And it's not necessarily getting the prediction wrong as much as how much confidence you have in it because again, that that's what truly causes damage to somebody's personal financial situation. Well, so we're back to the polls and Josh, you're going to run this, right?
Josh Sheluk:
I got it. Yep.
Colin White:
All right. So do you believe in intuition? Yes. I always know when it's going to rain, not me, but my spouse is right about a lot of things after they have happened. No climb by the seat of my pants is surprised all the time. Let's see where we rely on intuition. I certainly would vote for number two, but that's just my own current situation.
Josh Sheluk:
But we won't tell Renee about that, will we?
Colin White:
Oh, look, I'm an open book.
Josh Sheluk:
That's why your marriage has lasted so long, Colin.
Colin White:
That's right. Transparency. Transparency. Professionally, transparency personally.
Josh Sheluk:
Seems like we're, we're fairly evenly split on this one. People don't seem to know when it's going to rain. I know that it's raining here right now, but other than that people are flying by that see their pants a lot and a lot of people have some spouses that do exactly what was going to happen.
Colin White:
Well, there you go. So why don't you discuss hindsight bias, Josh?
Josh Sheluk:
So, I think what we want to emphasize here is hindsight is always 2020. We always know exactly what was going to happen when we're looking back into the past. Now when we're in the present or future it's easy to look back and say what was going to happen. But if we took ourselves and transplant ourselves back to that past self, we may not have been so sure at the time exactly what was going to happen. So you might sit here today and you think, well I knew on Putin invaded Ukraine that the market was going to go down or I knew that inflation was going to stick around or I knew that interest rates were going to go up, up and up and not pause for any period of time this year. There's always going to be those people out there that say that the sky is falling and once upon a time, yes they're going to be right. That doesn't give them any more predictive ability for what's going to happen next.
Going back to that quote at the earlier in the webinar that Colin mentioned, it's not what I'm going to read it here. It's not what you don't know that will hurt you. It's what you think. For sure it just isn't. So if you've properly diversified your old portfolio, you're going to be surprised sometimes. But your old portfolio is going to be able to deal with a variety of different surprises because that's what it's built for. If you think you know something for sure and position your portfolio for that one specific thing, then an event that surprises you can be catastrophic because you've positioned for one thing and a complete opposite thing is happening. So there are loss of examples that people seem to forget sometimes that we thought that we knew something for sure and it turned out to be false. Did you think you that when Trump won the election, stocks were going to go down?
For sure. Did you think that cannabis stocks were a can't miss investment? Did you think that Nortel was a surefire win at all costs stock? Did you think that Blackberry was a company of the future? All of these things I feel like we once upon a time had a very strong belief in and none of them turned out to be true. And if it positioned your entire portfolio for that one thing again, it would've been very catastrophic for you. So as we sit here today and look back on this year, you might say, Well I knew that was going to happen and number one I would say, Well I'm not sure that you were so sure about that. And number two, I would say even if you were sure about that, it doesn't make you any more sure or any better able to predict what's going to happen in the future.
So coming back to this idea of being dispassionate and what's the purposes of us going through some of these biases or tricks that our mind can play on us and well, we feel that it's our responsibility to help encourage the right behavior amongst investors. And that's really, we're trying to make people aware of these types of things so maybe they can moderate that behavior a little bit. We've been doing this for a long time. We've learned how to avoid some or all of these biases in some way, shape or form.
And it's not easy to do because again, it's hardwired into us. We've been hardwired through evolution to respond to these things in a certain way. There are reasons why we react the way that we do to some of these questions that we get or some of this information that is fed to us. And the way that we protect it is, well we work as a group, we're aware of these things, we research these things. And most importantly I think is we build a process, a discipline process, something that is designed to be immune to these types of feedback that can lead to poor decision making.
