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2016 Stock market review (and how it can help your portfolio in 2017)

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 Composite +21.08%
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%
S&P500 +11.96%

 

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?

International News

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:

UNITED KINGDOM 14.25%
AUSTRIA 12.11%
NORWAY 6.35%

Bottom 3 markets:

BELGIUM -7.02%
ITALY -10.68%
DENMARK -15.07%

 

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

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

4 Responses to 2016 Stock market review (and how it can help your portfolio in 2017)

  1. I agree with your approach of not trying to make sense of it all and just stick to the plan. Index investing within Canada, USA and overseas in equity markets will spread out the risk.

    However, for bonds, I just can’t get myself to take interest with the barely inflation returns on them.

    • Thanks Matt, I don’t think many people are excited about bonds. I view them as something needed for diversification and defense these days.

  2. Jim,

    None of us retirees are stock traders. We don’t have the skills, temperament and software to buy low and sell high to generate cash for a comfortable retirement.

    As to bonds, they’re a lost cause: a very poor return and a very poor taxation treatment.

    2016 was an extremely difficult year at its beginning. January and February were down months for all. The down trend was worse because most Day-Traders were also out of the market.

    I trade funds on the TSX, only; I’m just not smart enough to deal with currency issues and political shenanigans in other countries. The funds are managed by professionals who usually know what they are doing. I measure how well they are doing by the cash they pay me: their consistency and Yield are my initial criteria for choosing a fund; their tax treatment is another criterion and is why I avoid anything that pays me interest.

    In January and February 2016, I had to sell some funds and stocks because my Margin was too high. I was much busier than usual. I spent three times as many hours in those two months as I usually do to monitor and manage my portfolio during January. In March I bought back some of the sold positions and bought better ones.

    By December 31, my monthly income had increased .8% over January 1, and my portfolio value had increased by 26%. So far in 2017, my income is up 2.56% and my portfolio is up 6.13%.

    I used to study individual stocks and their Distribution experience. Now I search for funds (mutual, closed and open-ended) using TMXMONEY and Google Finance screeners.

    The funds are all managed by professionals: their websites are very informative, their Distributions are almost all very tax efficient, and the fund holdings are very diversified or very targeted.

    The focus of my investment strategy is monthly income. Nothing else matters, nothing, because I am one of the 60% of Canadians who don’t have a corporate or taxpayer funded pension.

    The stock market, specifically the TSX, is a barometer or benchmark of what’s happening to my portfolio value. Usually, these fluctuations don’t affect my monthly income from my funds. Remember: the focus of my portfolio is to provide me with monthly cash.

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