A Wrinkle In Your Estate Plan


Estates are made up of ore than homes, stocks, and bonds. The others may have characteristics that alter how the estate is processed.

Monuments and Heirlooms

Family heirlooms, often generations old, have special places in our lives. parents should be aware of the value of these to particular children. The piano one learned to play on may have more embalming to that child than to the one who learned guitar instead. The picture that was in their room.

None have great value, but handled poorly can lead to resentment, or worse.

Monuments

Heirlooms can be challenging, but monuments can be devastating. Family businesses and recreation properties are the more common. The problem is that any of them may have significant value but cannot be shared easily.

Ownership of a business will be strongly connected to those who can run it. Much of the value of a business resides in its management. Value is based on what it will earn and what it will earn relies on the skill of management. The question that comes up is simple. Should the person who can run the business have an estate allocation made to them at a value that depends on their own management skill?

I know of a case where a 185-year-old family farm is becoming close to it’s neighbouring city. There are five children, one of whom farms, aging parents, and few other assets  to the farm value. Sometimes you cannot retain the monument and the sooner you deal with that, the better.

Investing In non-financial assets

It’s a rare day that advertising for art, antiques, jewelry, and Non-fungible tokens doesn’t appear in my email. How are they handled in an estate.

Four thing spring to mind:

  1. Will you executors be able to both know about them and also be able to deal with them? Passwords to the blockchain, access to vaults, and a list to look for all help.
  2. What are the tax consequences? They are capital property under the income tax act and they will be deemed to be disposed of at death. Any taxes due will be payable on any appreciation. You might need a professional appraisal to establish the fair market value.
  3. Should they be probated? Ask about what assets must be probated. In most cases, probate is required to establish the executors right to deal with passing title to the asset. Bank accounts, stocks, bonds, and most real estate fall there. Many other assets don’t require the courts approval. Ask your lawyer. For the ones that do not need probate, it is common to create a secondary will that deals with those assets. It is a bit fussy but doable.
  4. All of the assets of this kind add to the need for liquidity in the estate. Where does the money come from to pay the taxes? I have a friend with a significant wine collection. He claims it is a liquid asset, so not to worry.

The bit to take away

Being an executor/trustee is difficult. Be sure you have thought through what you want to happen with every asset you wish to transfer and have made it clear to the ones who will be dealing with it after you are gone.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Strategic Estate Planning


The strategic level is the level where you decide what you want. The tactical layer will appear soon after and will deal with how to get what you want.

The elements of every strategic estate plan

  1. Your life and your spouse’s life come before everything else. You will address it as sustaining lifestyle at your preferred level, providing a margin for error to deal with exceptional inflation or income taxes. Assume at least one of you will live to 100. The calculation should also have a provision for additional costs relating to medical needs. Try to avoiding minimizing your lifestyle to increase the estate for the children.
  2. There is small advantage to being the richest person in the cemetery. Once you understand that you have more assets than you need to support your lifestyle you can make decisions around when you should make the transfer.
  3. You cannot die with nothing. Your estate the day after death was your security the day before. Many people argue they have provided for their children during life and so any estate is superfluous. Others wish to make a final statement about how they have been mistreated. Consider charities or other entities as an alternative.
  4. You must have a will and powers of attorney to be sure your wishes are fulfilled. Technically you already have those. Every jurisdiction has laws that provide for what would happen in the absence of these documents. Neither you nor your family would be pleased by the legally prescribed backup will or powers of attorney. Decide what you want to happen and provide for it.
  5. Know what the fabric of your estate will look like. It will be what you own, less liabilities. You could know that within reason long before. From that deduct fees and, income taxes. If there is not enough liquid assets to pay the costs due, how will the executor pay for those. Could be by borrowing but that will tie up the estate longer. If by sale of non-liquid assets reduce the value by fees and a negotiating margin. Have you ever seen “Estate Sale” and expected to pay full price?
  6. Know specifically what the heirs will receive. Consider heirlooms that have a special attachment to a particular heir. Consider how to transfer a family business so the non-participants are treated equitably.

The bit to take away

Know what the estate will look like and know how you want it to be dealt with before you decide how to get the result you want. How is an entirely separate problem.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

How Investors Differ From Traders


A good deal of success in investing comes from a clearer understanding of why you buy. You can invest in businesses or you can purchase shares with the hope, even expectation, of being able to resell them at a higher price in the future. Usually the near future.