Colin White:
So this leads us to our advice and our advice remains unchanged. And look, this is what differentiates us from many others if not all other participants in the market. Robert Theo, the father of behavioral economics on a podcast one times says way more profitable to take advantage of people's weaknesses and try to fix them. A lot of truth in that. We could have made a lot of money selling Bitcoin last year. We could have made a lot of money selling marijuana talks a couple years back and still we've stuck to our guns, gone, tried to educate people as to where these risks are and tried to mitigate these things like as Josh says, we're, well he didn't really say it but I'll say it. We are human. As much as I'm not comfortable being human, we are human. And so we do have some of these tendencies ourselves, but we also are geeky and read a lot and we recognize some of our weaknesses with regards to making financial decisions and we have put safeguards in place to try to prevent really big mistakes from happening.
Cause honestly, the key to your financial success is not getting the one right thing. It's not blowing up. So it's not, Hey look, I should have bought Facebook when I first went public because then that would've set me up for life. I should have bought Google when it first. No, that's not the secret that that's not how you do it. It's by never blowing up completely. And that's how our advice is going to be. Now that's exciting. It doesn't come with the sound effect, Jim Kramer's not going to say that on his big fancy show, but it's honest, it's transparent, and it's what we think you deserve and it's something that we think we can all rely on to give you a better result. So again, we're going to say the same old, same old. Oh, I didn't mean I didn't to go past it that fast, Dan, I know you're watching.
That was Josh who clicked it, not me. Keep your short term money short term, keep your long term money long term and all the rest of it is details that you can ask us about and we can work on that for your own individual plan. And listen, I'm not sure this is where I'm supposed to punch the podcast, but if you like the content you're getting here, Bear Naked Money available where you get podcasts. Josh and I put out roughly an episode a week or an episode every two weeks commenting on whatever's current or where we've had some great guests on there recently talking about some of the topics that we've discussed here today. So I believe we're going to open that up to questions. And we're our brand new technological platform that Josh is way smarter than me on and he's going to lead from here I think.
Josh Sheluk:
Yeah, I think for everybody that wants to post a question while we're here, I think there should be a little bubble somewhere above my head here. If your screen looks similar to mine, you can post a question there. Now we have one coming in there, which is awesome. And we do have a few questions. So as the questions trickle in there, we have some pre-submitted questions. So Colin, I'm going to start by asking you this one that was submitted ahead of time and this question it's so logical, but I think you'll have an interesting answer to it. You touched on it before. Would we not be better to be in short term interest bearing investments than have continuous losses every month?
Colin White:
Well, I refuse to accept the premise of the question. Again, this is the whole, recently we lost money, therefore we will always lose money. That's just not confident of that. And the last couple of days actually have been a really good example of that, but it's very, very common to think that way. I don't want to lose any more money, therefore I'm going take my hand off at stove. This is hurting me too much and I'm going to stick it in. The complete thought is I'm going to stick it in something that's guaranteed until America goes back up, then I'm going to go back in. So again, so low by high, we've done the math, it's not a good investment plan.
Josh Sheluk:
Yeah, I guess just to add to that, I would ask the question, how do you know when you should be selling it? How do you know when you should be buying? Because yes, things are bad today, but how do you know that the market's going to go down or the market's going to go up from here? You don't because as Colin said earlier, the market's forward looking. So a lot of people come to me now and say, well there's going to be a recession next year. Okay, so what does that tell you about where the stock market is going?
Because the stock, if everybody thinks that there's a recession next year, then guess what? The market is already priced for that. So what's going to happen next is really the question is, well is it going to be better or worse from there? And if the thing is going to be better, that now should be the time to buy, even though there's a recession coming or whatever there's going to be. So there's a second level of thinking there and maybe even a third level of thinking. And it's just too hard to know when that switch is going to flip and things are going to go from bad to good again. We've seen it up over the last, I don't know, markets are up, what, seven or 8% over the last 10 days maybe we saw the
News hasn't gone any better and in many cases the news is worse. So how do you decide that 10 days ago is the time to buy to capture that? I don't know.
