Memory is a fickle thing! It has been several years since we have seen a significant market correction which I am defining as a 20% drop from peak to trough (2011) and almost 10 years since the GREAT RECESSION of 2008-2009.
I listen to many people (including clients) quoting the returns of the last 5 years and believing these returns to be normal…nothing could be farther from the truth…why you ask (well you probably did not ask but that won’t stop me. :)
The last five years do not include any time that the market had a SIGNIFICANT pullback (which is not normal) and equity markets were recovering from the pullback of 2011 and to a lesser extent were still recovering from 2008 and early 2009. In addition we were in a mini-bull bond market with 10 year US government bond rates falling from 4% to 1.5% in the United States (similar in Canada). That means that investors not only received the yield (interest payment) but also received several percentage points of capital gains.
While no one can accurately predict what the equity markets will do I can be quite certain that the bond portion of a portfolio will not duplicate its returns over the next 5 years. Current yields are in the 1.5% ranger for 10 year US bonds NOT 4%...you can do the math. If rates move higher the capital gain of the last 5 years becomes a capital loss over the next few years.
I AM NOT SAYING YOU DO NOT OWN BONDS!!! Yesterday’s market actions shows why most individuals near or in retirement need to have a fixed income allocation. WHAT I AM SAYING IS… be realistic in your target return. It is much better to look at 10 year numbers to get an idea of what REAL AVERAGE returns are.
Let’s do a quick review of yesterday’s and year to date numbers.
While some of you might be surprised that Canada is the laggard this year after being the shining star in 2016 it is important to remember that Canada has under-performed over the last 5 years…owning Canada is not enough unless you want to miss out on owing the BEST COMPANIES IN THE WORLD…and that makes no sense.
Some of the recent market turmoil has created some entry points and opportunities that SOME clients may want to take advantage of. After reading through my suggestions you may contact me to review whether these suggestions are appropriate. These suggestions are only for clients who have (or want) exposure to individual securities and Exchange Traded Funds (ETF’s)
As you can see by the charts below, some of these positions have had significant pullbacks.
I do not expect everyone to ‘read’ these charts but I hope that I creates some discussion points for a meeting.
The views expressed do not necessarily reflect the opinion of Argosy Securities Inc. This does not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Please consult a professional before making an investment decision.