From the Editor: Don’t Jump Without a Parachute

Q3 | November 2018

Laptop, notebook, Tablet and coffee on work desk

Topic: Investments

Dianne C. White, CPA, CA, CFP, TEP

November 7, 2018

Image used with permission: iStock/PRImageFactory


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From the Editor: Don’t Jump Without a Parachute

Q3 | November 2018

The month of October seems to have a bad reputation for being scary and this has nothing to do with Halloween. The crash of 1929 was an October event and many investors still remember 1987 and even 2008. According to data assembled by Bespoke Investment Group, when we look at the last one hundred years of the worst performing months, October is much less frightening than its reputation. So what causes this irrational fear about October?

Don’t underestimate the power of anecdotal evidence or even a full moon. But in all seriousness, October earns its reputation because it has provided some of the most challenging months in history. However, the reality is that most often performance in the 10th month of the year is not that different from the other 11 months.

Looking back at October, it was the worst month we have experienced in a while. After a long hiatus, volatility has returned to the markets. Instead of blaming the month of October, it is important to accept volatility as the price of admission when you are an investor. Investors can temper the volatility associated with equities by ensuring they don’t jump without a parachute.

Bonds act as a buffer in a portfolio, smoothing out the inevitable peaks and valleys in portfolio performance. They provide “ballast in the boat”. However, bonds have had a rough time of late. Interest rates and inflation have been low for many years now. This means that bonds have provided relatively poor returns in the eyes of those searching for more lucrative yields. To make matters worse, interest rates have started to go up which means negative returns for bonds. Despite uninspiring returns, bonds are an important component of Canadian investors’ portfolios. In July, John Stevenson penned an article entitled The Fixed Income Conundrum and explained why bonds still provide a safety net for investors. In this issue of Nexus Notes, Alana Buckley examines, in more detail, the impact of rising interest rates on bond returns. She also explains how the Nexus Income Fund is positioned for this period.

Also in this issue, Alex Jemetz highlights the many reasons why private clients should prefer a boutique firm like Nexus over a big financial institution. Bigger is not always better. There is external evidence that private clients receive a superior experience at a smaller investment firm, stemming from factors such as performance, accessibility, safety, simplicity and conviction, when combined with tax and personal financial planning expertise.

Finally, just a reminder to clients that we will be hosting our annual client events over two evenings and a lunch session in November. Don’t forget to RSVP to Jorjan at . We look forward to seeing you there!

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