There are a lot of great things about my job as a CFP – I get to have conversations with incredibly successful people every day, and no two days are ever the same.
I was having a conversation with a client last week and we were discussing how to appropriately invest inheritance proceeds he was set to receive. “Brandon, I’m 61 now, I definitely don’t want to lose any money” is what he said to me. I asked, "How old was your mother when she passed?" “She was 85”. So let’s dissect this for a moment. "Your mother lived a beautifully long life and didn’t pass until 85, which is 24 years older than you are right now?" I asked. "That is correct," he said. Interesting. "So, would it be safe to assume that there is a good chance these funds need to last another 2-3 decades?" Client nods his head, yes. One thing I have noticed recently, is that we vastly underestimate how long our investment time horizon is. The life expectancy of a 65 year old female today is 86 - that is 2 more decades we need to ensure our funds last! We are living longer now than we ever have before, and fewer Canadians have defined benefit pensions that will provide a lifetime of income. Now how does this relate to owning your home? Most traditional mortgages are anywhere from 20-30 amortization periods. Year after year, you continue to pay a portion of principle and a portion of interest slowly paying off your home. Twenty years go by and woohoo you’re mortgage free! Did the value of your home change at all during those 20 years? You’re darn right it did. It changes every month, every year, just like every other piece of real estate you drive by on your way to work. The difference? There is no one with a sign showing the change in your house price every month on your front lawn! Compare this to your RRSPs – at any moment I can look up the daily values. I can honestly say it brings me very little internal happiness when I see my account values up 1 or 2%. Zilch, nada. But boy do we Canadians LOVE talking about how much house prices have gone up! It’s a national past time. What if we treated our portfolios like a mortgage? We didn’t worry about the day to day fluctuations because news flash – this is normal! Markets never go in a straight line, they are supposed to fluctuate daily, and trend upwards over time. Will markets go down month to month? You bet they will. But they NEVER stay down, and that’s what investors need to know. There will ALWAYS be a reason for markets to fluctuate – world wars, inflation, high interest rates, global pandemics, you name it. And despite all of this, markets continue to go on to reach new highs year after year. It truly is a wonderful thing. The closing price for the Dow Jones Industrial Average (DJI) in 1980 was 1,250 on November 11th 1983 At the time of writing this, the Dow Jones is now at 33,891 – an astonishing gain of 2,610% since 1983. Pretty incredible isn’t it? Let’s start treating our portfolios like a mortgage and ignoring the headlines – you’re investing time horizon is a lot longer than you think.
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AuthorBrandon Yanchus is a CERTIFIED FINANCIAL PLANNER™ with over a decade of experience. This is his personal blog where he shares what he's learned helping families, professionals, business owners and retirees grow and protect their wealth. Archives
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