Warren Buffett has used an interesting analogy to help people think differently.


How We Think About Market Fluctuations

From Berkshire Hathaway – Chairman’s Annual Letter to Shareholders – 1997

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.


Warren Buffett is a spectacularly successful Investor. Much of his success comes from his attitude to price changes of the stocks he owns. In general, it comes to this. We buy businesses and so long as the business doesn’t weaken we would like to own more.

You could be more successful if you adopted a different approach to thinking about your investments. What a business is worth is what it will earn. If you value the earnings, the price someone else might pay for your shares is a matter of indifference.

The bits to take away

There are just two times when price matters. The day you buy and the day you sell.

Buffett doesn’t use leverage. If you do, worrying about the portfolio value is a cognitive drag. Investors don’t use leverage.

When you are going to invest money each year in the future, you should hope for lower prices.

“I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household.  When hamburgers go up, we weep. For most people, it’s the same way with everything in life they will be buying–except stocks.” Warren Buffett

You might find more wisdom the library of  Buffett’s letters to shareholders.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

It Is Possible You Hold Erroneous Beliefs


It used to be that people did not have ready access to what was happening in the world. It took nearly two weeks for the news of Lincoln’s assassination to reach rural Americans. They may have heard the story but newspapers were the reliable source and confirmed and added detail. Today it would take minutes not weeks.

Is that a good thing?

How capable are we of dealing with new information? Not very. We need time to fit new things into our existing thinking structure. That takes time and often discovering more information too.

Sleep on it is old advice. It has a sound basis.

The advantage to a wait is it gives us time to let others attack the validity of what ahs been observed. At a minimum the validity of opinion that has been added.

Speed kills

We cannot accept the fast news as necessarily useful or even right. This article from Nick Maggiulli makes an interesting point on accepting it as it appears. The Age of Financial Misinformation. The point is around the article is things that look pretty and are sensational might not be as true as we would like.

We can work through his thinking and come to a significantly different place than what the graph implies.

We must become a little more patient in assessing new data. Something that looks spectacular should be processed with the idea of having no strong commitment to its meaning.

Meaning is the goal.

Meaning is much more difficult to acquire than is mere data or news. Think about it as moving up from data to information to knowledge to wisdom.

Data to information eliminates anything that cannot be proven true or at least true in your particular context.  That’s what the article is about. Life is much easier if you can eliminate the wrong material very early. Make that a priority when you come on something new.

Be very cautious about Cognitive biases. We each tend to notice and accept what is consistent with our previous beliefs. As a rule, if something agrees with what you think you know, you should step back and maybe think. What you should notice is that if it is right and is the same as what you think you know now, of what value is it?

You’ll grow by challenging what you know.

Seeking help.

Everyone needs someone who can disagree when appropriate. Seek such a person to add to your thinking system.

Sometimes it is an advisor. One of the valuable functions an advisor provides is the ability to add meaning to financial information.

The bits to take away

Not everything you will see is true. Sometimes by carelessness, other times by malice.

It is easy to believe things that agree with you. To accept they a re true requires the implicit assumption that you already know all you need to know. If you have an error in your thinking, reinforcement cannot work to your advantage.

“In short, numbers are accepted as evidence when they agree with preconceptions, but not when they don’t” Thomas Sowell

Don’t believe everything you think.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

The Best Decisions Involve Many People.


Can any person have a clear view of the big society picture? There are many that claim to have, but when we look at their training and their experience, we come away with a more narrow picture. They may be specialists in their field but lack knowledge of everything possible.

Some people

Some of us have very wide life experiences and well-curated knowledge. People like Winston Churchill – soldier, war correspondent, politician, statesman, adventurer, author, painter, and bon vivant. Churchill had the ability, the knowledge, and the experience to be an exceptional contributor to the 20th century. .

There are other contributors also born, like Churchill, in 1874, Guglielmo Marconi, G.K. Chesterton, Harry Houdini, Robert Frost and Honus Wagner to name some you may recognize.

The question becomes a simple one.

Would you want Churchill to make all your choices for you? Probably not. No matter how talented, we are all narrow compared to the world.

