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Market Musings

The Math Doesn’t Work

By October 7, 2019 October 12th, 2019 No Comments

A discussion with Danielle Park, CFA

A good discussion regarding the prevalent misconception among those looking to live off their investment portfolios that 5-7% a year is both reasonable and able to be achieved with a fair amount of safety in today’s environment. In an era where 5-10 year Government of Canada bonds yield 1.3% per year; you can clearly see that one has too take materially more risk to earn a “normal” return than in times past. In 2007, prior the rate cut cycle of 2008 the same government bonds yielded closer to 6%. Today, to earn 6% per year in fixed income you’ll need to be willing to buy high yield (or junk) bonds rather than government bonds to provide for your retirement income. This is a gamble we would advise against in most cases.

The conversation is most applicable to those invested in traditional investment products at this point in the cycle. Our fund is of course taking a very different approach to generating returns over the years to come. Again, this is a good discussion for people that are invested in traditional investments: mutual funds, stocks, even corporate bonds.

 

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