Investing in the Current Economy – the Graphics Edition
When we’re trying to convey what’s going on in the financial world to our clients, we try to convey that information using whatever means we can – what our teacher friends might refer to as using “multiple modalities”.
And as much as I love stories, there are some times when it’s easier to understand what’s going on – and understand the theory – with a graphic. To help you get a handle on your investments, here are a few investing best practices we follow and the graphics that back them up.
Prior to 2005, there was a limit to how much you could invest globally in your RRSP – it was capped at 30%. Many of the people we’ve spoken with have traditionally had little to no global content in their portfolio at all. But for perspective, this graphic from The Visual Capitalist shows where Canada sits in the $88 Trillion World Economy:
The takeaway: At a little under 2% of the world economy, you may be missing out if all your investments are in Canada. FYI: Our default investment streams tend to sit at about 30% to70% Canada, 70% to 30% World (US and International).
The Balloon Effect of FAANGM Stocks
For the past five years, the big technology stocks (Facebook, Apple, Amazon, Netflix, Google and Microsoft) – collectively referred to as “FAANGM” – have been acting like a weather balloon on the stock markets. While markets as a whole have been “ok”, FAANGM stocks have shot up in their growth. And if you’ve been investing on an index, they have pulled up that index, as this chart from Visual Capitalist shows:
But that also carries risk with it: six balloons carrying the market also means that it only takes one of those to “pop” to have a dramatic effect on the market.
The takeaway: be cautious if index investing that relies too heavily on a very small basket of stocks to stay afloat -- that’s why it’s so important to diversify.
“Safe Money” isn’t Always Safe
When we do our Financial Wellness Sessions for organizations we work with, we talk about the danger of having everything in very low-interest, “safe” investments like GICs. In today’s ultra-low interest rate environment, it’s very easy for inflation to outpace what you’re actually earning on investments – so over time your savings are actually worth less.
The takeaway: yes, have some of your portfolio in these kinds of investments, but not everything – diversify to keep ahead of inflation.
The Importance of Staying Invested
In an earlier post we talked about the difference in staying invested vs. taking your money out (or moving it so something you see as safe) vs. staying invested. It included this graph:
The takeaway: it’s impossible to time what’s going to happen with the market. And missing just a few of the best days can have a profound impact on your investing – so remember, you’re in this for the long haul, and stay the course.
One more just for fun:
The danger in charts is in how easy it is to misinterpret data. For that reason, anyone involved in the education of -- well, anyone – should get a kick out of the data charts provided by Spurious Correlations. This is a great reminder that Correlation isn’t the same as Causation. While there’s almost a 96% correlation between the “Per Capita Consumption of Mozzarella Cheese” and “Civil Engineering Doctorates Awarded” it’s pretty unlikely that one causes the other. Or is it?
How about you? Do you have sources you turn to for visual data? Connect with us on one of the major social networks to share your favourites.