Colin White:
Yeah, and this goes back to again, taking a look at your financial situation. Are you properly set up for your own financial situation? And if that's the case, then you're good. But if this is somehow exposed a gap or a weakness in your plan, okay, there's a bigger conversation. We have to have a bigger conversation about that. But again, if you're thinking that selling that it was a market exposed investment and buying a four or 5% GIC is a way to grow wealth, well I've got a problem with that conclusion.
Picking up a GIC for a specific need at some point that can make a case from a cashflow perspective. But Josh, when you take a look at the yields that we're seeing now on some of the current fixed income instruments that we're using in the portfolio, we've already made some of those moves. Like we've already added some fixed income vehicles that are paying those higher interest rates from this point forward. They haven't looked good up to now because everything's fallen to this point. But we've reallocated in some situations to take advantage of these increased interest rates that will pay off going forward.
Josh Sheluk:
Just on that point on much the same set of investments on the fixed income side that we had at the start of the year, we were getting 2% at the start of the year. We're getting 5% today. So you're going to sell today now that you're getting 5%, maybe not. So second question here, Colin, Easy or hard one for you? I'm not sure how long is Santa's beard going to get this year?
Colin White:
Well, I did start growing it earlier this year, so I'm expecting it to be better than last year's. But again, I haven embedded everybody here for age, so I'm not going to confirm or denied the rumor that I may or may not actually be Santa Claus.
Josh Sheluk:
Great. All right. Moving along here. Notice that we've sold investments over the past couple days. What is being bought? Well I'll take that one. So recently what we've done is we've launched something called the VER Can Global Equity Fund. And you should have received a communication about this towards the end of September. And that communication at that time was, hey we're introducing this VRA CAN global equity fund. We're super excited about it. You should see it in your portfolio sometime over the near term. And so as we progress clients to this new investment, this new fund, you'll be seeing that reflected in your portfolio at different points in time. When we get to your portfolio, specifically the investments in your portfolio have really not fundamentally changed. What we've done is we've been able to pool them and basket them into sort one single entity called the VER Can Global Equity Fund.
So why do we do this? Well one thing, there's a few reasons. One, it's a far more efficient way for you to get exposure to all the things that we think you should have exposure to get that proper diversification to easily implement it across your portfolio in a simple and easy to consume way. That also means from a simplicity perspective, simplicity on tax, simplicity on reporting, and much more consistency from client to client. For us when we're trying to deliver a portfolio for you On top of that, by doing this we've been able to reduce some costs on the investment products that we use, which is direct savings for you in your pocket. Anything that I missed there call in terms of benefits?
Colin White:
Well, yeah, just the only other point I'd emphasize is we have not added any a fee or profit margin to this product. So it's being launched at cost. So there is a small cost to set the pool itself up, but we've calculated that we'll more than offset that from savings on the individual holdings that we're putting in the pool and therefore any future savings on those investments will go directly to the clients we do not had and we will continue to never have any kickback paid to us from any of the funds that we use or any of the products we use. If we can get something at a better cost then that advantage will go directly into the,
Josh Sheluk:
So, one for here, I'm going to try to read between the lines as to what the exact question is. If you're changing to within a couple of years, is your status still the same? So I'm going to guess Colin, that the individuals asking, does your advice change if you're a couple years away from changing to R from converting your RSP to a rep?
Colin White:
Well yeah. So it is funny, it's very common. So people when they retire, I need all my money when I retire. No, no, your money has to last you a period of time. So when your money goes into a riff, you're only a year older. So it's not as if all of your money is going to be needed in the next 12 months. You still have the life expectancy you had the previous year. So your money still has to last you a period of time. And that all goes into the whole conversation about what's my burn rate, How much of my account am I going to be need to be spending every year to maintain my lifestyle? What are the sorts of income I have? What plans do I have for spending my money? What's my estate plan? All of these things factor in. So it's not just that you've gotten to the age you have to risk your account.
