Year in Review
The start of the year is always a good time to reflect on the previous 12 months. We engage in this process as a firm, taking a week at the beginning of January to review our plans and progress for the past year, and to map out and discuss our goals for the new year. This year, looking back is especially important as we embark on a new decade. The last ten years included the longest bull market in history, but it also included a lot of uncertainty:
2010: Greece, Ireland & EU bailouts
2011: Euro meltdown
2012: War in Syria, US fiscal cliff
2013: US government shutdown
2014: Ebola, ISIS, Ukraine/Russia conflict, Oil prices crash, Eurozone economies falter
2015: Refugee Crisis, ISIS terrorist attacks
2016: Syrian War, Turkey failed coup, Brexit vote, Russian election interference, Trump elected
2017: US trade tariffs, NAFTA threats
2018: US trade war with China, increase in tariffs
2019: Brexit upends British politics, US-China trade war, Iran-US tensions, Trump impeached
If we focus on the past year, it’s amazing what a stark contrast there was between the fourth quarters of 2018 and 2019. Last year, the fourth quarter ushered in a sharp market decline that left most portfolios with a loss for the year. In 2019, the fourth quarter closed with a strong rally. The Canadian dollar had a great year as did pretty much every index. Unless you were invested in cash or waiting on the sidelines (as globally, plenty of investors exited the market in Q4 2018), you had a good year in 2019!
Investing has always involved an ever-present environment of uncertainty. As we exit the decade and look forward to the next one, the following uncertainties look likely to dominate our attention: slowing economic growth and the impact of low interest rates. Are we headed into a recession? The key indicators do not point to a recession happening anytime soon (See below: green indicates a firm no; orange is a soft no and red means yes). All we know is that we are closer than we were yesterday!
Source: Manulife Investment Management. As of December 31, 2019
Most people are comfortable with what they know. The same holds true with investing. When we review portfolios of prospective clients, we often see a “home-country bias” with a large portion of assets invested in Canada. This is very much an example of placing all your eggs in one basket. Canadian stocks, for instance, only represent 3% of the world stock market. Also, the S&P/TSX Composite Index is made up primarily of bank and resource stocks, which further elevates the risk to your portfolio. Lastly, even the Canada Pension Plan Investment Board diversifies globally, allocating only 15% of their equities to Canada (CPP Investment Board 2019 Annual Report). At Caldwell Wealth & Estate Advisory, we advocate a global approach to investing to reflect the broad globalization of the world economy. Our portfolios are set up in a way to diversify away from “home-country bias” but also look to mitigate global risks (like currency and liquidity risk).
Fourth Quarter Returns
Read Fidelity Investment’s article Looking Beyond the Coronavirus Scare to see how virus outbreaks have historically affected the market.
CFP, CIM, FCSI, CHS, RIS
Director, Wealth Planning Services | Caldwell Wealth & Estate Advisory Ltd.
Investment Advisor | Credential Securities
Along with helping people prepare for their financial futures through solid financial planning, Dan curates and manages the investment options for the firm.
Material in Dan’s articles was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Caldwell Wealth & Estate Advisory to any person to buy or sell any security or adopt any investment approach, and is no indication of trading intent in any fund or account managed by Caldwell Wealth & Estate Advisory. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Caldwell Wealth & Estate Advisory. Past performance does not guarantee future results.
Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.