A Word on the Markets

I would like to leave you with two thoughts over the long weekend.  First, a commentary on the markets from Alexander Lane, Portfolio Manager with Dynamic Funds,

There are eerie parallels between today’s investor psychology and where it was at this time last year. Fears about Europe, a slowdown in China and the potential for a double-dip recession in the global economy are almost identical to 2010.  Additional concerns related to the Japan earthquake and tsunami, tensions in North Africa, removal of the second round of quantitative easing and the issues around the US debt ceiling have also weighed on investor sentiment. Like last year, we believe these fears are overblown, confidence will return to equity markets over the course of the summer, and equity performance should improve significantly into year end. Consequently, we believe that long-term investors should be averaging into global equities this summer as they should be handsomely rewarded.

Alexander Lane, Hons. B.Comm., CFA Vice President and Portfolio Manager Dynamic Funds

Second, in contrast to this optimism on the markets, a report this month from the Certified General Accountants Association of Canada shows alarming levels of household debt.  The excerpt below is taken from a recent issue of MoneySense magazine

The Certified General Accountants Association of Canada (CGA) reports that household debt is at an all-time high with single parents, retirees and those households making less than $50,000 a year in the most debt.

“For these individuals, there is little hope for improved financial condition,” says Anthony Ariganello, President and CEO of CGA-Canada in the report.

One-third of retired households have an average debt of $60,000 while 17% have over $100,000 in debt.

The CGA also reported that 27% of non-retired Canadians do not save at all, even for retirement.

Thirty-eight per cent of those surveyed said they are not confident about their finances in retirement, and 52% said that they had a clear idea of how much personal savings they would need to be satisfied financially in retirement. That means just under half of Canadians do not have a solid financial plan for retirement.

According to the report, the main causes of debt are due to day-to-day living expenses, not mortgages or education. In other words, Canadians are spending to consume instead of spending in the hope to create more wealth in the future.

The challenge that many investors will face is how to best allocate savings.  Should debt be paid off aggressively or should more savings be allocated to long term investments to take advantage of potentially strong market conditions?  There are many factors that help determine an optimal allocation including the nature of your debt, time horizons to retirement or other goals etc..  Perhaps this summer would be good time for us to have a meeting to help you determine what your optimal allocations are.

Have a great long weekend, Happy Canada Day!