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moneysense.ca, 1/08/08
This and That # 103
- Thanks to Doug for posting the link to Global Investment Returns Yearbook synopsis by the authors of Triumph of the Optimists.
- Larry MacDonald comments on Legg Mason strategist Michael J. Mauboussin’s study on the role of financial institutions in pricing assets (The study is available here).
- Gail Vaz-Oxlade, the host of Til’ Debt Do Us Part wrote about fantasies that are ruining financial dreams.
- The Dividend Guy on the top three reasons to drop a stock from a watch list.
- The Financial Blogger is writing a series of posts on the basics of estate planning.
- Thicken My Wallet questions if real estate has ever been the path to wealth.
- Preet shares a nugget he gathered from the DFA conference: while it is highly likely that stocks will beat bonds, there may be stretches of as long as 35 years in which stocks lag bonds.
- Frugal Trader does a mid-year check-up of his investment portfolio.
Around the Personal Finance Network
- Clever Dude plays the credit card arbitrage game.
- Squawkfox reckons that cars are the new smoking.
- Blunt Money lists nine reasons not to buy a stock.
- Some ideas on generating passive income from Money Ning.
- Four Pillars sees how our RESP stacks up against the U.S. 529 for saving for a child’s education.
moneysense.ca, 1/08/08
Thanks for the link!
Mike
Hey thx for the mention!
post #4 of my Estate planning series live today
Thanks for the link CC – enjoy the weekend!
Ta, hope you have a lovely weekend and that all YOUR dreams come true!
This is from the Global Investments Yearbooks Synopsis. For 1900-2006 in 17 developed countries that constitute almost 90% of the 2006 world stock market, real return on average was 5.8%. For Canada, it was 6.3%; for the USA, it was 6.6%. Canada ranked 5 out of the 17. Best return in stocks was Sweden (7.9%); worse for stocks was Belgium and Italy (2.6% each).
Will the addition of foreign stocks to one’s portfolio increase return? I think that is uncertain: it could be positive, negative or neutral. Canadian stocks are heavily concentrated in financials, energy and minerals (75%). Historically, how do the financial, energy and mineral sectors do relative to the stock market as a whole? I would not consider these sectors to be high growth areas, as compared to technology. Whether this translates into decreased stock market return, I don’t know. My worse case scenario is the Canadian stock market ends up being like Belgium. Does anyone have any information as to how those 3 sectors do historically compared to the stock market as a whole when it comes to return?
This is a followup to what I’ve just written. Canadian dividends get preferential tax treatment. The effect of this may not be small, and cannot be disregarded in determining one’s foreign stock allocation outside an RRSP.
For 20 years ending in 2005 for the S and P 500, 38% of the return came from reinvested dividends. This came from the TRowePrice website. I don’t have comparable information for the Canadian and global stock markets. For 20 year total returns as of December 31/04, the Canadian stock market returned 7.8% and the global stock market returned 10%. For the Canadian stock market and the global stock market over that period, I assume that 38% of the return came from reinvested dividends. I am assuming 46.4% tax on foreign dividends, 24.6% on Canadian dividends and 23.2% on capital gains over that time period. This is not an accurate assumption for the whole time period, and will also vary depending on an investor’s circumstances. Based on those assumptions, the after tax return of global stocks was 6.80%; for Canadian stocks it was 5.95%.
I welcome comments on this.
Thanks for the mention. Have a great long weekend.