January HopeFS Newsletter

It almost seems impossible that we just have February and March left for winter months. Our family is very fortunate to have a couple of trips to look forward to yet so we are very excited for the next couple of months. The market volatility this month has been very unsettling for a lot of people. I hope the quick email I sent out earlier this month helped ease some of your concerns.

October, November, and December were positive for the vast majority of our client portfolios and allowed 2015 to end in fair shape. January, on the other hand, has not been kind.

The majority of our returns have been coming from outside Canada in the last few years. I will say, however, that Canadian markets are now looking a little under priced and I can imagine Canadian equities outperforming international equities sometime in the future. Having said that, it could take a number of years before the markets agree with me!

Clients that we have spoken to recently have been pleasantly surprised at their one year rates of return. Most assume because the TSX is down 8.74% over the last year that their account will be largely negative. However, due to our diversification, we have been able to minimize this correction, so far.

The S&P 500 (USA) was up only .44% by year end but when we convert that back to our Canadian dollar our return becomes 20.22% Europe had a gain of 16.14% this past year. Asia continued to lead last year with a gain in their stock markets of 20.50%. These returns are all expressed in Canadian dollars and therefore include our gains from a declining Canadian Dollar. As of the end of December our one year returns on our portfolios were close to long term averages or slightly under for almost all portfolios. (source: Vanguard Canada)

I want to quote to you from our newsletter of one year ago. In my February 2015 Newsletter I said:

"I do want to convey some caution. All our clients’ portfolios have been rewarded with excellent returns over the last 12 month period. The rate of return experienced in this time has been excellent, but please do not consider this to be the new normal. We will undoubtedly have a mix of lower performing years in the future with the good. A few of my client conversations lately involve clients now wanting to move to more and more aggressive assets as these excellent returns give everyone confidence. The most successful investors are able to stay disciplined when markets drop as well as when they climb. One of my most important duties is make sure calmer heads prevail in both the highs and lows."

One of our clients received a substantial amount of money this month and wanted to invest for the long term but was logically concerned about the recent volatility and negative headlines. We decided to split the funds into five equal installments and invest a portion into her long term funds each month for the next five months. This will allow us to ease into the markets while they are volatile and use that volatility to our advantage. In months when prices are low we will be buying more units and in months when prices are higher we will buy less. The result was our client is able to to have the comfort of knowing she is putting her money to work for her in a thoughtful plan and using the recent volatility to her advantage instead of being scared of it.

Whether you buy a rental house, farm land, a GIC, or a companies stock, all we are ever really buying is income. As income is earned year after year, the companies bank account will be bigger and/or it will pay you a dividend. Either way, you will have more tomorrow than you had today. If you believe people will buy soap next year, if you believe they will pay bank fees, if you believe they will fill their cars with gas, then you believe companies will make money next year and by extension, their stock price will eventually rise.