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Market update: Volatility returns and a word to the wise
7/23/2018 9:47:38 AM
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ADVISOR’S PERSPECTIVE
Valuable insight and opinion on financial, investment, and retirement planning from an experienced industry expert.



By Bruce Loeppky  | Thursday, March 29, 2018


 

After a bit of volatility early in the year, things have returned to “normal” again. The small stock market correction we experienced in January and February was the first real volatility we’ve seen after a number of years of smooth sailing, which is unusual. This long bull market in stocks started after the 2008-09 credit crisis, fueled by much government stimulus (so-called quantitative easing), and is now mostly running under its own steam. Is it likely to continue?

We have seen increased synchronization in growth with the world’s top economic areas (Europe, U.S., China, and Japan), and are all performing well, which doesn’t often happen. That is why markets continue to trend upwards and why most economic news is positive.

Canada, which had outperformed most world’s economies for a number of years as oil prices rose to $100 a barrel, has recently been lagging, and this is expected to continue going forward. Canadians are carrying too much debt (much of it in their homes), and any upward movement of interest rates will take away disposable income or income that would likely be spent elsewhere in the economy.

Real estate prices in greater Vancouver and Toronto especially are a concern for many reasons. Many economists think our dollar needs to trend lower based on the economy’s performance today. U.S. President Donald Trump’s protectionist threats also have many Canadian investors in a hold mode, because it’s difficult to invest in an industry that may be hit with punitive tariffs in the near future.

Uncertainty isn’t good for forecasting and business in general, and Canada currently has too much uncertainty, ranging from low crude oil prices, to renegotiating NAFTA, to record high real estate prices, to high consumer debt, and to Trump protectionism.

For investors, the takeaway is to continue to diversify portfolios and be careful of having too much Canada in your mix. Most growth right now is elsewhere, and this may continue for a few years yet. Find a way to own fixed income, even though the return isn’t sexy and won’t be going forward.

Moreover, having 100% equity in a market that is near the end of a mature bull cycle is a very risky strategy. I like infrastructure and real estate as good diversifiers because they aren’t highly correlated to the stock markets. This is not the time to be too aggressive for the same reasons. Watching a $500,000 portfolio shrink into $300,000 isn’t fun, but that can happen with a 35%-40% correction.

As Warren Buffett, Chairman of Berkshire Hathaway Inc. (NYSE: BRK.A) and possibly the world’s most successful investor, famously said, “The first rule is not to lose. The second rule is not to forget the first rule.” And as for his investment strategy, he put it in a nutshell: “We simply attempt to be fearful when others are greedy and to be greedy when other are fearful.”

Words to the wise indeed.

Bruce Loeppky is based in Surrey, B.C. and is registered with Portfolio Strategies Corporation as a mutual funds person. He is a regular contributor to the Fund Library. He can be reached at sloeppky-1@shaw.ca.

Notes and Disclaimers

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please contact the author to discuss your particular circumstances.

 
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