What have been the repercussions of the investment decisions made over the past ten years? The chart below shows the value of the investments of three investors in Canadian stocks who made very different decisions on January 1, 2009.

Source: Professionals’ Financial; data from Bloomberg and Statistics Canada.

• The first investor remained invested, confident that his investment policy would enable him to achieve his long-term financial goals. The value of his portfolio rose from $100,000 in January 2009 to $214,228 on December 31, 2018.
• The second investor decided to temporarily exit the stock market and wait for the storm to pass before reinvesting. He sold his portfolio of Canadian stocks on January 1, 2009 and invested $100,000 in a guaranteed investment certificate at 2%, before finally re-entering the market on January 1, 2010. Despite his efforts to limit his losses, this investor is nevertheless more than $52,000 behind the investor who stuck to his strategy.
• The last investor capitulated and sold all his stocks. He turned to 5-year guaranteed investment certificates. Assuming that the rate of return on these certificates was 3%, this investor’s portfolio is worth $134,392 today.

The chart clearly shows that entering and exiting the market can be costly. It is extremely difficult to perfectly time buying and selling, as evidenced by the study conducted by Fidelity Investments which showed that, five years after the 2008 financial crisis, 25% of investors had still not re-entered the stock market.³

³ FIDELITY INVESTMENTS, Lessons Learned 10 Years After the Global Financial Crisis Serve as Powerful Reminders for Investors, October 26, 2017.

Many studies show that diversification is the key to investing. When a portfolio is constructed according to the maximum volatility that an investor can tolerate and incorporates excellent diversification, the investor can weather any storm. A study by Brinson, Singer and Beebower⁴ showed that more than 91% of the return and stability of an investment portfolio can be attributed to its diversification. So the construction of a portfolio must be carefully planned.

⁴ BRINSON Cary P., SINGER Brian D., BEEBOWER Gilbert L., Determinants of Portfolio Performance II: An Update, 1991, Financial Analysts Journal.

Making sound investment choices is no easy task. Fortunately, your Professionals’ Financial advisor is there to help you. According to the above-mentioned Fidelity Investments study, 50% of investors who have a financial advisor feel more confident about their current investment approach than they did 10 years ago, versus only 31% for investors without an advisor⁵. The IFIC also showed that people who deal with an advisor accumulate on average 3.9 times more wealth after 15 years than investors without an advisor⁶. As the chart below illustrates, your advisor helps you to stay the course and to achieve your financial goals by making sure you get from point A to point B.

⁵ FIDELITY INVESTMENTS, idem.

⁶ INVESTMENT INSTITUTE OF CANADA, idem.

Source: Professionals’ Financial

As the manager of your assets, our investment team is involved in a process of continuous analysis in order to implement the most effective measures to protect your portfolio. Over the past decade, structural adjustments were made to avoid hasty and emotional reactions when market conditions are less favourable.

• Creation of two new private management approaches, one of which focuses on income to reduce risk, generates more current income and a higher dividend yield, and is composed of less volatile securities (2010).
• Adoption of a more global international equities approach for greater flexibility in the geographic choice of securities (2012).
• Reduction of our Canadian equities strategic weighting for better investment diversification in international equities.
• Greater exposure to foreign currencies, including the U.S. dollar and the Japanese yen, two safe haven currencies in times of crisis. (An effective decision considering the loonie’s 8% drop in 2018.)
• Review of our external manager selection process: the skills sought concern quality stock selection and reduction of volatility, particularly during market pullbacks.
• Addition of an alternative investment strategy which is less correlated with traditional assets and which seeks to reduce volatility during periods of market fluctuation (2015).
• Selection of new Canadian equity managers whose investment style offers better protection in bear markets (2017). They also have greater flexibility and can maintain higher cash levels when appropriate, which provides additional protection.

The considerable work done over the years to improve our range of mutual funds paid off in 2018.⁷ More than 80% of our funds were ranked in the first or second quartile of their category and generated a return that exceeded the median in their respective category by a percentage of up to 3.83%⁸. In all of our equity mandates, our portfolio returns beat their benchmark indexes by 1% to 3% in the fourth quarter⁸.

For example, let’s look at the performance our FDP Balanced Portfolio Series A:

• Return 19% above the median in its category in 2018⁸.
• At the height of the crisis (from May 2008 to February 2009), the value of an investment in the fund decreased by 56% versus 44% for an investment in Canadian equities alone (S&P/TSX Composite)⁸.
• An investor who kept $100,000 in the FDP Balanced Portfolio from January 2009 to date would today have an investment worth $178,000, compared with an investor who exited the market for one year before re-entering (total value of his portfolio now: $161,769)⁸.

The diversification of the FDP Balanced Portfolio easily beats any illusory attempts to time the market.

⁷ At December 31, 2018. 

⁸ Source: Morning Star.