Why Growth is Important
We manage your investments for growth because we think it’s important to be able to afford things in the future. It is one thing to increase the value your investments, it is another thing altogether to grow your investments in a world where prices are rising at a faster rate than our investments. Take, for example, the price of groceries.
StatsCan reports that the price of groceries has risen by 27% over the past five years. I was interested to note that the value of 1-year GICs invested over the same timeframe would have grown by 15% (pre-tax). The following chart shows that the price of a $100 bag of groceries has risen to $126.70 and the value of a $100 GIC re-invested each year has grown to $115.31.
We wondered what rate of return would have been required in order to still be able to purchase the same groceries today that we did back in 2019. An investment made on September 1, 2019 to August 31, 2024 would have had to grow at a pre-tax annual compound rate of 6.7% (assuming a 30% tax rate). Growing capital at this rate is not an easy task – and it is impossible without assuming some volatility risk along the way.
Housing Market Update
On September 27, 2024 I recorded a conversation with Christian Chiera at the Royal Bank of Canada concerning the housing market. I encourage you to check out his observations.
Click here to view the presentation.
Housing Market Update, recorded on September 27th, 2024. This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes, as of the date noted only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Past performance is no guarantee of future results. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change which may materially impact analysis that is included in this document. You should consult with your advisor before taking any action based upon the information discussed. All opinions constitute our judgment as of the dates indicated, are subject to change without notice and are provided in good faith without legal responsibility. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered.
Value vs Growth Investing
I will close with a comment on an old theme: Value versus Growth investing.
Value investing refers to an investor who purchases a business to benefit from the profits that business is generating today and in the near future. An example of a value investment would be Bell Canada (BCE) which pays out annual dividends of over 8% to investors. Someone investing in BCE might be focusing more on how they can be paid today for their investment versus how they might be paid in the future. BCE contrasts with a growth investment such as NVIDIA, a maker of computer chips. NVIDIA pays very little dividends and is valued very highly in the marketplace. An NVIDIA investor is likely paying more attention to the profits they expect to earn in the future and is willing to forego profits and dividends today.
It is no secret that the increase of the share prices of growth businesses has been far better than the increase in share price of value businesses over the past few years. Looking forward, we continue to be careful – not chasing investments in growth businesses because of that increase. We believe that a healthy allocation to value businesses in addition to growth will serve us well in the years to come.
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