2017 is here which means the book is closed on 2016. Let’s take a look at the world of markets and investments to see how everything fared for the year.
Bonds continue to be boring
It was a lot of nothing in the bond markets. Inflation finished the year up 1.18%. Bonds barely kept up with inflation:
- Treasury bills = up 0.51%
- Short term Bonds = 1.01%
- Bond Universe = 1.66%
In reading some forecasts for 2017, it appears there is renewed talk about rising interest rates in the US which may force Canada to raise interest rates too. Remember this has been a recurring theme for the past 15 years. Every time there is consensus that interest rates must rise they seem to find a way to go down lower. Have we hit the bottom this time around? If so, rates may rise but the question we must all ask ourselves is how much and how fast. My shot in the dark is not much and not fast at all!
Canada Finished Strong
If we go back to 2015, you may recall that falling oil prices created some big challenges for the Canadian stock market. The TSX was down 8.32%. Preferred Shares were down 14.95% and Small caps in Canada were also down 13.31%. I remember reading some market forecasts for the 2016 at the beginning of the year and there was a lot of pessimism flowing.
|S&P/TSX 60 Large Cap||+21.36%|
|S&P/TSX Small Cap||+38.48%|
As investors get their year-end statements for 2016, there should be no bad news for their Canadian investments. Investors should be happy with what they will see. The TSX dropped in January but then rose for 11 consecutive months in 2016 and finished the year strong up 21.08%. Preferred shares were up 6.98% and small caps jetted to finish the year with 38.48% growth.
US hit the headlines
The big news in the US was obviously the US election and the win by Donald Trump. Many reports I read suggested that a Trump victory would be bad news for the US markets but that has not been the result at all. The S&P500 finished the year up 11.96%. For Canadian investors, our returns after taking into account currency changes were only 8.09%. Canadian dollar rebounded in 2016 and appreciated slightly to the US dollar (after a sharp drop in 2015).
|S&P500 (in Cdn$)||+8.09%|
With the positive return in 2016, the US market has now finished 8 consecutive calendar years of positive growth. The last negative year happened in 2008 (-37%). What’s in store for 2017 and the US stock market?
If we look outside of North America, the big news was Brexit. On June 23rd, 2016, British citizens voted to exit the European Unit. This was not favourable for European markets and currencies. We saw the British pound crash my more than 11% in one day. European markets experienced double digit drops. If we look at the year-end data for European markets (from MSCI.com), there were some surprising results:
Top 3 markets:
Bottom 3 markets:
How do we use this information to manage our portfolios?
So this time of year, we will find lots of predictions, forecasts and guesses about what’s in store for 2017. Does any of this past information help us with managing our portfolios moving forward?
Related article: My portfolio of ETFs
When it comes to managing my own portfolio, my 25 years of experience has led me to “Keep it simple” strategy. I try to avoid predictions and forecasts. All I do from time to time is rebalance my portfolio of ETFs. Given what happened to markets in 2016, rebalancing will likely lead me to sell some of the profits I got in Canada and the US and buy some extra cash/fixed income and international investments.
Related article: The power of rebalancing a portfolio
My real financial success, however, comes more from my continued commitment to earn more money and therefore saving more money.
Related article: Financial success stories