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Invest Well. Live Well: Report card time

Whether we are in school, sports, working or investing, we are judged on our results.
Davis and Davis

Whether we are in school, sports, working or investing, we are judged on our results.

Often, clients will sit down at our face-to-face meetings and ask, “Are we making any money?” or “How are we doing?”

We view our role like your personal chief financial officer and are accountable to you as our

“president.” Furthermore, we feel it is important that investors have some framework on how to evaluate their results.

First of all, we cannot stress this enough, results should be measured to your specific goals, not the latest stock market report. Everyone has different goals. We believe investment strategies need to be adapted to fit your unique set of circumstances and risk tolerance.

You should have a plan and ultimately know if you are on track, behind or ahead. According to the Financial Planning Standards Council, investors with a plan are twice more likely to achieve their goals than those without one.

Next, we would like to explain absolute versus relative performance. We often joke that clients want absolute returns in bad markets and relative in great markets. Absolute returns are striving for positive results 100 per cent of the time, whereas relative returns are compared to a benchmark.

For example, according to Morningstar, in 2017, the TSX returned 9.1 per cent and many investors will compare their portfolio against this result.

One of our 10 core beliefs is to help reduce risk and potentially protect on the downside. Many investors would be quite happy with their 2016 and 2017 returns because they are positive; however, we would like to point out that, as an advisor, we are more concerned of their portfolio performance in a down market, such as 2015 when the TSX returned -8.3 per cent.

We believe we helped protect their wealth relative to what happened in the markets.

We would also like to highlight that you can achieve better long-term results by protecting on the downside. As is the case in life, there are trade-offs. With respect to returns, you may have to give up some upside in order to help protect your investments when the next correction occurs. This is a risk-return trade-off we concede regularly. Most investors would like the 9.1 per cent the TSX returned in 2017, but would the same investors like the -8.3 per cent return as well?

A final thought: One pitfall investors can fall prey to is the herd mentality. If everyone is starting to buy higher risk investments, that can be a warning sign. Look at marijuana stocks. Many are up over 300 per cent in as little in four months. It seems like everyone wants to get in on the action. The excitement and fear of missing out seems to be the motivation versus investing to one's goals and risk tolerance. At the time of writing this, Canopy Growth, Canada's largest marijuana company, recently suffered a 23 per cent price drop in two days. When you picture a 300 per cent ride up, this could be a telling sign of what the ride down could look like.

Historically speaking, when investor confidence is at the highest, that is when it is time to move opposite to the herd.

That is something to think about as you evaluate your portfolio and plan for 2018.

Until next time, Invest Well. Live Well.

This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email