Posted at 8:00 a.m.
And then, how do you like the year 2022 so far?
Do you take advantage of sales on the financial markets?
For my part, I was happy during the first six months of the year, because the value of Canadian equities was down. It had even reached a nice reduction of 14% at the beginning of July.
I hoped that the sales would last, but unfortunately, my wish was not heard. Share prices have regained ground during the summer: their fall since the beginning of the year is now only 8%.
I like stock market crashes. I deal with the subject in my two bestselling books Millionaires aren’t who you think they are published in 2019, and From zero to millionaire – Invest in the stock market without sufferingpublished this year.
I confess: I have not always been comfortable with stock market falls. When I started investing seriously a dozen years ago, I was terrified of the decline in the value of my assets. I found it insulting the idea that dollars I had worked hard for could disappear for obscure reasons beyond my control, and above all without my having had the opportunity to spend them.
Since then, I have acquired a detachment from the falls. I know that I invest for the long term, and that in the long term, we do not get out of it: the risks of experiencing stock market falls are 100%.
In 2001, Warren Buffett said, “To refer to a personal taste of mine, I’m going to be buying hamburgers for the rest of my life. When the price of burgers drops, we sing Hallelujah in the Buffett family. When the price of burgers goes up, we cry. »
The famous investor went on to note that most people think like him about everything they buy in life – except for financial assets. “When stocks go down and you can get more for your money, people don’t like them anymore,” he concluded.
Over the long term, stock markets have averaged returns of 9% per year in Canada, and close to 11% in the United States. All this despite recessions, armed conflicts, terrorist attacks, Donald Trump, Vladimir Putin, inflation, COVID-19 and the return of ABBA.
To hope to enjoy similar returns, investors must learn to live with market downturns. Sometimes these falls last six months. Sometimes they last for years.
A decline can be a good time to review what you have in your portfolio. Investors who own index-based exchange-traded funds (ETFs), that is, those that track the major Canadian and American stock market indices, such as the S&P/TSX in Toronto and the S&P 500 in New York, can sleep on their two ears knowing that in 100% of cases new highs have been reached after a decline.
Those who own mutual funds, commonly called mutual funds, which are financial products for which a manager chooses the shares they contain piecemeal, are not so lucky. Very few of these funds manage to match the performance of the major stock indices, and an even smaller number manage to beat them when taking into account the annual management fees charged, which often reach 2% of the size of the portfolio.
Let’s take a look at our assets and ask about the fees we pay. As the saying goes: good performance comes and goes, management fees are forever.
Will the markets be up for the next few months? Or will the bargains resume?
No one knows.
What the year 2022 should teach us is that investing for the long term does not mean knowing a way to soar above the fray and avoid what the markets throw at us. day by day.
Investing for the long term means that we know that the value of our investments will fall, sometimes sharply, but that we find a way not to react to it. Better still: we find the positive in this situation. Like Warren Buffett’s burgers.