That would cause a change to what we would recommend for a risk profile of the kinds of investments. It's all of those things. So it's not just, I'm six months older now so we have to completely change everything we're doing. That doesn't work that way, it's more of a gradual thing. It would trigger that, Hey Nellie, I'm going to start spending some of this money because the minimum roof payments coming out and I actually wanted a cash because I'm going to use it to take hot air flying balloon lessons. Maybe that's what you want to do at 70. Perfect, fantastic, let's take that into account. But it's not because you're riffing your money, it's because you now want to start spending a piece of it that would cause us to alter the portfolio. So again, going from RSP to our R doesn't automatically mean that we have to make any significant changes to the portfolio.
Josh Sheluk:
If you have questions about your specific situation and whether it means anything different for you, just reach out to us and we'll set up a meeting to have a longer chat about it. Just going back to the previous question there about the Bear Global Equity fund, Catherine has posted in the chat, if you look at the chat, there's a link there where you can go and read more information if you missed it coming through your email. How to balance my inflationary costs against significant losses and capital in savings. So I guess Collin, I'll, I'll paraphrase again and hopefully I'm capturing the essence of the question here. Inflation's a thing right now but I'm seeing my savings go down, what do I do?
Colin White:
It depends, no easy answer to that. There's no one solution. I mean basically react to the stimulus. So this here are some things that would be common and considered relevantly or relatively good reactions to what's going on. So now is not a great time to say, Hey, I'm going to dramatically increase my lifestyle, start spending a lot more money. Not a great time for that because again, all of your wealth is dropped, everything from your real estate, the investment portfolios, everything is dropped so it's not a great time to do that thing. So slow your role if you will. Is there something you can put off for two months and you moderate what your expectations are because obviously again there was no matter where your wealth is stored, it is not where it was at its peak. Everything has fallen. So it is rational to reconsider things and maybe reduce spending a bit, put off plans a bit, take those things into account that would be a reasonable response to what's going on.
Now, if you can slow down your lifestyle spending when things are bad and increase your lifestyle spending when things are good, you get more money to spend over your lifetime. If you can hit that pattern as things go. Listen for clients that came in and saw me in January having a drunk January conversation so it was like one another five grand, do you want to pull some money out to do something right now? Cause we're sitting out of time when things were out of peak. So that's a rational response to the situation. So we are receiving And you do have a different environment right now. Yes, there are people right now who have to work an extra year before they retired runner to reach their financial goals. That's absolutely true right now. So it has gotten to the point where reducing your expenses are increasing, their income are working longer, are things that people should do right now in some measure in order to keep themselves a level.
Josh Sheluk:
So, a bit of a loaded question here, Colin, about nuclear weapons. So yeah, so if nuclear weapons were detonated above ground hydrogen, not atomic, understanding that they don't create disastrous nuclear follow, should we expect the markets to be dispassionate about their use?
Colin White:
No, markets do not specialize in dispassionate reactions to anything. So yeah, if part of it depends on how much of a perceived surprise it is, cause these things are being talked about a lot in the market right now and it gets to the point that it's humdrum and I've seen some of the commentaries start to go in that direction. It's like, well if they do do it's going to be relatively small and it's going to be this. And so there's kind a minimization go on. But I would expect that there would be a pretty dramatic response in the market in the short term, largely around the uncertainty of the response. This is the markets hate uncertainty, but for you history there's not, wouldn't be the first time that a nuclear weapon was used, bad markets recovered last time a nuclear weapon got used. So there go if so fact.
Josh Sheluk:
Yeah, it's really, we're venturing into the realm of, it's just anybody's guess what could happen under such a situation. And just to be clear, we're not saying that people should be dispassionate about some of the crimes to humanity that are going on right now because that's certainly something that people probably should be passionate about and is totally wrong. But when it comes to making decisions about the money, we encourage people us to be dispassionate when making those decisions and certainly that would probably be one of the harder times to be dispassionate if we saw something like that happen.
