Investing can be an emotional roller-coaster. One day you’re riding high, watching your portfolio soar, and the next, you’re curled up in the fetal position as the stock market tanks. If you’ve been in the investing game for a while, you’ve probably heard the term dog used to describe under-performing investments. But let’s be real—dogs are awesome. They’re loyal, dependable, and always there for you. And yet, in the world of finance, a “dog” is something we’re supposed to avoid? Where’s the justice in that?
The “Dog” of My Portfolio
When I first started investing, I followed the classic advice: own both stock and bond funds. The golden rule back then (and still today) was to have a portion of your portfolio in bonds or a bond fund. The reasoning? Bonds provide stability, especially when the stock market throws a tantrum. Stocks historically outperform bonds over the long run, but bonds are the tortoises in the race—slow, steady, and always there when you need them.
So, like a responsible investor, I put a chunk of my portfolio into a government bond fund—the ultimate snooze-fest of investments. If the stock market was a flashy sports car, my bond fund was a 20-year-old sedan with manual roll-down windows. Reliable, but not exactly thrilling.
For more on the basics of bonds, check out this Government of Canada Bonds Overview.
The Long, Long Wait
For over a decade, from 2009 to early 2020, stocks had one of the longest bull markets in history. Investors watched their portfolios swell while my poor little bond fund lagged behind like an old dog struggling to keep up on a walk. It barely outpaced inflation and, compared to the high-flying stock funds, it felt like dead weight.
There were countless times when I was tempted to cut my losses and move that money into stocks. After all, why stick with a sluggish investment when stocks were soaring? But I held firm. And boy, was I glad I did.
March 2020: The Day My Bond Fund Became a Hero
Then came March 2020. Cue the ominous music. The stock market plummeted up to 30% in just weeks, wiping out gains faster than a toddler demolishing a birthday cake. Investors scrambled for cover, looking for a safe place to stash their money. And guess what? My boring old bond fund suddenly looked like the smartest guy in the room.
While stocks were in free-fall, my so-called dog of an investment was only down about 5%. Even better, as fear gripped the market, bonds became the new hot commodity. Everyone wanted in, and my bond fund actually started to gain value. That old mutt had transformed into a show dog overnight. It wasn’t just surviving—it was thriving.
For a deeper look at how bonds perform in market downturns, take a look at Morningstar’s analysis.
The Wisdom of Diversification
The moral of the story? Diversification works. The age-old advice of keeping a portion of your investments in bonds may feel outdated during a bull market, but when things go south, those bonds are a lifesaver.
Navigating Financial Funds: A Guide for Smart Investments – This guide provides insights into the benefits of owning a diversified mix of stocks and bonds through funds, highlighting the advantages of ETFs for achieving low-risk, long-term returns.
Not everyone has the time (or the patience) to become an investing expert, and honestly, you don’t need to. Investing doesn’t have to be complicated. In fact, today, it’s easier than ever to set up a well-diversified, low-maintenance portfolio.
If you want to learn more about passive investing, check out Canadian Couch Potato, an excellent resource for low-cost, simple investment strategies.
Enter the One-Stop-Shop Investment Approach
If managing individual stocks and bonds sounds overwhelming, there are now investment funds designed to make things easy. These funds automatically balance stocks and bonds for you, keeping things diversified without requiring constant adjustments. Instead of agonizing over when to buy or sell, you can invest, sit back, and let the fund do its thing. It’s like having a financial advisor, but without the high fees and awkward small talk.
For a breakdown of why asset allocation matters, check out this Investopedia guide.
The Bottom Line
If you take away one thing from this, let it be this: boring is good when it comes to investing. Bonds may not be exciting, but when the stock market crashes, you’ll be glad you have them. That old dog in the kennel? Turns out, it’s a champion after all.
So if you’re new to investing or just looking for an easier way to grow your money, consider a diversified investment approach that includes both stocks and bonds. It makes investing almost as easy as setting up a streaming subscription—except this time, you’re building wealth instead of binge-watching TV shows you’ll forget about in a week.
Invest wisely, and remember: sometimes the underdog turns out to be the best bet.
Safe Investments with High Returns in Canada for Beginners – The article explores various investment options, including robo-advisors and ETFs, that offer diversification and professional management, making them suitable for those new to investing.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
Please share your thoughts in the comment section below.
