Transcript
Hello and welcome to The Download. I'm your host, Dave Richardson, and it is another exciting Stu's Days — a post-university drop-off Stu's Days. Stu, we were dropping kids off in the same spot. We didn't even know. We should have mentioned that. We could have popped by the Chez Piggy in Kingston. Have you been to Chez Piggy?
I have been there once. Because I went to Queens, too. That was the spot that parents, when they came down, they would take you out for a dinner at Chez Piggy.
My wife actually stayed over a couple of days with my daughter when we dropped her off just to ease into things. And they went to a couple of places. Kingston has gotten quite haute cuisine now, along with some competitors for Chez Piggy.
Yeah, there's a lot going on. It has changed quite a bit since I was there almost 30 years ago.
So, Stu, any IKEA furniture assembly this past weekend?
A little bit of assembly. There's the laundry hamper, all that jazz. There was some furniture in the res room, so not too much. But getting the Wi-Fi up, that was a test for sure for TechnoStu.
Technostu? Is that what you're referred to as? Your daughter calls you that?
That's right. I think they like to think of me as that, but I'm lacking. How about you?
Well, in all these conversations we've had with you, Stu, there's very few gaps in your game. I would not have thought that Wi-Fi setup would be a gap for you. The IKEA furniture I could see, but not the Wi-Fi.
Yeah, no, it's just the instructions weren't clear. I'm going to go with that.
There we go. I warmed up. Your eldest is off this year. I had my eldest off a couple of years ago, so I got quite a depth at handling the furniture assembly. This daughter, she calls herself the Lego Queen. So this is just giant size Lego that I'm putting together. So she was having a blast with it anyways, whereas my other daughter like to sit and watch dad struggle. But I'm good with the Wi-Fi. I'm good with that. Except my Wi-Fi when we're recording these, as you know, and the listeners don't. By the way, for those of you who are just listening to the podcast, please subscribe. Please give us a review. We'd love to have you as a regular listener if you're not. And as well, if you want to actually see us instead of just listening — which is a good or bad decision; I'd say likely you're better just listening — but if you want to see us, then we are available on YouTube, and you can go and subscribe to our YouTube channel as well, because Stu and I, we've already gotten incredible makeovers, and we're going to continue to work on our looks as we try to become YouTube stars along with our podcast fame. And we want Stu’s Days to be StuTube's most popular television program. Right, Stu? We're going to make Dollar Cost Average Boy a superhero that everyone can rely on.
Yeah, that's right.
So we're already four minutes in. People have dropped off. Now we'll actually get to what we're going to talk about, which is kind of dropping off in a way. You raised a good point because we were having this discussion beforehand, and the whole idea of how do we ease into the market, add new money to the market. And we've talked a lot on all of the different episodes about dollar cost averaging, regular investing, the approaches to increase or establish a position in something. But I think about someone who's approaching retirement, or maybe even somebody who's been saving for education, and they did very well over the last several years in equity markets. But now you're actually using the money and you want to de-risk that portfolio. How do you go about effectively repositioning or de-risking your portfolio when the time is right to do that? And you had a lot of thoughts on this. Because, as important as getting the initial positioning and the initial structure of the portfolio right, it is just as important to de-risk, to change the positioning or even how you take money out of the portfolio and use it for income or once you've reached a particular goal. The decision is just as important. So what are some of your key thoughts around shifting your portfolio around when the time is right?
I think it's a great question. I think the role of an advisor really comes into play here or a really good understanding of how your financial plan is developing. When you put money to work in the stock market, you tend to have a time horizon. In any capital markets for that matter, you tend to have time horizon. And you know that time is going to do a lot of the heavy lifting. When it comes to the maturity of a financial plan, circumstances can change, which can change time horizons. All sorts of things can happen. Cash flow needs. You name it. Returns can be above the return that you had assumed in your financial plan. So the way that you make changes in that environment can be a little bit different. So a couple of things like dollar cost averaging. It works on the way in, it works on the way out. As things start to mature, markets have been strong and you say, boy, I'm way ahead of what I thought was going to be projected in my portfolio. Maybe that's a time to rebalance or use dollar cost averaging to change the way that the portfolio looks. The second thing, often what happens is there's some type of life event that is in the financial plan and you want to prepare for that often months in advance. You want to start on a glide path. Just as we know getting in, there's going to be volatility that we want to take advantage of, there's a likelihood of that same volatility on the way out. So we want to turn that into our friend as well when we might alter things on the downside. So there's the preset milestones, or even if there is a bit of a change in milestones that were in the financial plan, those things are not straightforward, but they're manageable. And then there's the behavioral component of strong markets. Sometimes people will say, the better I feel about my portfolio, that's the time to lower things a little bit, because that probably means everyone feels great. Or we have a shot across the bow when there's a period of volatility, and then we get a rally back and people say, I really didn't like that very much. And maybe that's a reason to go back and look, do I have my portfolio position in a manner that allows me to look to the long term? And we know markets have been volatile and they've been in both directions, up and down. And valuations in some areas are a little bit fuller. The average stock still doesn't look too bad. We know that the central banks are likely to lower interest rates, which eventually will reignite a new and a different type of cycle, which we've mentioned a lot. But anytime you have markets at all-time highs — basically, where we are now — you want to go back and look at that financial plan and you want to be honest with yourself around how well has maybe the portfolio done relative to what I had in the books in terms of expectations. Or has there been more volatility? Do I need to have a conversation around that as well?