Colin White:
Well yeah, thanks Josh. Because we do end up coming off as glib sometimes when we seemingly dismiss these kinds of things that would be absolutely human tragedy of untold proportions that would be miserable. But we're in your life to give you financial advice and there's nothing about that scenario that's investible. I don't think we can count on that happening. I don't think we should count on it not happening. And I don't think that we can accurately calculate a percentage of it happening or not or what the reaction may be. So, it's an uninvestable issue that is absolutely terrible and tragic to consider.
Josh Sheluk:
So, another question I think. So on everyone's minds here, Colin, if the goal is to retire in 2023, would one be able to stay the course?
Colin White:
It all depends. Again, it depends on how much slack you had built into your plan. When we talk to people about the situation, how much wiggle room did you give yourself? If you're rocking like a 6% burn rate and you always spend more than you expect and your goals are constantly changing, that's not a terrible thing. That just might be who you are, recognize that. University professor head, Dr. Jon Scheyer had a great quote that I used more times than I thought, given how bad a student I was, especially in this class, it's amazing I still carry this around. Caught not thyself. It's important to be honest with yourself. Are you the person that can stick to a plan? Are you the person that always spends 10% more than what you expect? But whether or not you can follow through with your plan depends on how much wiggle room you gave yourself.
So, if you gave yourself a lot of wiggle room, yeah you probably continue ahead just fine. But that is the thing that we are getting professional advice on. Having somebody sit down and go through and try to figure out the degree is certainly, because again, we're going to talk to you in probability, it's not going to be an issue from retiring any cast. It's not like there's a wand or something that taps you on the shoulder and goes, "You are now retired, you'll be fine." It's not that it's, yeah, you got a 60, 70% change, you're probably fine, but if you're retiring and you got 30 years ahead of you, that's the two more pandemics. Who knows, right? But it's making some reasonable expectations of what the future may hold and how bad could it go before it really affect my plans. Listen, if you're walking through this planet and you think that you get to have some guaranteed straight line, you get to walk, you're never ever going to have to veer from.
You're just setting yourself a disappointment. Don't be that person. I guess this is a good time to use this particular story that I've gleaned over the years talking about when times are tough like this and the people who thrive at times like this. And there was a famous prisoner war. He was the longest prisoner war ever. He was in the second world war. He was kept in a notoriously bad POW camp and he survived longer than any other POWs. So, they were talking to him after he got out and said, How was it? What did you do to survive? And what he said was, the people who came in, all of them said, I'll definitely be home by Christmas, I'll be home by Easter, I'll be home by.
They always had these goals that they would be home by and every time they got disappointed, they lost a little bit more of their confidence until eventually there was so much disappointment that they just gave up and stopped. So those kinds of expectations that you set yourself up for to be disappointed in can have a cumulative effect and understand you're going to have to roll with the punches a little bit. I'm not smart enough to help you, Josh isn't smart enough to help you. We're going to get punched and it's just a matter of how we roll with it.
Josh Sheluk:
Yeah, just from a strictly numbers perspective on the financial planning front, yes, we might be looking at a little bit lower base for your investments, but as we said a couple times, interest rates are higher. Your expected returns on bonds, your expected returns on stocks are higher today than they were at the start of the year. So we've taken a bit of a step back in the short term, but now we're projecting with slightly higher rates of return going forward. So some of that naturally stabilizes itself. If markets never recovered, then yeah, it's going to be a bit more challenging. But markets have always recovered historically anyway. I think there was one more question in here. What do you see in terms of timeframe for the current downturn to recover?
Colin White:
Yes, we may already partway through it and we've had what, three consecutive days? I mean I think it's got to go straight up from here. Come on, have your recency bias kick in now look at the last three days. Let's ride recency bias for a little bit.
