Market Insights for 2012, What the Experts Are Saying

With a difficult 2011 behind us; most investors are wondering what we can look forward to in 2012, here is what some of the experts are saying:

The U.S. will be our silver lining.  The U.S. is at the very early stages of recovery, credit card defaults are back to pre-recession levels and the housing market is starting to grow - however slow – it is moving in the right direction.   Corporations in the U.S. are cash rich; and there were over 200,000 jobs created heading into 2012.  These are all vital signs that a U.S. recovery is taking hold and a sustainable economic recovery is quite possible.

The Canadian market is expected to pick up in the ladder half of the 2012; due to increasingly positive news from both the U.S. and Europe.  Our dollar is also expected to hold steady against the greenback throughout the year.  Although our labor market and consumer spending is starting to slow, business investment is on the rise; and expected to continue.

Policy makers in Europe continue to hammer out their debt financing problems and will do so for the next few months.  Many believe Europe will go into recession very soon if they are not already in one.

China is entering a controlled slowdown of their economy.  Although most predict a soft landing for China, this slowdown in their housing market directly affects our Natural Resource industry, purchase orders from China for Canadian lumber are at a 34 month low.   

This global economic recovery will continue at two speeds, whereas the emerging markets will consistently outperform the economies of the more developed nations.

So where do we invest this year?  With people’s appetite for risk almost at zero; Dividend Paying Stocks, Corporate Bonds, and REITS (Real Estate Investment Trusts) all look good. 

This is my 18^th year in this business, and my third downturn.  We are told corrections happen on average every 5-6 years, so the numbers make sense.  All we can do is position our portfolios to protect ourselves in the downturns and make money in the up swings. 

If you want to make sure you are positioned properly for the year ahead, don’t hesitate to give me a call.

Happy 2012!

Tracey

Sources:  Benjamin Tal, CIBC and staff at advisor.ca

Improving Your Returns

Investors have some bad behaviors; and it is affecting their bottom line.

I have seen it myself; the pain of a loss is far greater than the joy of a gain.  As a result, investors will sell a winner much too quickly to capture the gain and hang onto losers far too long to avoid realizing the loss.

Investors also look for information to back up their decisions rather than looking for facts that will contradict them. This process is called confirmation bias, similar to selective hearing.

Another bias people have is over confidence, this leads to over active trading and more problems.  Believing you know exactly when to enter and when to exit the market means you have to be right twice – when to buy and when to sell – difficult to do.

Follow the crowd mentality.  Without doing any research investors will make decisions with limited knowledge and follow the crowd right off a cliff.  We all want to be liked and making decisions that go against the norm is difficult, after all, everyone can’t be wrong, right?

How do we avoid these common pitfalls?  By not letting our emotions over rule our logic.  Market cycles are full of peaks and valleys, emotions run the highest during economic uncertainty.  Investor’s emotions are heightened and they revert to defensive behaviors during these times because they feel threatened.

Take a step back and view your portfolio with a critical eye, is it diversified? Does the risk level match your risk tolerance?  How long will the money be invested for?  In more cases than not; if you are working with a Financial Planner and choosing the investments together, your portfolio is representative of your financial goals. 

If you are unsure, don’t hesitate to give me a call.

Have a great weekend,

Tracey

Source:  Gary Gorr, advisor.ca

Changes to CPP

The coming changes to our national pension plan are as follows:

Change #1

The monthly CPP payment amount increases by a higher percentage if you start taking it after age 65.  Prior to the change, if you took CCP after age 65, the monthly payment would increase by .5% for every month after age 65 that you delayed receiving it – up to age 70.  So if you delayed receiving it to age 70, your monthly payment would be increased by 30%.  (.5% x 12 months x 5 years).  The government is gradually increasing this percentage from .5% to .7% from now to the end of 2013.

Change #2

The monthly CCP payment amount will decrease by a higher percentage if you start taking it before age 65.  Before the change; similar to the increase if you took your CCP at age 60, your payment would be decreased by 30%.  After the change, the pension reduction will gradually increase from .5% to .6% from 2012 to 2016.  So, if you retire at age 60 in 2016, your pension will be reduced by 36% if you start collecting it right away.

Change #3

Prior to 2012 when calculating your CCP benefit; you where allowed to ‘drop’ seven of the lowest income earning years; this elimination ultimately increases your payment.  Starting in 2012, the number of years allowed to be ‘dropped’ increases to 7.5 and by 2014 it increases to 8 years.

Change #4

Starting in 2012, the ