The Difference Between Knowledge and Experience

January 10, 2017

There are people that know a lot of things and there are people with experience. The difference is the people with experience have made connections between the things they know. If you want to learn how to gain experience and not just knowledge, this article could help.

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Why Traditional Asset Allocation strategies will yield lower returns

Traditional investment portfolio’s always included an allocation to bonds – which historically provided a relatively regular return non-correlated with stocks. But not any more …

The bond (fixed income) allocation of a portfolio historically increased before retirement and as we age. Bond returns were regular and why deal with the volatility of stocks anyway? With the decline in interest rates over the last decade and the ensuing decline in bond returns, this strategy needed re-thinking. Adding a high allocation of bonds to a portfolio today will create a drag on portfolios’ returns – typically below what is needed for a comfortable retirement. The 10 year yield on government bonds is under 3% – the long term inflation rate is 3% – bond returns barely keep up with expected inflation. This article reviews the history of bond returns and confirms low returns are expected for some time.

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What we can learn from 2017

If we’ve learned anything from 2016 it’s this – “it’s impossible to be certain about a short term prediction” and the corollary, “never make a long term decision on a short term prediction”. At the start of 2016 we had one of the worst 6 weeks of market decline since 2008 – then a partial recovery. We had the surprising Brexit vote when Brits voted to leave the European economic union – which turned out to be positive for the markets. We had of course the US election of Donald Trump which turned out to be positive for equity markets – despite what we think about him.

Deeper in the news was the reversal of the US corporate earnings “recession” which showed Us business earnings increasing in the last quarter. In reviewing recent Canadian economic news, job growth and trade surplus are up in the last quarter.

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