We built Inukshuk Capital Management to serve the needs of investors looking for a unique approach – void of conflicts of interest, commission sales and pushed products. We began by putting our own money where our mouth is. With low fees and active risk management, we help families achieve financial longevity, that’s the bottom line.
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October 2024 – Got Gold?
In this issue:
- Global Equity Market Performance
- Gold – What is it Good For?
- Gold vs. Paper
- Gold vs. Other Paper
- Wrapping Up
- Wealth Longevity – Leveraging Total Return to Maximize Retirement Income
Global Equity Market Performance
The first week of September was eerily similar to the first week of August. The S&P 500 fell 4% over the shortened Labour Day week but managed to pull up on the stick and close almost 2% higher. MSCI EAFE matched its August 1% return and the S&P/TSX 60 put in a solid performance, up 3%.
Since the end of June, the S&P/TSX 60 has outperformed the S&P 500 by 6%.
Last month’s dog, MSCI Emerging Markets (EM) was this month’s winner, up more 5.4%. EM was boosted by some serious stimulus from the Chinese government which ramped the Shanghai Composite 24% over the last few days of the month. China is 29% of the MSCI EM index.
On the year all four of the major equity indexes we track are up between 14% and 20% with the S&P 500 leading the pack.
September marked the third month in a row the S&P/TSX 60 closed at an all-time high. It was the fifth month in a row for the S&P 500.
Our systems remain fully long both the S&P 500 and the S&P/TSX 60.
If you would like to stay current on our measures of trend and momentum in the markets we follow, please click here
This letter is going to cover something that is not in the above charts but is in all our portfolios—gold.
Gold – What is it Good For?
Almost everyone on the planet knows what gold is. It’s shiny, heavy and rare. From an investment perspective it gets a little tricky. Is it a commodity or a currency?
Maybe, depending on the circumstances, it’s both. But it’s not similar to other commodities, many of which are consumed, because it never goes away. It’s an element. It can be used in industry, and it can always be recycled. In that sense it is a commodity but not really.
Inherent to the definition of a currency is that it be a store of value and medium of exchange. The case can be made—that is what gold is. In some countries gold jewelry is the family savings. And if you need to buy something it’s likely someone will trade you some currency or whatever you need in exchange for your bracelet.
It also fits an investment role in that it has low correlation to other traditional assets like stocks and bonds. And since 1973, when the US Treasury last had an official rate of $42.22 per ounce, gold is up around $2,625.
Gold vs. Paper
Gold is trading at all-time highs in U.S. dollar terms. It broke the old all-time high of $2,050 in March and is now one of the best performing assets in our portfolios.
This isn’t just about the U.S. dollar. It’s the same story versus the Canadian dollar, euro and yen.
It’s up 27% on the year versus the U.S. dollar, 30% versus the Canadian dollar, 26% euro and 30% Japanese yen. It’s a global affair.
Removing the currency side of the equation, it’s up 7% more than the S&P 500 and 10% more than the S&P/TSX 60.
That’s only nine months. What has it done over a longer timeframe?
Gold vs. Other Paper
The S&P 500 is a difficult market to beat—just ask stock pickers. Surprisingly, gold is also a tough market to beat. Over the past 20 years it has delivered a total return that is 26% greater than that of the world’s largest equity index.
That alone is a compelling argument in favour of having gold in your portfolio. As you can see, it’s a good shock absorber in tough times and not so tough times. And considering central bankers are constantly increasing the amount of paper it is traded against, the long-term trend has some embedded support.
Wrapping Up
There are many different ways to diversify a portfolio with the aim of having a chance to earn positive returns over the long run with lower volatility. Asset allocation is arguably the most important. In our opinion one of those assets should be gold. Along with stocks, bonds and alternatives.
When inflation, due to excessive money printing and government spending, rears its head, as it has, gold is an asset that can benefit. Who knows where inflation goes, but right now whatever is driving the price of gold higher is benefitting those who own it.
It’s baseball playoff season, so why wouldn’t we have a Yogi Berra quote to wrap this up.
A nickel ain’t worth a dime anymore
Now let’s look at how diversifying a portfolio can contribute to a total return strategy for retirement income.
Wealth Longevity – Leveraging Total Return to Maximize Retirement Income
When preparing for retirement, it’s essential to consider strategies that provide sustainable and flexible income. One such approach is a total return strategy, which focuses on generating income through a combination of dividends, interest, and capital appreciation from a diversified investment portfolio.
What is Total Return
Total return represents the combined value of all income produced by your investments—such as dividends from stocks and interest from bonds—plus the growth in value of those investments over time. Unlike traditional income-focused strategies that rely solely on interest and dividends, a total return approach allows retirees to draw from both the income and the increase in asset value (capital gains).
Benefits of a Total Return Approach
Enhanced Income Potential: By incorporating both dividends/interest and capital gains, a total return strategy offers more flexibility in how income is generated. Rather than being limited to interest and dividend payments, retirees can tap into the value of their investments, potentially creating a larger income stream.
Flexibility in Withdrawals: A total return strategy allows you to sell a portion of your investments to meet your cash flow needs. This flexibility can be especially useful for covering unexpected expenses or adjusting for changing income needs over time.
Protection Against Inflation: By investing a portion of the portfolio in growth-oriented assets, such as equities, a total return strategy can help your income keep pace with inflation. As your investments grow, this approach may help maintain purchasing power, which is crucial for long-term financial security.
Considerations for Managing a Total Return Portfolio
While a total return strategy offers numerous benefits, it’s essential to manage your withdrawals carefully to avoid depleting your principal over time. Diversifying your investments can help balance growth potential with stability, tailored to your unique risk tolerance. By combining income from dividends, interest, and capital gains, a total return approach can provide the adaptability and resilience needed to support your retirement goals.
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Challenging the status quo of the Canadian investment industry.
