Industry changes and thoughts for 2012
Sitting at my desk during this snowy Friday, I thought I would share some insights from my trusted financial advisor, Mr. Rob C. Townsley and his wife and business partner, Sarah Townsley. Here's what they have to say:
“I just want to go through a few changes in the industry and let you know what to expect in 2012.
1) RRSP deadline this year is Wednesday, Feb 29th, 2012. If you are looking to contribute this year, please call or email me to set up a time.
2) The Mutual Fund Dealers Association ( MFDA ) has made it mandatory for all dealers to send out statements quarterly starting this year. I have had several emails from clients over the past asking to please stop sending statements so often, only to find out more will be sent out.
The good news is our dealer has set it up so that statements can now be viewed electronically. I will be sending out an email to everyone in the next 2 months so they can sign up to view their statements and opt out of the mailing. You will also be able to view your accounts and transactions history.
I am asking that everyone please sign up when you receive the email.
More information should also be available when you receive your fundex statements in the mail.
3) I have also received a lot of calls with the mortgage rates. Rates are at record lows. 4 year is currently at 2.95% and the 10 year is at 3.99%. I would expect the fixed rates and the variable to stay low for at least another year.
I have said this before and it's worth repeating: Eliminate your debt and get yourself in a good cash position. Rates will not stay low forever. Take advantage of the low rates if your mortgage is coming up in the next 12 months. Feel free to give me a call to discuss if you have any questions. A 1% reduction in your mortgage rate could save you thousands.
Market Update
Let's take the time to discuss the market: Bond funds and most dividend funds were the only real winners in 2011. The last 10 years has been the most volatile market in history and probably the worst decade for returns since the great depression. The markets have really gone through a lot in the last 10 years ( 9/11, the internet bubble, financial crisis, housing crisis and for the past 2 years the debt crisis).
Canada is one of the few countries in the world that remained somewhat untouched by most of the events over the past 10 years.
So far, January has started really strong despite poor employment numbers, new construction housing starts are down and retail sales are also down…all sure signs of a recession just around the corner.
This year will be one of the most difficult years for markets. 2012 brings a lot of events where the outcome could really swing either way.
1) European crisis: March 20th is the next deadline for Greece to meet their debt obligation. We are not just talking about Greece but also Italy, Ireland, Portugal and the list goes on. Even if they somehow manage to bail out Greece, another Country will soon take its place.
European and International funds have really taken a beating over the last 2 years. Some of the best investment opportunities will come out of Europe in the next few years. The stocks in Europe are under valued and sitting on cash.
Watch for a global correction in the markets in late February or March.
2) Housing Crisis: The US housing market started to pick up for a while last year. Towards the end of the year it dropped back off again. To make things worse, there is a flood of foreclosures and bank owned properties hitting the market in 2012. Some analysts predict that it could easily take the US another 10 years to climb out of the housing crisis.
On the home front in Canada: a 1% increase in interest rates could wipe out 20% of home owners financially. The Canadian housing market is probably around 20% over value. Expect a correction in the market, or a flat housing market for a few years. I would also expect rates to stay low for a while.
3) US Election: seems to always put the markets in a volatile position. Watch for a lot of movement in the fall.
4) Global Recession: Depending on what article you read; it has already started. Pressure is on Europe to get the debt crisis under control. A recession or even a depression could be bad news for everyone. Canada is one of the few countries that have the resources to spend their way out of it. The 2008 financial crisis was a global recession that cost governments trillions to climb out of it. The money is just not there for governments to spend their way out of another recession.
5) Oil Crisis: Another war in the middle-east would increase the price of oil and tensions are running high. A sharp increase in oil could easily make things worse in Europe and trigger a global recession.
Heading into an uncertain market can make it really hard to sleep at night. In a time of crisis, there are some areas that are still good investments.
1) Bond funds: Slow and steady wins the race. In rough times, bond funds are great, low volatility and in most cases a low steady return better than a GIC.
2) Dividend funds: Most companies have been increasing their dividend. Fund managers are searching out companies with a high dividend return, increasing dividend returns and stocks that are under valued. Keep in mind that dividends are re-invested and this is a long term strategy that is very effective in a volatile market.
3) Emerging Markets: I have talked about the emerging markets in the past. On Jan 13th 2012 France and Austria lost their AAA bond rating, and Italy and Spain fell by 2 notches. The US was downgraded last summer from its AAA rating. Most countries that make up the emerging market have had their ratings increased. Russia moved up 3 notches. The emerging markets are growing fast and demand for products is high, even in a global recession returns could come out on top. This is a 10 year investment that will be very volatile but worth the risk.
4) Gold: it had a great start in 2011 but ended the year in negative territory. Gold also had a great 10 year run. The thing with gold is when things look bad, everybody runs to it as a safe haven. This year will not be any different if there is a global recession.
There are 2 other factors with gold: It is still believed that gold is a measurement of a country's wealth, and the more gold you have the stronger your currency. Emerging markets have been buying up gold to increase their wealth and currency, therefore pushing up the price.
The financial crisis has also pushed up the price of gold. If you live in Europe and believe that the Euro could collapse, you are going to protect your money. The best way to do this is gold. Some will also run to the US dollar. If things get worse in Europe watch for the price of gold to go up. Keep in mind that gold is risky and can fall very quickly.
As always, if you have any questions or want a review your portfolio, please email me or give me a call to discuss.
I strongly believe that 2013 is going to be a good year if we can overcome the obstacles we face in 2012.”
Well, there you have it. Positively thinking, no matter what type of real estate market we are in, there will always be people who will greatly benefit from it...real estate is still the best investment over the longterm.
Have a great week.
Opal