How a Vacation Can Teach You about the Financial Markets

What Makes the Pie Shops TickThe following is a guest post from Barbara Friedberg, MBA, MS. I met Barbara at the Financial Blogger Conference in Chicago, and right away I knew she was somebody to keep in touch with. If you’d like to guest post on the Dividend Ninja, be sure to check out our Guest Posting Guidelines.

I was honored when Avrom asked me to contribute to The Dividend Ninja. As a long time investor, in individual stocks, bonds, funds, ETFs, and real estate, I figured I had a lot to say. Acknowledging the Canadian origin of the site, I began reminiscing about the 5 years our family vacationed at a lovely Canadian resort just north of Toronto.

We selected that resort because we were just starting out as a family and were in the early stages of wealth accumulation. (Translation, we didn’t have a lot of money.) The hubby, daughter and I have always been an active bunch and we were drawn to the all-inclusive nature of the resort including delectable cuisine, sports competitions in tennis, golf, volleyball, bocce ball, and countless activities for the kids.

One of our most memorable “adult” events was the scotch tasting soirée. And who can say no to a lakeside buffet every day for lunch with the tough choice of pool or lake swimming in the afternoon?

If you’re wondering how this is a bargain vacation, let me explain. Back in the 1990s the U.S.A. dollar to the Canadian dollar exchange rate was terrific for those Yanks visiting Canada. One U.S. dollar fetched about one and a half Canadian dollars (or loonies as we learned to say).  So those of us from the U.S.A. visiting the resort were paying quite a bit less than our Canadian counterparts. Today, that same U.S.A. dollar gets about $1.03 Canadian. Not much of a premium.

What Does My Canadian Vacation have to do With Investing?

I’ve been around long enough to see gold remain stagnant for decades. I remember when inflation was in double digits and you could get 12% on U.S. Treasury bonds. And late last century, dividends were shunned. After all, who cared about a dividend when the average technology stock was growing at 20+% per year?

Now, dividends are all the rage. One can certainly understand why; recent stock market appreciation is dismal, interest rates stink, and it’s tough to get a decent return in the financial markets.

Do not despair.

This afternoon I was inputting into Quicken the quarterly statement for a retirement account from my first real job. I was shocked to see that over the 9 years I worked at that position, I contributed $29,000 to the account. The account has quadrupled in the interim.

How a Vacation Can Teach You about the Financial Markets

I bet you’re wondering in what this account is invested. The account is held at an old conservative firm and I elected 25% of my contribution to go into a fixed “annuity” (this portion was kind of like a savings account, only with higher interest rates) and 75% in a broad-based, low fee stock fund.

There was nothing fancy or glamorous about these investments. Over the ensuing decades, these funds mirrored the ups and downs of their respective benchmarks. When the stock market was in the sewer, so was the fund. Fortunately, the fixed part of this investment kept the lows from being so terrible or the highs from going through the roof.

 The Takeaway

Don’t panic when your investments go up and down. Look at your portfolio overall and don’t obsess about each individual movement up or down in one stock or fund. Over time, invest regularly, diversify your holdings, maintain an asset allocation suited to your risk tolerance and you will grow your personal wealth. And when the exchange rate is in your favor, go visit a great vacation destination!

What have you learned about investing from the market cycles?

Barbara Friedberg, MBA, MS is editor-in-chief of Barbara Friedberg Personal where she writes to educate, inspire, and motivate for wealth in money and life. Learn about personal finance from a real-life Portfolio Manager & MBA professor!

How a Vacation Can Teach You about the Financial Markets

10 thoughts on “How a Vacation Can Teach You about the Financial Markets”

  1. Nice job on the guest post Barbara; I love the vintage vacation guide pic – too funny! 🙂

    If there’s anything I’ve learned over the past years, it’s the importance of having a well structured and balanced portfolio.

    Ensuring that our investments are within various asset classes is key. Investors who have 100% of their hard-earned dollars in stocks will surely feel the impact during market swings.

    All the best,

  2. Quadrupled? 75% in low fee stock fund? We all know that the TSX 60 or the S&P 500 have done very little in 9 years. What info is missing here? Other sources of income to the portfolio? DCA? I read your blog to be better informed in order to apply information to my own portfolio.

  3. @Wealthy-Sounds like you have the “sensible” investing plan down!!! Glad you liked the pic.
    @Cashflow-Patience is sorely lacking yet a crucial component of investing.
    @Michel-The missing component is TIME. Check out “compounding” and you will see that time is the market is the key to wealth building! I would love to see you over at my site 🙂

  4. I think that the important point is not to panic with the gyrations of the stock market. I must admit I am 100% into stocks, but most are solid dividend paying ones, so that my portfolio does not do the highs and lows of the market. I think that low volatility helps in getting a decent return.

    I valued by portfolio at the end of last month and found that although the market was down, year to date, by 13.5%, I was only down .6%

  5. Nice post Barb.

    Will tweet and include in my weekend roundup tonight.

    Absolutely agree with Susan and TWC, don’t panic when Mr. Market does his dancing, forget the gyrations of the stock market, although his dance might be fun to watch now and again 😉

    If you have a well-balanced portfolio like great investors do, you have nothing to worry about.

  6. @SP-You sound like you have a good sense of your risk tolerance and how to value your progress. Besting the benchmark by quite a bit is great. And, as long as you’re a few years from retirement (at least 10), you are giving yourself a good chance to amass some wealth.
    @My own advisor-thank you for the props. I totally agree, no need to lose some sleep, volatility goes with investing.

  7. Very good real life example! Investing should be like this – do due research, have a balanced portfolio, sleep well and don’t worry about short term fluctuations.

  8. Hi everyone, thank you all for your comments 🙂

    Barbara, thank you for your amazing guest post! This article really brings home the point about investing for the “long term”. What may be the flavour of the day this year may not be the next. I agree with you, a well diversified portfolio is crucial in these times. Well done Barb!

    The Dividend Ninja

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