January 2024 Update
Jan 26, 2024
Here is the recap of the most recent stock market performance.
| Year | Canada | US | Europe | Emerging Markets | World |
|---|---|---|---|---|---|
| 2023 |
13.31% | 27.10% | 15.04% | 10.29% | 23.75% |
| 2023 Q4 | 8.70% | 11.95% | 5.65% | 5.65% | 9.96% |
| 2023 Q3 | -1.74% | -3.07% | -2.03% | -1.29% | -2.53% |
| 2023 Q2 | 1.60% | 8.72% | 2.15% | 1.85% | 7.32% |
| 2023 Q1 | 4.42% | 7.73% | 8.81% | 3.84% | 7.58% |
| 2022 | -5.78% | -19.46% | -7.97% | -15.16% | -15.62% |
| 2021 | 25.79% | 26.97% | 23.32% | 0.14% | 24.71% |
| 2020 | 4.35% | 21.37% | -1.71% | 19.50% | 14.06% |
| 2019 | 22.00% | 31.64% | 24.57% | 18.51% | 28.07% |
| 2018 | -9.04% | -4.50% | -10.02% | -9.73% | -6.86% |
| 2017 | 9.22% | 21.90% | 13.72% | 31.00% | 19.13% |
| 2016 | 21.15% | 11.61% | 7.90% | 10.11% | 9.65% |
| 2015 | -8.36% | 1.32% | 5.45% | -5.40% | 2.65% |
| 2014 | 11.43% | 13.36% | 5.22% | 5.57% | 10.40% |
| 2013 | 13.58% | 32.61% | 22.26% | 3.79% | 29.57% |
Source: MSCI gross returns including dividends, all returns in local currency.
As you can see from table above, by the end of 2023, most stock markets reversed the losses they suffered in 2022, with the bulk of their recovery coming in the fourth quarter. This was nice to see after a very difficult 2022.
Central banks around the world have been working to deal with the effects of inflation, typically by increasing the bank rate to cool the economy and hopefully reduce inflation over time.
On March 3, 2022, the Bank of Canada began increasing interest rates, from 0.25% to 0.5%. By the end of 2022, the bank rate had risen to 4.25%. On July 13, 2023, the bank rate was increased to 5%, and this remains the current bank rate. This increase in rates has had a dramatic effect on mortgage rates, GIC rates and demand loan rates, etc. It has also had a dramatic effect on the returns of fixed income investments:
| Year | Core Cdn Universe Bond ETF | Core US Agg Bond ETF | |
| 2023 | 6.64% | 5.65% | |
| 2022 | -11.67% | -13.02% | |
| 2021 | -2.80% | -1.77% |
Source: Morningstar, market total returns
Although the year-end return in 2023 was positive for the average fixed income investment, they still have not recovered what they lost in 2022 and early 2023 as central banks around the world increased interest rates.
What happens to fixed income investments (bonds/preferred shares etc.) when interest rates rise?
We have seen significant increases in GIC rates, mortgage rates, etc. over the last couple of years. You might assume that the fixed income portion of your portfolio would also increase in value as well. However, interest rates and fixed income securities (bonds, etc.) have an inverse relationship with interest rates. If interest rates rise, bond prices fall and when interest rates drop, bond prices increase.
If you hold bonds to maturity, then interest rate fluctuations are less of a concern.
Most bonds are issued at a certain price (par price) at a certain interest rate. Upon maturity, the bond will pay out the par price (the original issue price).
Unlike GICs, bonds trade in the secondary market (you can buy and sell them before they mature), and they fluctuate with changes in interest rates. Why does this happen?
If you buy a bond for a $1,000 with an interest rate of 3%, you will receive $30 a year in interest. If interest rates increase to 5% on new bonds, then your bond becomes less attractive, and the price will drop. The price of your bond will drop until the combination of the new price and the interest payable equals 5%.
If you buy a newly issued bond for $1,000 with an interest rate of 5%, you will receive $50 a year in interest. If interest rates decline to 3% on new bonds, then your bond becomes more attractive, and the price will increase. The price of your bond will increase until the combination of the new price and interest payable equals 3%.
We have begun to see the inflation rate cool, and therefore, we expect the Bank of Canada to start lowering rates sometime this year, which will have a positive effect on the returns of a fixed income portfolio. As rates come down, much of the underperformance in the fixed income portion of your portfolio will be reversed.
On a different note, this is the time of year when many of you are making RRSP and/or TFSA contributions, so for easy reference, here are the current contribution limits:
Maximum RRSP Contribution limits
2023 – $30,780
2024 – $32,490
TFSA
2024 Annual Limit – $7,000
If you have never contributed to a TFSA, you would have total contribution room of $95,000.
As always, I thank you for the trust you put in our firm. If you have any questions about your situation, please do not hesitate to contact us.
Sincerely,
Anne Hammond
BA CIM CFP
Financial Advisor
T 604 732 6551
Planning Team
| Carly O’Connell, BA Client Services Associate Direct: 604-737-6752 [email protected] |
Lorraine Watson Executive Assistant Direct: 604-737-6787 [email protected] |
|---|
Anne Hammond is a Financial Advisor with RGF Integrated Wealth Management. The views expressed are those of the author and not necessarily those of RGF Integrated Wealth Management, which makes no representations as to their completeness or accuracy.
© 2024 RGF Integrated Wealth Management. Ltd., RGF Wealth Management. Ltd., Member – Canadian Investor Protection Fund
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