How narrow is an engineer? Marconi might have been a grade elementary school teacher, but it seems unlikely. A pastor, a farmer, a baseball player, a lawyer? Perhaps an economist. The most talented people are not good in many fields. Usually just one, rarely three.

We each know it is difficult to be very good in even one field. Society-wide decisions have elements even the most skilled and experienced have never seen or studied. That’s why top-down decision making is prone to secondary effects. “Unintended consequences.” There were more things to know that mattered than were addressed in the decision.

The alternative

The other choice is bottom up. Let the people make the decision by organizing themselves in ways that work. It intrigued me that people who put sidewalks on the campus of a university don’t just pave where the grass has been worn. People express preferences by their actions and the consequences of those actions. Economists call them incentives and disincentives.

People evolve durable, workable conditions that gradually change as conditions change. The solutions evolve. Engineers don’t build bridges the way the Romans did.

We can see examples of institutions that arisen over centuries. The idea of courts to resolve disputes, banks to help with the exchange and storage of money, religion to provide a higher view of life. We learn that longer term decisions must work for everyone. Acknowledging differences and cooperation becomes the fuel. We share what we know and want and can afford by what we do and don’t do.

No individual has the breadth and depth of experience of the crowd.

Where problems come up.

Some people are attracted to power. They express the power once they have it by making decisions that affect others. People in powerful positions do not care so much about the decisions as they care who makes them. In most cases they don’t have any skin in the game. Their decisions are not made to serve the same needs as those that people evolve.

The essence of the political conflicts of our day are between those who want to make decisions and impose them, and those who want to let the system make the majority of the choices.

The decide and impose crowd seems to be made up of people with theories. The other crowd is made up of people who have learned by making mistakes and recognize their ability to do so.

What about urgency?

Some problems require immediate action and someone must be in charge of making the decisions.

The key in society is the leader under urgent conditions must surrender most of the decision making power as the situation unfolds to a conclusion. Otherwise hasty decisions will continue. That requires some humility and recognition that people manage their own situation better than anyone else. They manage it even better if they have more useful information about their external context.

That’s how bottom up outcomes arise. The durable ones allow people to fit in despite personal conditions being somewhat different than the others. Long acting decisions must be nuanced. No two people are exactly alike and trying to force them all into the same box is harmful. At the very least it creates mistrust of the decision makers.

That harms everyone.

The bits to take away

Over long periods no one can make better decisions for a person than they can for themselves.

Their decisions are better if they have access to reliable information and its meaning

Each has personal counsellors like doctors, lawyers, spouses, and friends who can add meaning and have the confidence of the person. People act on meaning they trust.

That  which is imposed is opposed because it never fits everyone.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

You Can Learn A Lot By Looking


I came on the annual returns of the S&P 500 Total Return Index at this site. Slickcharts It shows annual returns for all the years after 1925 up to 2021 so far as it goes. It shows some interesting things if you look a little deeper. You can do that by adding more data.

The overall look says it is a worthy investment. The compound annual return over the 96 years is 10.56%. I think that’s very good, but there is some turbulence. My $1,000 in 1925 would now be $13,897,490. But could I have withstood 1931 down 43.34%? Maybe.

Eight year intervals

Over the years I have found eight-year intervals is a helpful way to look at how the market behaves. It often shows, two weak years, two strong years, and four years between the extremes. I have used intervals beginning on 1933 and each eight years after. I could look at eight year intervals that fall between, but haven’t done that yet.

The eight years ended 1933 included four down years, but by the end of the period my $1,000 would be $1,214. Not great but not terrible either. Where it becomes more interesting is the case where I involve the purchasing power of the money I own. At the end of 1933 the purchasing power would be $1,647. While my nominal value rose just 2.46% my purchasing power grew 6.44% compounded annually.

The purchasing power value at 2021 is $896,117, just 6.44% of the nominal value.

When assessing your investment performance consider purchasing power. You’ll find some things are different from what you thought.

What 8-year interval was best and worst.

In terms of nominal values, the best was the period ending in 1989 at 18.92%. At that rate you double your money twice in eight years. Exceptional.! Okay so, how did I do in terms of purchasing power. Also exceptional. 14.93%. Notice though that 14.93% is not the best purchasing power gain. That goes to 1957 at 15.17%

What was the worst eight-year interval. It was 1933 at 2.46%. Not a bad bet at first glance. The purchasing power interval though shows something entirely different. the 1933 interval would be 6th worst. The champion was  -1.31% in 1981. 1973 was close behind at -0.37%. That tells me that from 1965 when I had purchasing power of $29,447 that became $25,725. Not much wonder that a lot of people lost faith in the stock market.

