Denise and Stuart MacPherson didn’t lose any sleep when the stock markets tanked late last year, nor are they talking about how long the latest run-up will last. That’s because the Ottawa couple is no longer invested in the stock market.
“We are so happy to not have any stocks or mutual funds,” says Ms. MacPherson, 64.
“The stock market is too volatile,” adds Mr. MacPherson, 62. “It’s too much like looking in a crystal ball.”
The couple bailed on the stock market about a decade ago – after losing about half of their holdings during the 2008-09 global financial crisis – and instead chose to put their money in real estate. It was the second time they lost money in the stock markets: The first was during the dot-com bust at the start of the century when they bet on technology stocks.
Although the benchmark S&P/TSX Composite Index has more than doubled since the depths of the financial crisis in 2009 – and it’s up about 25 per cent since the Globe first interviewed the couple in late 2015 – the MacPhersons have no regrets.
Their real estate investments, which include multifamily properties in the Ottawa and Barrie, Ont., areas, have seen an average annual return of 35.8 per cent over the past decade, including cash flow, mortgage pay-down and appreciation.
The couple also has a mortgage lending business in which they lend registered funds to other real estate investors.
Many investors like the MacPhersons are shunning the stock market and putting their money into other investments such as real estate, guaranteed investment certificates (GICs) or even physical commodities such as gold or silver bullion.
Simon Tanner, principal financial advisor with the Dynamic Planning Partners team at Investia Financial Services Inc. in Vancouver, sees three types of investors who avoid buying equities: people who have lost a good chunk of money in the past; those who never want to see their portfolio in the red, even in the short term; and business owners who invest their profits back into the business.
“Those who have been burned were probably in the wrong investments or the wrong risk category,” Mr. Tanner says. “And if an investor can’t handle any negative return at any time, they shouldn’t be in the market.”
Some entrepreneurs prefer to put all of their money back into their business and bet on their own long-term career success rather than the performance of the stock market. “They feel they have more control over the outcome,” Mr. Tanner says, “particularly if they have seen some success in business growth.”
Greg Rodger, chief investment officer at Oakville, Ont.-based HighView Financial Group, has one client who no longer invests in the stock market because he doesn’t need a higher level of returns. Short-term market volatility also kept the client up at night. Instead, he has his money in investment-grade bonds and some real-estate limited partnerships.
“If he doesn’t need the higher return and isn’t comfortable with the volatility, then why be in stocks?” Mr. Rodger says. “In our opinion, everything in a portfolio needs to have a purpose ... or there’s no point in doing it. There’s always that trade-off between what you need for a return, what you want for a return and what you’re comfortable with from a standpoint of volatility – and your time frame.”
The key, Mr. Rodger says, is staying diversified. “Whether an investor is in the stock market or not, having all of one’s investments in one single type of investment is risky.”
Almost all investments come with risk, even GICs, says Mr. Tanner. He has clients who have done well investing in GICs in the past, particularly when interest rates were in the range of 5 to 7 per cent. “It’s tough now in the low-interest-rate environment,” he says, as investors also need to consider the impact of inflation and taxes on their portfolios.
The “right” asset class always depends on a person’s risk tolerance, knowledge and comfort with the investment. “If an investor is comfortable with real estate and they know it, then it can be a fabulous investment for them,” Mr. Tanner says.
The MacPhersons say they didn’t take their decision to invest in real estate lightly. After losing money for the second time in the stock market a decade ago, they decided they either had to learn more about equities or find something else to invest in.
“We found we could actually understand real estate ... and people always need a place to live,” says Mr. MacPherson.
The couple started taking real estate courses and joined the Real Estate Investment Network, an investment research and education organization.
Although real estate is also volatile, “it’s not the same type of ups and downs you get in the stock market,” Ms. MacPherson says, particularly in the housing markets in which they have properties compared with cities such as Toronto and Vancouver.
“Stocks work for some people,” says Mr. MacPherson, either because they’re willing to learn about how it works, “or they’re willing to trust someone else to manage their money and don’t have the inclination or capacity to manage it on their own.”
The MacPhersons say they are happy not to be following the stock markets on a regular basis and to focus instead on their tenants and investors.