If you are anything like us, you were very happy to see the end of 2020. Obviously, we didn't think that things would magically get back to normal in 2021 but we came into the New Year with some more optimism and hope. Unfortunately, we've already had our fair share of drama in the first couple months of 2021. Advances on the vaccine front have been tremendous but getting those vaccines to people has been a lot harder to do, especially in some countries (including our own). I never thought I'd live to see an angry mob attack the White House so that was something to see in early January.
As some provinces head into a second COVID-19 lockdown, some people are asking the question: Why bother investing for the long term? For many, especially Millennials, the task of building financial wealth and security looks increasingly hopeless. Even the most prudent small business owners were caught short during the lock down in the spring and many are now facing the prospect of permanently closing their companies.
When their investment savings plummeted in the 2001 stock market crash, Adam and Sonya were concerned, but not panicked. Retirement was a long way out, so they had plenty of time to recover. The couple decided to try their hand at 'timing the market' (buying and selling stocks based on expected market fluctuations) to recover their losses. "We thought that if we stayed on top things and could chart when the market would go up and down, we could make our money back," says Adam.
If you've been paying attention to business related news over the last few months, you've likely heard a lot about Interest Rates and the potential of a Rate Cut. On July 31st, we officially got news that the Federal Reserve was reducing rates by 0.25% in the United States. There was mixed reactions to this move with some wanting a larger cut but many in the know questioning why a cut was necessary at all. The US Economy has remained strong and while Global Growth has slowed down, a lot of top financial experts figured that the Federal Reserve could hold steady.
Although the economies of Canada and the United States have been chugging along nicely (with Canada at or near full capacity according to the Bank of Canada), we struggled through an awful 31 days last month on the market. It was one of the worst Octobers since the Financial Crisis of 2008. While companies are still very profitable, many aren't enjoying the stress of tariffs and trade wars. Further to this, both the Bank of Canada and the Federal Reserve have hiked Interest Rates. This puts pressure on companies and depreciates the price of bonds.
When asked if they had any regrets, Baby Boomers wished they had started investing and saving at a much earlier age. Hindsight being 20/20, the Boomer generation can pass on some much needed advice and guidance to their kids and grandkids. It is normal for younger people to focus on earning money to accommodate their lifestyle but few have the foresight to pay themselves first. It is easy for younger generations to imagine their whole life ahead of them and have the attitude that of course I'll be financially set when I'm ready to retire'.
Our previous article looked at the increase in market volatility in 2018 in historical terms to put it in perspective. The other factor to consider is where are we in the market cycle and what this might mean for you personally in terms of your own long-term financial strategy.
Many market commentators suggest that we are past the half-way mark as far as the longevity of this equity market run since mid-2009. If history is any guide, there is very likely more time left before the next recession or bear market (defined as a 20% or more correction in the equity markets).
There are many different types of global economic risks that financial advisors take into account when preparing a financial action plan for their clients. This is where advice and judgment come into play when working with you as a client. One area that is gaining increasing prominence is the role of the United States and its dollar in international affairs.