Worst Year – Best Year

How about the worst year in terms of purchasing power? It was not 1933 when the market nominally fell 43.34%. It was 2008 at down 39.34% after a loss of 37% and inflation at 3.86%

The best in purchasing power? 1933 at 62.35%

Other oddities

Some would like to eliminate the period before 1960 because of the depression, the war, and the recovery.

Best nominally after 1960 was 1995 at 37.58% and worst was 2008 at -37.0%

Best in purchasing power was the same.

Overall Result

The average nominal return compounded annually was 10.56%, and the average return in purchasing power was 7.34%. That 7.34% doubles your purchasing power ever ten years or so. Quite acceptable.

Notice the sixteen years from 1965 to 1981. Nominal yield was 5.9%, but real return was -0.85%.

Keep one thing in mind. You accumulate money for using it purposes. Purchasing power is what you want to accumulate. Dollar bills don’t matter as much.

Even more important, fees relate to nominal values and taxes relate to nominal gains. The nominal gains after fees and after taxes are more overstated than it appears.

The bits to take away

Pay less attention to nominal yields.

The same analysis for bonds would be more discouraging at best – especially after taxes.

Know what you need and keep track of that. Purchasing power matters most.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Knowing Is Not Enough


I reasonable question is this, “Does education emphasize knowing or doing?”

Who teaches people how to apply what they know?

Some thoughts from wise people around the need for doing.

To do is best

  1. “Knowing is not enough, we must apply. Willing is not enough, we must do.” Johann Wolfgang von Goethe
  2. “I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.” Leonardo da Vinci
  3. “Life is a game of common sense. You can know all the data that the encyclopedia holds, but if you can’t apply it to social situations and day to day events, you’re on the same rank as someone with no data at all.”  Zack W. Van
  4. “The man who does not read good books has no advantage over the man who can’t read them” Mark Twain

Applying to your money

  1. “Personal finance is a unique topic in the sense that you will get screwed if you don’t understand it. This doesn’t hold true for most topics, i.e. not understanding architecture, chemistry, engineering, botany, etc. probably won’t hurt you”  Zach @ Four Pillar Freedom
  2. One lesson borne of experience is that the best course in investing is often to do nothing… a hard lesson to apply.  Edward Studzinski

Applied to Failure

  1. A failure is a man who has blundered, but is not able to cash in on the experience. Elbert Hubbard
  2. It’s failure that gives you the proper perspective on success. Ellen DeGeneres

Its Social Effects 

  1. Beauty is vanishing from our world because we live as though it did not matter.” Roger Scruton
  2. It is not enough to be nice; you have to be good. We are attracted by nice people; but only on the assumption that their niceness is a sign of goodness.” Roger Scruton
  3. The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd. Bertrand Russell
  4. The fundamental cause of trouble in the world today is that the stupid are cocksure while the intelligent are full of doubt.” Bertrand Russell
  5. “The problems of the real world are primarily those you are left with when you refuse to apply their effective solutions.” Edsger Dijkstra

The bits to take away

Our problems are often the leftover product of not doing anything about them.

Knowing something and $2.00 will get you a cup of coffee. Doing something can get you anything you want.

 


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

Our Eyes Don’t See


That seems like a wildly wrong idea. We have lived our lives with the idea that our eyes see and our ears hear. Neither is true.

We see, hear, smell, taste, and touch with our brain. The various organs are the tools to acquire data for the brain to process.

There are ways to know that

  • Take your eyes, and the study of optics. A lens like the one in our eye creates an image on the screen that is upside down. Our brain conveniently turns it over.
  • There is a place in our eye where the optic nerve connects to the retina. Our eye fails to process any light that lands there. Do you have a blank dot in the center of anything you look at. Of course not, your brain fills in the blank using the surroundings as a guide.  You could check that for yourself with a simple test. Visual Blind Spot
  • Your eyes see slightly different images. Your brain combines them to give us depth to what we see. 3-D.
  • Your ears hear directionally and your brain combine the sounds. Do you think a symphony orchestra is organized randomly or do they do it the way they do for easiest mixing?

