The long-term growth of Canadian stock market (or any stable stock market) should first be looked at with the right perspective. This quote from Albert Einstein can set the precedent:
Everything should be made as simple as possible, but not simpler.
It's easy to look at a stock market chart and see nothing but increasing volatility, something that has kept a lot of my peers away from investing.
But stock growth is not linear, as opposed to our perception of time, it is exponential. This has an enhancing or magnifying effect on the more recent events. Simply put, a 100 points movement in the stock market would mean a lot more decades ago as opposed to today.
To align an exponential curve with our own linear perception, a logarithmic scale can be used. The results are shown below.
To adequately summarize a conclusion, I can simply quote one of the websites (linked above) where I first saw these charts:
You'll see that there's nothing really different about the last 20 years versus the previous 60. The market is almost machine-like from a long-term perspective.
My main investment philosophy is based off the Beating the TSX (BTSX) strategy.
It is a dead-simple, no-nonsense methodology for choosing a stock portfolio of dividend paying stocks that takes up 4 hours of your time per year. I quote off the finiki (Canadian financial wiki) page for the BTSX strategy:
1. Sort the 60 stocks in the S&P/TSX 60 by dividend yield.
2. Eliminate former income trusts from the sorted list.
3. Invest equal dollar amounts in the 10 highest yielding stocks (top 10 stocks) in the remaining list.
4. Reconstitute (re-balance) once a year.
The finiki page lists the average total return of the BTSX strategy at 11.97% for the years 1987-2011, a significant 28.12% higher than the S&P/TSX 60 return of 9.34%.These returns include dividends. I have verified the results myself, with my numbers coming in at an even 12.0%. The numbers are very close, good enough to be a match, and the small discrepancy can be chalked up to the data source(s) and methods of calculation.
There's aspects and advantages of this very simple strategy that appeal to me: it's been proven to work, it's easy to understand and implement and there's no emotion involved. It's far easier and less risky to build wealth 'slowly' and steadily, with consistency being the key here.
As a safety precaution, I prefer doing all calculations for financial freedom planning with three return rates: 7% a to set some realistic bad scenario expectations and goals, 9% to match the return of the S&P/TSX60 index, and 12 % as a best case scenario expectation to match the BTSX result.
The BTSX strategy was developed by David Stanley, which itself is based off the Dogs of the Dow strategy promoted by Micheal B. O'Higgins in his 1991 book Beating the Dow. You can hear David Stanley himself talk about his strategy in this webinar. I highly recommend it, despite the quality of the video.
David Stanley has retired from writing, but if you would like to glean some of his wisdom I highly recommend subscribing to the Canadian Money Saver magazine. It is surprisingly affordable for the quality of information it provides.
The BTSX torch has been passed on to Ross Grant, who himself retired at the early age of 43, and has written an e-book that was my instruction manual to get my investing started. This is the resource I recommend most of all. At the time of constructing this website (2016), the book goes for $5.99.
As with anyone plunging into the world of investing, I have my own thoughts and ideas about generating superior returns. I hope to explore those ideas and strategies over time, which you'll find on my blog.