We are on the cusp of a new year poised with great promise, yet various shadows also rest along the pathway. Someone said that years are like kids: they all turn out differently and with their own character. Such was 2022. Who knew part of Europe would be thrown back into WW1. Who knew the Ukraine would survive not just days or months, but with western help will push this war to a close, step by step, and rebuild. Yet in more and more countries we find a polarization, socially and politically, which untamed, can threaten the green shoots of democracy we had assumed would fulfill a greater global destiny. In the midst of all this we live our daily lives and we invest with diligence to sustain and enjoy our present and our future wellbeing. I completely assure you that while investments necessarily reflect what’s happening in the wider world, and while each decade hosts a few years with greater stress or shadow than the rest, light will dawn and good times come – pick your metaphor – and we will enjoy exceptional growth.
In a few moments we enter 2023. Early months may resemble the second half 2022, rising tentatively from the toughest half-year in a long time. Second-half of 2022 paid us back much of what the first half took away. Bond markets had fallen their worst since 1937 – balanced funds the worst in forty years. Equities dropped sharply into bear market. But since June things have mostly steadied or gained, and more of this is ahead. In a natural process called “reversion” we can see that 2023 should bring healthy rewards, gaining strength as the year proceeds.
But one asks, what about recession? Scroll back to my letters of October, and especially November, “Year-End, New Year Planning”. There I shared certain pictures which show what follows a year like 2022. We might as well focus on reversion instead of recession. With interest rates where they are right now we certainly see a slowing economy which may dip into recession – it’s never confirmed until afterwards. But investment markets look ahead to what’s over the next horizon – and if there’s been a particularly tough year, investors know the path forward will revert to greater rewards.
So what is “reversion”? In various studies including most recently by RBC Global Asset Management, after a sharp 9-month drop, investment markets tend to grow three times more than average in the following year, 50% more over the following 3 years, 25% more over the following 5 years. This echoes what I shared a while ago about financial planning: after several years of growth we reduce future estimates (eg. 5%) and after a serious correction we increase future estimates (eg. 7%).
“Resilience” is another “R” word that deserves our attention. Resilience, in terms of our investment portfolios, is seen in the steady stream of dividends and other income. We enjoyed resilience in 2022 from global infrastructure which paid us profits from regulated inflation increases. Resilience is also reflected in the healthy recovery in dividend funds during the second-half, and a vigorous rebound in our Canadian and global growth mandate.
Resisting was important too because many loud voices in the world had urged investment into products with little or no earnings, little or no dividend, and an uncertain future. When darker days arose these loud voices made like the proverbial Chicken Little, except for them it was true, the sky was indeed falling. Many investments which had been popularized and promoted in various “news”, social media and elsewhere are today priced 75% to 100% lower and there’s no indication which of them have any future at all. It happens again and again: some things reach zero.
Briefly then, 4 Rs. Recession or something quite close to it is very possible, but markets will be looking beyond that. Reversion in this case is the growth that naturally follows every downswing. Resilience means staying focused on the plan, owning assets that will continue to rebound and pay you an ever-increasing share of expanding earnings. Resist all else.
We wish you and your dear ones a happy, healthy, very prosperous 2023. We do all in our power to keep your pathway safe and to avoid the popular pitfalls so perilously promoted to the unsuspecting. Keep in mind, March is not the only Fraud Prevention Month: all this season I’ve been astonished at the terrible genius and innovation of frauds, scams, hacks … call them what you will. So share this among friends and family – how to be aware and avoid being hit with such losses. Our team is grateful serving you through all the years, and we’re always here to help.
Reminders:
- 2023 monthly RRIF/LIF income: do you need any changes?
- RRSP deadline for tax refund: March 1. Sooner if you can.
- All new: “First Home Savings Account” per my Nov. letter.
- Life insurance discounts: how to qualify, reach me directly.
- TFSA room $6500 on Jan. 1st – max life deposits $88,000.
- We can refer help for tax returns if needed, ask early.
Yours always in Financial Security for LIFE.
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Brian@SovereignWealth.ca.
Certified Financial Planner, Certified Retirement Coach
Author: A Lifetime Of Wealth — And How Not To Lose It (2013). Protecting Life, Loved Ones, and Future Dreams (2013). Your Business, Your Retirement: Halton Retirement Study (2015).
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.