Why are we always trying to fix things that are not quite right? It’s human nature to try to fix what is broken. Whether weeding your garden or repainting a window sill fixing things gives us a sense of order and calmness. How does that translate to your financial life? What might be broken in your portfolio, and how can you fix it? Join Financial Advisors Rob McClelland and Mike Connon on ThinkSmart with TMFG as they discuss best practices for investors.
Transcription
Rob (00:00):
Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management, and this is Think Smart with TMFG. This week on Think Smart with TMFG, Mike and I are going to be discussing why we always need to fix things that are not working. Mike, it’s human nature to want to fix something when it’s not working or not working properly, and I’ll give some recent examples. I had been up at the cottage a fair bit this summer. I came back, and Ingrid and I noticed that most of our garden was a little overgrown.
(00:41):
And so, was it broken? No, but it certainly needed fixing, so we spent a couple of days over the long weekend fixing our garden, if you like, repairing it, thinning it out, getting rid of some of the weeds. I don’t know how many bags we had, but we had a lot of bags of stuff. And that’s, even though we have someone who cuts the grass every week and says they do weeding, we still needed to step in. This summer has been a brutal experience for me in boats. I had a boat that I took it out three times at the beginning of the summer, and it’s been on the rack ever since waiting for a part that won’t be available till September, so it’ll probably remain on the rack for most of the year. But I couldn’t drive the boat anymore, it was broken.
Mike (01:27):
Why you need a few boats?
Rob (01:28):
That’s why you need a couple of boats. If you have a cottage, especially if you’re on an island and we’re not on an island, but even if you’re not on an island, you still need a couple of boats because boats break down and they don’t get prepared very quickly.
Mike (01:41):
It’s like snowmobiles, never own one snowmobile. You won’t have a fun season.
Rob (01:44):
No. It’s not enough?
Mike (01:44):
No.
Rob (01:45):
Little things. Just on the weekend, I went to light up the barbecue, of course, the barbecue starter’s not working. So you know what that’s like. Now, you still need to use the barbecue, but the starter’s not working. So now you’re going to go through and you’re going to get the propane coming out, and you’re either going to throw a match or you’re going to throw a lighter in to try and get the whole thing. And at the same time, you’re not trying to singe your hair, and it’s always a close call. You just need to remember to step back very quickly.
Mike (02:17):
You’re going to lose the eyebrows pretty fast.
Rob (02:20):
Things that need fixing right away. Ingrid, again, automobiles. Automobiles are always breaking down of some sort. So she calls me one day during the summer and she said, “Someone just pointed out that my tire looks flat, what should I do?” And I said, “Well, I think you better go get it fixed right away. There’s probably something wrong with it.” She literally took it in to Canadian Tire, because everything else was closed, and the tires were completely bald and you could see a giant hole and you could see steel through the hole. That’s how bald they were, even though those tires had only been put on four months earlier. So there’s an example. We need to fix things. What about you? Are you fixing things? What things have you had to fix lately?
Mike (03:05):
You know me, I’m always fixing things. Mine go into the stuff that I can fix. I try to fix most things myself. I just did the roof on the cottage. I hired someone to do it, but I helped him do it, which was a lot of work. The water pump went, which was something I can’t even get at. It’s 200 feet down below the level so I had that done. Septic bed, I’m certainly not going to do that myself. So I went and had them do that. Car problems, I had to have a new rack put on the steering unit on my son’s truck, so I did that.
(03:35):
It’s funny, even recently, I’m up north, and all of a sudden we had power surge. And power surges are interesting because the power goes out and they come on, and we’ve had a lot of people lose a lot of appliances and things like that. And I still have, I love stereo, so I have this old Harman Kardon stereo from the 1970s, and, of course, as soon as this power surge I hear blow out. I took it out to the garage. I love old stuff because, when I took it apart, there were two little fuses that cost 20 cents apiece that I could replace, and the whole thing worked again.