Our brain does its best to makes sense of any stimuli that come our way. The problem is it makes sense in terms of what we have learned, experienced, and believe. You may have noticed people who become brain-deaf when there is an opinion they don’t agree with. Similarly, they see what they understand easiest. That’s what they already know about or agree with.

Each of us does it.

Where the problem arises. 

We each idealistically think other people reach the same conclusions when presented with identical and objective inputs. You may have noticed that in the real world that happens seldom. Even never.

It is harmful to think others think exactly the way you do. When you think information matters and the other is exposed to identical information and reaches a different mind place, conflict results. If we treat conflict as an affront to our ego, it grows greater. You can see people tune out when something that contradicts one of their sacred views. Cognitive dissonance is your enemy.

Examine the differences from an open-minded position. Maybe you are wrong. Maybe both of you are wrong. Maybe if you work together you can find a better way to look at the problem and both of you will benefit. To improve both positions it’s necessary to understand the other person.

A thought from conflict management. “It is not enough to know what the other person thinks, it is necessary to discover how they came to think what they do.” You must see their connection to objective facts and reassess your own at the same time.

Be aware of thinking patterns.

Edward De Bono has explained that inputs do not matter as much as how we think about them. We each have organizing patterns that drive the meaning of inputs and no matter the inputs, we reach predictable conclusions. Your personal strong beliefs (biases) are always part of the pattern.

Is it even possible to be objective?

The bits to take away

You probably cannot find another person who thinks exactly as you do.

You probably don’t recognize the thinking biases that change how you process information.

If you think people are evil you will reach conclusions that match that expectation. Similarly if you think they are good.

Part of communicating better is understanding yourself. Work at that.


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

What’s A Picture Worth?


This accidently published yesterday. Sorry.

The stock market does not produce a regular return like you would get from a bond. Some stocks are champion dividend payers but there are no promises. It is like owning any other business. There are good years, bad years, and indifferent years.

People hear that but it doesn’t necessarily provide them with meaning. Many people still think of stocks without any business connection.

This picture is of collected results over three year periods in the stock market. You might think there are too many examples but if you treat 3-year periods as ending on December 31 you would be right. But there are three year periods ending in May or July too.

What does it show?

  1. It shows the variability of stock market results.
  2. Empirical means counted. Normal means theoretical based on the “Normal” distribution – Bell Curve.
  3. The red line in the middle is the middle. The median return – half are higher, half are lower.
  4. The X-axis shows show the number of 36 month periods where return is up to the number and higher than the one before it.  For example 2017-2019 shows as being in the 43% bar. The three annual returns to December each year add up to 42.06%. The number is not a compounded return and it doesn’t include dividends.
  5. The Y-axis is the percentage of all that meet or exceed the indicators on the X-axis
  6. The height of the bar shows how many at the rate.

What can we see?

  1. We know the Bear markets are defined as a collection of 3-year returns below the median. we see that 2%, 7% and 11% accumulations of 3-year returns show as a bear market.
  2. We see that bear returns below -26% are less statistically likely than the normal distribution would expect. We will talk about that in a minute.
  3. We know between -26% and 11% the results are more likely. The bar is above the blue line.
  4. Positive returns are more likely than negative.
  5. The most common count is 25% and 30%
  6. High returns – being over 80% are more common than the normal distribution suggests.

What does it mean?

  1. First of all notice, that at least once the three year accumulation came to 140% while the worst observed 3-year period was -81%. That makes sense because at -100% you have no money at all. The upside is not limited.
  2. There should be more higher return numbers than lower. It works like this. If you lose 50% you have to make 100%, double what’s left, to get even again. $1000 becomes $500 (down 50%) then back to $1000 (make $500) Down $500 from a thousand is lose half your money. Up $500 from $500 is 100% gain.
  3. Losing money over three years, less than 0% return, is empirically less likely than making money.
  4. Dividends would decrease any losses and increase any gains. The average dividend rate for S&P 500 stocks is about 2%
  5. Fees and/or transactions costs would reduce gains and increase losses.
  6. Taxes would reduce gains and make losses less if you can deduct them.
  7. If we did this with 30 day returns it would be a lot farther from the normal curve on both sides. The market is short term more volatile and long term more stable.