Josh Sheluk:
The last week's been awesome. If we forecast this forward extrapolate it will be double our portfolio over the next year.
Colin White:
Well, so now listen, we don't want to give a good answer, but we also don't want to give an answer that is meaningless. Flood rip Putin ends up dead tomorrow. We so we see a surprise drop in the inflation, a quick reversal from the federal bank policy. All of those things are completely unknowable and all of those things could cause a really positive turn in the market and the opposite of any of those. It could have the drag on for historically, I can do 19 times at a 20 in a normal distribution market. Recovery occurred like three months after the initial and Josh is really good at that stuff.
He's exception of that stuff. And we look at it, but it's for entertainment value because again, there's significant things that can knock you off of those paths. So back to the parable of the prisoner of war, just try not to get your hopes up. It will get better. It does come to an end. What's going to really do you damage is constantly setting up the threshold like six months from now it's going to be better. And then it isn't like, okay, three months from now it has to be better. Just if you keep doing that, then you are going to drive yourself and probably us nuts with you.
Josh Sheluk:
Yeah, I have a lot of people right now saying, Well, it's going to take 10 years to recover from this and not, We've seen way worse things than this recover in way quicker periods of time than that. So probably, I don't want to say shorter than you think, but seems like people are pretty pessimistic right now. So when everybody's pessimistic, it's more likely that things get better than get worse.
Colin White:
Look, and again, the whole thing is that what's investible? That that's our role in your life. What's an investible idea? What's investible information and trying to gain when the recovery's going to happen? That's not investible because again, that's unknowable long term, all kinds of in the markets, the global economy is overcome way worse than what we're going through right now. And it'll win this one too. This is really not comforting at all as a trash.
Josh Sheluk:
Well, someone just posted the COVID recovery was a lot faster than everybody thought, right? That was a period of total uncertainty where we had no clue what was going to happen. And six months later, markets were back to new highs. You can't make this stuff up. It was the worst recession in a hundred years and it took about six months for markets to recover. So try guessing this one where there's, there's not that smoking gun problem and we haven't seen a massive recession yet. And so it's so hard.
Colin White:
Well, the only you get in, the more you've seen, and again, Josh has been around enough to see a few of these, and the pandemic is certainly one of them. And probably many people in this room could think back to, oh, well the pandemic is like, "Oh, my God, my portfolio's never going to recover." I'll guarantee you, if you search your memory, it's there somewhere. You've discarded it because it's incongruent with what actually happened. And we don't only have so much brain power to carry out so many, many things, so we don't carry around all the stuff we are wrong about, makes us feel better. And Josh commented, he heard a comment from a one of the fun managers that we've followed over the years who's been particularly bombastic and interesting to listen to who's growing much humbler with age and basically made the comment that the older he gets the less sure he is. Because again, it's that culmination of being sure about a whole bunch of things that just didn't turn out. And then you're left with what's real.
Josh Sheluk:
Any last thoughts, Colin? Before we let people go?
Colin White:
Well, it's not like we're going to disappear. If this has caused a conversation within your household that you want to have addressed or available and there's a good chance, we've probably already addressed it. The Barenaked Money is an interesting, we can peruse through and find different topics, and you don't have to sit and listen to it one after the other, but those different topics there. Am I seeing new questions getting added Josh? Are we going to try to get these?
Josh Sheluk:
Just a lot of thank yous, thank yous for us.
Colin White:
Oh, okay.
Josh Sheluk:
Yeah, yeah.
Colin White:
Fair enough.
Josh Sheluk:
I guess that's the ovation as we walk off the stage Colin.
Colin White:
There you go.
Josh Sheluk:
Thanks everyone. Thanks for listening. If you have specific questions about your financial circumstances, give us a shout. We're always happy to chat.
Colin White:
Thanks guys.
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This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only, and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
Colin White:
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