With 2015 behind us it’s a good time to look at how the past year went for investors and what we can expect going forward. In a word 2015 could best be described as “poor”. Canadians and Albertans specifically know all too well that energy sapped a lot from our economy. The stock market in Canada suffered as well with a decline of over 11% on the TSX Composite. We didn’t see a much brighter picture in the US this past year with a decline for the S&P 500 and really aside from tech stocks there weren’t a lot of bright lights South of the boarder. Of the major indexes in North America we saw a paltry 4% return on the NASDAQ whereas all others were negative. Of course in the first full day of trading the markets are reeling, and I'm sure the headlines are going to be warning of impending disasters. Lovely way to kick off a piece that probably concludes by telling you to invest, right?
Well in truth there are a number of places investors should be looking now. Not everything is doom and gloom. Instead in times like this we have to find the courage to examine our situation, look at our investment horizon and act prudently. We all know that the easy rule for success in investing is to “buy low and sell high”. The problem is of course that it feels so much easier to buy when everything is buoyant and the outlook is rosy. Buying low is hard to do because mentally we don’t really know what “low” is. So here we are. In Canada our major industries (energy and materials) have been battered and along with them our financial institutions and other sectors are bruised. Are we at the bottom? Maybe. Maybe not. The truth is that no one knows exactly where the bottom is and when things will turn for the better. That said, we can see clearly when things are cheaper today than they were a year ago, and for Canada we are certainly seeing that in a majority of sectors.
Buying shares in the US is difficult for Canadians at this point. While it's easy for us to look South for some diversity, the exchange rate sitting where it is today makes that a somewhat daunting proposition. There are other places and other methods though. Perhaps at this point using investment funds of one type or another becomes a little more attractive because you gain that diversity but at the same time are buying in Canadian dollars and depending on the exact mandate there are currency hedges that might make this more attractive.
The big opportunity at this point though is Europe. Specifically, Northern, developed Europe where we have many multi-national companies and places that are stable and secure to invest. While the idea can be difficult with images of Greek protests and votes still in our head as a reminder of the potential problems there, we have a much better chance of success. In general Europe is just emerging from recession and at the same time the central bank is prepared to throw a lot of money at things to make sure that things work. Sound familiar? This is an awful lot like the US in 2011-12, and while the market is a little different, there are some definitive opportunities. There are a few reasons why buying single securities here is likely not the favoured route. First of all, with the time change they’re about 7-8 hours ahead of us (here in Alberta). Second the exchange rate for the CAD/Euro is hardly more enticing than what we saw with the USD, nevermind the pound sterling. And finally there are ways to gain exposure here for a good price and take advantage of those situations.
At risk of this being too long, let me give you some words of guidance and make a few key points. If your time horizon is measured in decades at this point, these are the opportunities you want. I know that people get tired of hearing that, and it sounds frustrating, but it’s true. Take advantage of this as best you can and invest for the long term. What if you are only a few years from retirement, or maybe have been retired for just a few years? Well, hopefully some of your money is also on the same time horizon that is measured in decades. After all, if you have planned to have every dollar set for use at age 65 then you really haven’t planned properly. In other words, a prudent investment plan here means that you can also take advantage of this current market dip and while you won’t be doing this with every last dollar, it does mean that you can stand to gain through a successful and secure retirement.
When you have a day like today, and the headlines are going to be full of terrible news for investors, the best course of action is to relax. Don't panic. Issues like this in the market aren't going to last forever and as the saying goes "this to shall pass". So rather than pull everything and run for the exits, the best thing to do is look around for opportunities and make prudent investments while the markets are down. Sometimes the position of a financial advisor is really largely psychological. I'm happy to fill that role for you. At the same time if you would like to sit down and review how these markets are going to affect you or you would like to make sure that you are well positioned please get in touch! Things are really not as bad as they might seem.