I really like the idea of the psychology around the financial plan. First of all, if you've got a proper financial plan, you've got guideposts along the way or mileage markers along the way to say, I'm 20 years from retirement, I've been saving for 15 years, I expected to be right around here right now. But because of market performance over the last couple of years, wow, I'm way I'm up here. I'm way above that threshold. And the psychology around that would be, oh wow, this is exciting. This is fantastic. Let's just keep going down the same path. Let's just maintain all of that risk that we've got as markets have reached all-time highs and valuations are getting stretched. But the actual question you should be thinking about is, am I now positioned with too much risk given that markets have performed at such a high level for a while? When things are too good to go, maybe I should be thinking about taking some of this off the table. At the same time — and this is the really big one as well and I think people miss more on this front than on the upside — is getting too pessimistic when things go down. So when things are bad — that correction in early August or even what we're seeing today as the markets are having a pretty rough day today — that's not the day where you start to think about necessarily selling. It's the time to think about, okay, are there any opportunities being created here? But most people, I think, get caught up and it's going up, up, up. So that's when I get excited and over exuberant, and that's when I want to add more when you should really be thinking at that point, well, is this the time I should be adjusting my positions?
Yeah, I think that's bang on. The other thing which we're always doing inside big portfolios, there'll be different themes that emerge. Like the old saying, there's always a bull market somewhere. So we've had really strong performance, say, from the tech sector. Well, in the last two or three months, we've seen a broadening of the market. We've seen new stocks and sectors emerge and start to deliver performance. Is my portfolio exposed to a variety of things? And with a period of time where the central banks are lowering interest rates, economic growth is a little bit foggy, but we think it's going to pick up, sometimes, dividend and quality-oriented stocks start to perform better. So there's movement between asset classes. There's movement within each asset class that portfolio managers can always find things to take advantage of. And that point around the behavioral aspects is really strong because you're always trying to have an expected return from each stock or each asset class. And then you say, well, what type of assumptions are in that return? And if I'm okay with the assumptions and I'm okay with he expected return, then I know I just have to wait for time. Time will take care of that. If I have lower returns and I'm using aggressive assumptions, then those are the situations where you're saying, well, maybe I want to make a tweak there. And in contra, when I have great return potential and I'm using very conservative assumptions, then I really want to move more of my capital towards that opportunity.
Yeah. If you've got a particular goal in mind and you're closer to it — and I think most importantly, with that goal, it's where you're actually going to use the money — you're going to need the money that you're investing. And so in that last period, that more brief period before you're actually using the money, you actually need to be more assured that you're going to have the money there when you need it. That's when you're going to be de-risking and maybe even moving some money into more of a cash or a guaranteed type of investment to make sure that when you hit that endpoint, you have the money you need. So the closer you are to needing the money, this is when it's really important to be thinking about these things. When you have a longer time horizon — you're not going to be using the money for many years, 20, 30, 40 years out — then it's more important to get the money invested and get it growing for you. You never want to be in things that are dramatically overvalued, but you've got a long, long time to take advantage of the growth opportunities in whatever you own. So it's that time when you're going to use the money that's so critical.
A 100%. I think that's why, as I say, putting money to work in the stock market or into capital markets is great to be done with an advisor, and there's ways to do that. But how you manage the portfolio and de-risk the portfolio or exit the portfolio as different life events come your way, that's where an advisor really pays off.
You think about what we've talked about on all these different episodes over the last several years of the podcast, we're often talking about accumulating and growing assets towards a particular goal. But the hardest decisions are really the point where you're deciding how to draw down those assets and use them for whatever the original goal of accumulating the assets was for, because that's where there's some real strategies. And of course, many times taxes become a big part of that as well. There's the whole estate planning and so many other aspects of your financial plan become part of that decision. So it's an even more complicated discussion than just the accumulation phase. It's like, well, I'm going to put away this much. Here's my investment strategy. I want to save this much. But then how do I make sure that that money lasts all the way through my life?
Yeah, it's bang on. And to go full circle, I took a course on tax at Queens many years ago, and I remember the prof saying, I'm not sure if you'll pass my class, but this will save you lots of money during your lifetime.
Well, that's good. And so, your daughter is heavily into finance, I take it, Stu?
Well, we'll see. So far, both of them are science-oriented — chemistry, biology, that type of things. So not a lot of help when it comes to homework from my standpoint.
Well, my daughter is also in sciences. But since you got all the brains in this operation, maybe for my daughter, the chemistry that she knows is more real-life chemistry.
I think in both our cases, Dave, if we were playing that old Operation game that we grew up with, sitting there with a little tweezer, neither of us would be much of a role model for where our daughters are headed.
No, I've worked in the financial services industry for 32 years, and I have saved zero lives. And I imagine that's not going to change over the next five as I continue to go. But we have changed lives because you do need money. So that's a good thing. The financial plan and the plan around how you wind down and shift the risk in your portfolio, that’s critically important. So, Stu, thank you again. And I'm going to go and hug my wife because she's feeling lonely in the big house. Apparently, the dogs aren't cutting it for her. She misses her daughters.
Well, it's hard not to.
All right, Stu, we'll catch up with you next week.
Take care.