Neighbours walking near cliffs

I hope you enjoyed Canada Day and have been taking advantage of thee heat this summer. Our family kept up the tradition of going to the Parade. We have been going since the kids were born and haven't missed one. I was reflecting on Canada Day and how lucky we are to be Canadian. I don't think we celebrate our Country enough.

Our portfolio returns over the last couple of years have been very strong. We have all enjoyed the great rates of return. Our medium term average returns have been well above the targets we set for client portfolios. It has made client meetings very enjoyable as clients find out how much money they have made. Kim and I love those meetings. I want to temper expectations a little.

The last couple of months our portfolios have been down a few percent. This is normal and I have no concerns about our equity holdings. Our managers have been building some cash reserves for awhile now as investments, particularly, in the United States have gotten in the high range of valuations. I have no way of knowing when markets will pull back or how far. I do know we are prepared when they do.

As professionals charged with caring for your financial well being we always have to walk a balance between Returns we would like and Risk we can accept. Right now, there are segments of the markets that are showing very high levels of Risk. We are not interested in placing your hard earned money in those situations. This will mean, in the short term, your friend or your neighbour may think they are getting a better “return” than you. It also means that person is walking much, much closer to a cliff than you ever will.

How concerned am I about this situation? I am investing more of my own money right now with the exact managers my clients use. It is actually very common in this industry for employees of firms to tell their clients to invest one way and then quietly go off and do something else with their own funds. For the last 20 years I have always used my funds, and my families funds, to lead the way. I put our funds in investments before I put clients there. My Mother has always reminded me that if I lose her money she will move in with me. Now that is motivation not to lose money.

The Canadian Government has now finally committed to raising interest rates. This is a monumental change in government policy and will affect how I advise clients to structure their bond portfolios. I have been talking about this situation for months and I do not think this will be a surprise for any of my clients. Please do not worry, if I think your portfolio needs some changes, I will contact you sometime in August as Kim and I prepare for those changes.