Rob (04:05):
That doesn’t happen today with most technology.
Mike (04:07):
Well, it was funny just to go and compare it. I had a cappuccino maker, and it stopped working. Cappuccino makers can get pretty expensive their $400 or $500 for these units. And it stopped working, and of course, I went to YouTube to go to figure out what to do, and I realized that it’s probably a fuse inside the cappuccino maker. But they’re not those little glass fuses, they’re soldered and welded in, and you have to get at them. To get at this cappuccino maker, all the screws in it were these special safety torque bits, which are meant for the bathrooms. The ones that they use install. So you can’t use a regular wrench on them. So I had to cut out all the screws, get it opened. I had to order online the fuse part, the part cost me 53 cents to order, but it got the whole… After I put everything back together and taped it back together, it does work. And it was one fuse that was gone, but it’s not like the old fashioned things in the ’70s.
Rob (04:59):
You see, I would’ve been already on the road to Canadian Tire to buy a new one or whatever local store was available or just up north, you go to Canadian Tire and not Amazon. If I was in the city, it would’ve been Amazon.
Mike (05:11):
Right. Yeah. I was determined to somehow fix it. So it works.
Rob (05:14):
What are some things that are broken that we don’t fix right away? What are some examples of that?
Mike (05:21):
We were just outside, in front of our office, and we saw some trees that were growing into each other. We know we have to fix it, but it doesn’t have to be done today. We said in two or three years this is going to be a problem. So eventually it has to be fixed. Probably better off to deal with it today, but we’re probably not going to.
Rob (05:38):
So we’ll probably put it into what we call the parking lot, which means we’re going to look at it, but not right away. What else? What are some other things that you know is broken that you need to fix?
Mike (05:48):
Relationships that usually watch people push those off or along. There’s issues but they don’t want to deal with them.
Rob (05:54):
They’re hoping the relationship will resolve itself before they have to go in and try and fix it.
Mike (05:58):
Usually they’ll buy a pet to see if that helps.
Rob (06:01):
Hopefully they won’t have kids to see if that helps.
Mike (06:04):
Pets are much easier to deal than kids. Usually, little things like scratches on your car, things like that, that you have, they’re there. They’re not big enough where you leave your car in for a week or to do, they’re just an annoyance is basically what they are.
Rob (06:18):
Weeds in the garden or just even cutting your lawn. You know it needs to be done, but sometimes you can delay that for hopefully not too long. What are things that you should not fix?
Mike (06:28):
When you watch things like the antique road show and things like that. I’m a guitar enthusiast. I realize that if you ever refinish a guitar, they’re worthless. You can take a guitar, it’s worth 50,000. As soon as you touch the finish on it, even though it’s all beat up, you throw a new finish, they’re not worth anything. Antiques when you see them, they like that patina. Even though it looks beat up and worn that old patina on things, it makes those antiques valuable. You just don’t touch them. That’s part of the age and the beauty in it. Artwork, paintings, people want the painting to look new and they got to fix it up and they destroy a million dollar painting very quickly by trying to go and make it look like it’s new again. Some things are supposed to age, wines, things like that. They’re supposed to age well. So those are things that you generally just leave alone, and they’ll get better with time.
Rob (07:15):
So, where’s all this going? I had a client reach out to me recently, and he didn’t quite use these words, but he felt the portfolio’s a little broken right now. I mean, we all know the markets are down, stocks are down, bonds are down, real estate’s down. And so our natural tendency is to want to fix it. And what are your thoughts on that? Should we be fixing that thing? What are some of the options? How should we fix this thing?
Mike (07:46):
Well, it’s tricky because it depends on what you define as the portfolio’s purpose. And I think the problem is a lot of people define the portfolio’s purpose is to make money all the time, not make money overtime, make money all the time.
Rob (07:57):
All the time.
