After a bit of volatility early in the year, things have returned to “normal” again. The small correction we experienced was the first real volatility after a number of years of smooth sailing, which is unusual. This long bull market started after the 2008-09 credit crisis with much government stimulus and is now mostly running on its own stream. We have increased synchronization with the world’s top economic areas (Europe, U.S., China, and Japan), and all are performing well, which doesn’t often happen. That is why markets continue to trend upwards, and why most economic news is positive.
While Canada outperformed most world economies for a number of years as oil prices went to $100 a barrel, it has been lagging recently, and this is expected to continue. 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, especially in Greater Vancouver and Toronto, are a concern for many reasons.
Many economists think our dollar needs to trend lower based on the economy today. U.S. President Trump’s protectionism also has many in a “hold” mode as it’s difficult to spend money in an industry that may be hit with punitive tariffs in the near future. Uncertainty isn’t good for forecasting or for business in general, and Canada has too much uncertainty now: low oil prices to NAFTA; record high real estate to high consumer debt; plus Trump protectionism.
The takeaway here is to continue to diversify your portfolio and be mindful of having too much Canada in your mix. Most growth right now is elsewhere in the world, and this may continue for a few years. Having 100% equity in a market that is near the end of a mature bull market is a very risky strategy.
I like infrastructure and real estate as good diversifiers because they aren’t highly correlated to the stock markets. Find a way to own fixed income even though the return isn’t sexy and won’t be anytime soon. This is not the time to be too aggressive for the same reasons. Watching $500,000 turn into $300,000 isn’t fun and that can happen with a 35%-40% correction.
A couple of Warren Buffett quotes to end on and emphasize the importance of preparation.
* “The first rule is not to lose. The second rule is not to forget the first rule.”
* “We simply attempt to be fearful when others are greedy and to be greedy when other are fearful.”
Courtesy Fundata Canada Inc.© 2018.Bruce Loeppkyis based in Surrey, B.C. and is registered with Portfolio Strategies Corporationas a mutual funds person. This article is not intended as personalized advice.
