Investing Resolutions for 2023 to Help Keep Perspective
A recent article in the Washington Post offered a different perspective to the view that kids these days are getting too much screen time. In fact, there’s another demographic struggling to put down their devices: baby boomers. As one man put it: “My 75-year-old dad’s phone may as well be an implant; he lives with it like a teenager!”1 Of course, this has implications for our investing ways. With easy access at our fingertips, we may all be guilty of checking investment accounts too frequently. In this regard, and as we begin a new year, here are three resolutions that can help to make better investors:
Pay less attention to investment accounts. It’s worth a reminder: Emotions can impact our investing decisions. When we are threatened by the possibility of losses, our brains take control to avoid these losses and we may not make the best investing decisions. In 2022, excessive pessimism dominated the markets. As one market pundit noted, perception swung from “flawless to hopeless,” and, for many, the urge to react may have felt overwhelming. One important variable for investing success is how long you are able to stay invested. As such, consider checking accounts less frequently.
Think longer term. Markets go up and down and returns vary from year to year. While we commonly discuss “average” returns, it’s worth repeating that annual returns often don’t fall close to this average. Consider the wide dispersion of S&P/TSX Composite Index annual returns since 1981. In 19 of 41 years, returns were less than the average of 6.7 percent. Almost one-third of the time, they were negative. Yet, average returns compounded over time can lead to superior results. An investment of $55,000 would yield about $209,000 in 25 years at a rate of return of 5.5 percent; in 55 years, it would yield over $1 million.
Remember that equities continue to be one of the best wealth generators of asset classes. Given the market volatility in 2022 and with yields on low-risk, fixed-income alternatives at levels not seen in over a decade, products like guaranteed investment certificates may look appealing. While this may be a good opportunity for cash on the sidelines, equities continue to be one of the best asset classes in which to generate wealth and beat inflation over the longer term.
*35% S&P 500, 35% S&P/TSX, 20% MSCI EAFE, 10% MSCI EM; **60% Equities, 40% Fixed Income