This text is part of the special section Personal Finances
After a very turbulent financial year 2022, marked by a sudden rise in interest rates and the return of inflation, portfolio managers and financial advisors are beset with questions.
And that’s fine, according to Dominic Paquette, president of Partenaire-conseils Financial Group. Because according to this financial adviser who has been active in the field for 28 years and has won numerous awards, the worst thing to do is to react on a whim.
“There are always unexpected geopolitical events to which the markets react in anticipation”, explains the adviser, who cites a long list: Cuban missile crisis in 1962, oil crisis in 1973, mortgage crisis of 2007-2008, health crisis of 2020-2022, war in Ukraine in 2023. “The new normal is not so new. »
What about the new year?
For 2023, Dominic Paquette will surprise many by saying that there is never a better or worse time to invest. “The best is simply when you have the money. Whatever the strategy, he always recommends staggering purchases throughout the year with each pay cycle rather than all at once. “Clients who invested weekly in 2022 saw a positive return through the last quarter. »
Afterwards, it is a question of choosing the right vehicle adapted to your objectives. In the short or medium term, fixed-income investments have suddenly become more attractive. “You can get 4% or 5% fixed. In my entire career, I don’t remember such high fixed rates. »
As for the stock market, Dominic Paquette makes a very clear distinction between stock market value and profitability. In other words, just because stocks fall or peak doesn’t mean they aren’t profitable for their shareholders.
“Between 1900 and 2020, dividend stocks have contributed 43% of the return. This means that 43% of the portfolio’s growth came from profits returned to shareholders (the dividend) rather than from the rise in the share price. “Therefore, in years of uncertainty marked by high or rising interest rates, such as 2023, dividend stocks have attractive potential. »
For real estate, Dominic Paquette is not unhappy that the rise in interest rates and the law limiting foreign investors have set the record straight. “The overbidding of six, seven, eight buyers,” he said, “it’s over.” He predicts excellent opportunities for those who want to invest in a second home or a large rental complex. “Real estate remains good. Rates of 5% or 6% are still reasonable, historically. We are not in the 20% like in 1980.
Beware of “false diversifications”
Coming from the real estate business himself, Dominic Paquette oriented himself during his university studies towards investment and portfolio management before founding his independent firm in 2002. “What fascinates me are the strategies that can to change things. »
When he analyzes the files of new clients, he often claims to discover what he calls false diversification. “Many people make the mistake of spreading their money among a few financial institutions that all make the same type of investment. In reality, we should rather focus on the manager’s style. According to the specialist, portfolio management boils down to four styles: “value”, “growth”, “ momentum » and “countercurrent”, each of which has pros and cons, and which produce very different results.
The “value” style focuses on basic needs with constant demand, such as food, pharmaceuticals, real estate. “In 2017, we were criticized for investing in it,” he says. Now we’re considered geniuses. »
The “growth” style looks for investments in innovative industries, such as tech, which have been doing very well for 20 years, but which are currently going through a soft patch.
The style ” momentum » consists of changing horses in the middle of a race to take advantage of those who have momentum. For example, during the widespread lockdowns of the health crisis, big-box retailers saw renewed interest. “The danger is obviously jumping at the wrong time and falling on the ground. »
The “against the tide” style consists of doing the opposite of everyone else. Like those who invested in Japan in the 1990s when everything was going wrong. Or those who currently invest in European equities, whose prospects are poor over two or three years. “The counter-current is said well in cocktails, says Dominic Paquette, but in reality, it requires patience and character. »
A good portfolio will combine these four styles depending on the investor’s tolerance level, explains Dominic Paquette, who takes the example of a hockey team with its attackers, defenders and goalkeepers. “We don’t make a team just with goalkeepers. »
Therefore, one of the biggest mistakes to make is to compare managers on their percentage return without considering their style. ” It does not make sense. A defensive manager will aim for stability, not to score points. There are others who are very capable attackers. And others that provide performance at a reasonable cost — nothing spectacular, but effective. We must therefore judge a manager according to his objectives. »
This special content was produced by the Special Publications team of the Duty, pertaining to marketing. The drafting of Duty did not take part.