Mike (07:59):
And from that point, yeah, our portfolios are broken because they’re not making money all the time, but sometimes that’s not the original purpose of the portfolio, it’s to make money over time. So you have a few options. The one that you often do is you can just do nothing and leave it go, and that’s fine. Other options are to do rebalances in the portfolio. And that’s usually what we recommend is when you go through these times and the asset mixes off, we usually have a set asset mix that we feel is appropriate for the portfolio. If it’s drifted away from that because of the markets, generally you rebalance back to that asset mix.
(08:35):
A lot of the times, when we used to be in the business many years ago, as soon as a manager wasn’t performing very well, you’d go and switch managers. It was the easy solution. Well, this manager’s not doing very well anymore. Let’s get a new manager in there. And we still watch it on firms all the time. Every time they find a fund or anything is underperform and they’ll go and say, “Well, we’re going to make a change inside here, and we have a new manager, it should all be better.” We’ve looked at studies before, and I can’t remember the numbers, so we’re not going to go details and give exact details on them, but generally speaking, those money, the data has said that change in managers is not the best strategy. It tended to drift to be a worse strategy.
Rob (09:12):
The manager you left starts performing, and the manager you just move to starts underperforming. It’s a lot like sports. It’s like when you trade your pitcher or you trade your goal tender.
Mike (09:28):
What’s funny? We always thought that, and then we saw this one paper come out on it, and they’re like, “Oh, we might not been thinking wrong. We thought was just in our minds, but it seems to be real.”
Rob (09:36):
Couple of other things you could do. You could change your asset mix. Why would that probably not be a good thing? What would your tendency to be if you were going to change your asset mix? Would you buy more of what’s down or would you buy less of it?
Mike (09:49):
Well, unfortunately, people go and try to buy less of what’s down. That’s the movie, they change their asset mix. Right now, if you had the tolerance to it, it would probably time to move to a more aggressive mix during down market. But no one calls me up and wants to go to a more aggressive mix. They want to get more conservative, which isn’t going to do the much good.
Rob (10:06):
What about changing your advisor? Would that be a good idea?
Mike (10:09):
It’s always an option.
Rob (10:12):
Well, it is always an option if the advisors following the strategy, the advisor hasn’t done anything wrong.
Mike (10:19):
Yeah. The problem is people don’t realize that we just change advisors. A lot of times you’ll change strategies at the same time, and strategies they go through a wave period. Sometimes growth work, sometimes value work, sometimes smoke up. They all go through different stages. And if your portfolio is not doing exactly what it’s supposed to do, just because of the timing in it, sometimes it’s very poor to make that move during a down market and change strategies. Again, it almost resets you.
Rob (10:47):
Because you’re not just changing advisors, you’re changing strategies nine out of 10 times.
Mike (10:51):
Sometimes when you go through a poor time, you put in your time to get the rewards later on. And what happens, you put in the time and you change a strategy. You no longer get the reward for the time you put in. It’s lost.
Rob (11:01):
I guess one of the final options, and we’ve talked about this numerous times, is you could always sell, so the portfolio’s leaking, maybe it’s time to move to cash. And we’ve talked about why that’s probably the worst strategy of all. So let’s go back to the A and B, number one and two recommendations are number one to do nothing and number two, rebalance if necessary. So I maybe make rebalance if necessary as number one and then, if not necessary, do nothing.
Mike (11:31):
Yeah. Yeah, I used to watch and see who the least traded to see who’s going to be the best score of the following year. Last year, Cadre had a great year, didn’t he?
Rob (11:37):
He certainly did. Got paid for it well this summer and probably overpaid. So we’ll see how that works out for his new team. I think he’s off to Winnipeg.
Mike (11:47):
Yep.
Rob (11:47):
That brings us to the end of another week. Thank you for joining us. This is Rob and Mike with Think Smart from The McClelland Financial Group of Assante Capital Management reminding you to live the life that makes you happy.
Assante Capital Management (12:22):
You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate And Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information. Please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Estate Management Limited.
