2017: Year In Review

yearinreview

Bitcoin, Bitcoin, Bitcoin! That’s all I hear from anyone that is investing nowadays. Do I regret missing out on the massive crytocurrency gains in 2017? Definitely not! I’ve already mentioned how many people speculate on Bitcoin to make big bucks, but as a long term wealth building portfolio, it doesn’t match what a diversity investment portfolio can do. Why’s that? That’s because I’m more willing to put my savings into a balanced diversified portfolio than putting it all in Bitcoin. Simple as that.

Equities Crushed It

I remembered just over a year ago when Donald Trump won the US election and stocks plummeted over 10% in after market trading. It was a scary thought that the US economy and the world economy would be dragged down by a controversial figurehead as President with very little experience. People said to flee the US, buy gold and get ready for Armageddon. One full year later we realized all that fear mongering turned out to be like Y2K. Nothing happened.

The fact is, President Trump has done nothing. He’s polarized the media and made many millions mad, but the economy kept right on chugging along. Interest rates went up, jobs still got created and the stock markets across the world absolutely crushed it.

  • S&P 500 up 19.42%
  • S&P TSX up 6.03%
  • MSCI EAFE up 24.93%

Those are some astronomical numbers and yet again, for those that sat on the sidelines with their monies in GICs, another year was lost. One would figure this roll can’t go on forever and after 9 years of continuous bull markets, the sideline sitters have basically lost out on over 200% of gains in the S&P 500. As I’ve mentioned before, time is your best asset, and after a decade of lost time that 200% will never again be replicated. This is the the opportunity cost of procrastination.

Why I Don’t Care About Bitcoin

bitcoinI might have missed out on 10 fold gains not buying crytocurrency, but that’s something I’m not willing to risk a lot of savings on like my entire TFSA account. That’s why I really don’t care how much it goes up, because a measly $1,000 bet on Bitcoin isn’t going to get me the same return as a diversified balanced portfolio in my TFSA.

By now the maximum limit that any one person that turned 18 in 2009 is $52,000. This is set to jump up to $57,500 on January 1, 2018. That’s a huge chunk of change. Now had you invested the yearly limit each year in your TFSA in a balanced portfolio rather than a GIC, you’d be sitting very pretty right now. I’m proud to announce that this year my TFSA has crept above the magical $100,000 threshold. After 8 strong years in the markets the gains are now quite significant and TAX FREE!

Now most people with Bitcoin probably made a few thousand after investing a few hundred, but they’re not investing $100k!! Nor would any sane person be doing that. A balanced boring portfolio of 60% equities and 40% bonds using my favourite Couch Potato formula would have return 7.14% this year. On a $100k portfolio that’s a $7,140 return. All tax free. That’s like almost $10k in extra gains before tax. Now is Bitcoin really doing that for you on a $500 investment? I think not.

Bonds Lag

Remember how I mentioned before that bonds go in the opposite direction of stocks? Well in 2017 we saw exactly that. A typical bond fund holding long and short term Canadian bonds was down 0.5%. Factor in the small 2.9% interest that bonds are paying and you can see the gains were a measly 2.4%. Nothing to really talk about.

Some would wonder why you may even want to hold bonds when interest rates are rising, but bonds do exactly the purpose they are meant to do. Decrease risk and volatility. With equities on a tear, disregarding bonds might have seen a significant jump in portfolio gains, but at the same time, when a correction comes bonds will also be there to soften the blow.

For investors, we hold for a long time, and we can’t predict when market corrections occur. Therefore holding bonds lessens the chances we see large double digit gains, but also large double digit declines. That’s what bonds did for us in 2017. They are holding us back from the huge jump in stock prices, but it’s also preparing us for a potential market correction.

Taxes Down, Jobs Up

What drove the economy in 2017 might continue to drive 2018. The US and Canada have decided to cut corporate taxes for 2018. Employers continue to look for workers and profits for corporation continue to climb. This trend looks to continue into the new year.

While many continue to scream at the disparity in rising incomes and increasing profits of corporations, maybe it’s time to wake up and understand that corporations are out for the best interest of their owners and that means the shareholders. Shareholders means people who actually own stocks and equities. If you don’t want to be left behind, then perhaps you should start thinking about buying the companies and their stocks, rather than the products that the company makes.

If you take that approach to all your purchases, you’ll probably end up better off at the end of 2018 than you did to start. Remember, that the choice to buy goods and products is up to the consumer. If you choose to buy products that actually help you earn money, rather than make you happy, then that’s the step in the right direction to achieving financial independence. Of course there’s always a trade off for buying for gratification versus buying for income generation. That choice is entirely up to the individual.

See You In the New Year

I’d like to thank my readers again for another wonderful year at Financially Yours. I hope you continue to support my blog and continue reading. Again, I’m open to any topics people have that want to be covered or questions about financial topics. Feel free to message me.

Until 2018, stay warm, stay safe and have a happy New Year!

 

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