Things to think about.

  1. Your results may vary if your portfolio is not the market.
  2. It would be boring to make 30% over three year but it would double your money four times (that’s 16 times your money) in 30 years.
  3. You would have to put up with some down year offset by higher than normal years and those are where the emotions become your enemy. The less like the market your portfolio is, the more comparatively volatile you results are likely to be.
  4. If you understand the game and the way the rules and the playing fields are organized, you can manage your expectations and maybe your emotions.
  5.  Think longer term than yesterday’s stock results. Patience is your friend.

The bits to take away

The stock market is a collection of businesses. If you think about business instead of stock, more of it makes sense.

When you think about businesses you have a context for the ups and downs.

Businesses have five and ten year plans. They don’t manage month to month. You shouldn’t either.

You can learn more here. The Distribution of Stock Returns


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

A Picture Is Worth 1,000 Words.


This accidently published yesterday. Sorry.

The stock market does not produce a regular return like you would get from a bond. Some stocks are champion dividend payers but there are no promises. It is like owning any other business. There are good years, bad years, and indifferent years.

People hear that but it doesn’t necessarily provide them with meaning. Many people still think of stocks without any business connection.

This picture is of collected results over three year periods in the stock market. You might think there are too many examples but if you treat 3-year periods as ending on December 31 you would be right. But there are three year periods ending in May or July too.

What does it show?

  1. It shows the variability of stock market results.
  2. Empirical means counted. Normal means theoretical based on the “Normal” distribution – Bell Curve.
  3. The red line in the middle is the middle. The median return – half are higher, half are lower.
  4. The X-axis shows show the number of 36 month periods where return is up to the number and higher than the one before it.  For example 2017-2019 shows as being in the 43% bar. The three annual returns to December each year add up to 42.06%. The number is not a compounded return and it doesn’t include dividends.
  5. The Y-axis is the percentage of all that meet or exceed the indicators on the X-axis
  6. The height of the bar shows how many at the rate.

What can we see?

  1. We know the Bear markets are defined as a collection of 3-year returns below the median. we see that 2%, 7% and 11% accumulations of 3-year returns show as a bear market.
  2. We see that bear returns below -26% are less statistically likely than the normal distribution would expect. We will talk about that in a minute.
  3. We know between -26% and 11% the results are more likely. The bar is above the blue line.
  4. Positive returns are more likely than negative.
  5. The most common count is 25% and 30%
  6. High returns – being over 80% are more common than the normal distribution suggests.

What does it mean?

  1. First of all notice, that at least once the three year accumulation came to 140% while the worst observed 3-year period was -81%. That makes sense because at -100% you have no money at all. The upside is not limited.
  2. There should be more higher return numbers than lower. It works like this. If you lose 50% you have to make 100%, double what’s left, to get even again. $1000 becomes $500 (down 50%) then back to $1000 (make $500) Down $500 from a thousand is lose half your money. Up $500 from $500 is 100% gain.
  3. Losing money over three years, less than 0% return, is empirically less likely than making money.
  4. Dividends would decrease any losses and increase any gains. The average dividend rate for S&P 500 stocks is about 2%
  5. Fees and/or transactions costs would reduce gains and increase losses.
  6. Taxes would reduce gains and make losses less if you can deduct them.
  7. If we did this with 30 day returns it would be a lot farther from the normal curve on both sides. The market is short term more volatile and long term more stable.

Things to think about.

  1. Your results may vary if your portfolio is not the market.
  2. It would be boring to make 30% over three year but it would double your money four times (that’s 16 times your money) in 30 years.
  3. You would have to put up with some down year offset by higher than normal years and those are where the emotions become your enemy. The less like the market your portfolio is, the more comparatively volatile you results are likely to be.
  4. If you understand the game and the way the rules and the playing fields are organized, you can manage your expectations and maybe your emotions.
  5.  Think longer term than yesterday’s stock results. Patience is your friend.

The bits to take away

The stock market is a collection of businesses. If you think about business instead of stock, more of it makes sense.

When you think about businesses you have a context for the ups and downs.

Businesses have five and ten year plans. They don’t manage month to month. You shouldn’t either.

You can learn more here. The Distribution of Stock Returns


Help me please. If you have found this useful, please subscribe and forward it to others.


I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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