The stock market was looking pretty grim last January: the TSX was down about 20%, Canada was in a recession, and at least one major bank was saying “sell everything — the stock market is crashing”.
Devon’s RESP was down about 2% at that point. But instead of selling everything, January was a good time for us at Mom & Pop Investments to allocate some extra capital to equities, and we deployed pretty much everything we had sitting in cash.
Now that the year is over, taking advantage of the dip in January looks like a pretty good idea. Most global markets did extremely well in 2016 — TSX was up about 17%, while Devon’s RESP portfolio increased by 8.3%. Because his portfolio is broadly diversified, so far sharp markets corrections have not had a dramatic impact on overall assets. On the flip side, dramatic increases in the market are also more muted, but that’s a feature of his portfolio we’re willing to live with. As a reminder, this is the original portfolio we constructed, with a plan to glide down to less volatile assets as Devon grows older:
Now, a year later, we are almost in the exact opposite spot than we where we were last year: the market is exuberant and we’ve had a pretty massive run-up in valuations. While we’re not altering Devon’s core allocation, we are not seeing many compelling investments worth rushing into going forward. We are positioning ourselves for increased volatility and generally lower returns, and we’ll rebalance aggressively to keep our target allocations if equities continue to rally.
We at Mom & Pop Investments are also loading up on bonds as rates rise higher.
While we can’t control the market returns over the near term, and indeed expect them to be potentially negative, we can control the amount we’re saving for Devon. And regardless of what the market does, we continue to believe that Devon is a smart boy and investing in his future education is extremely worth while.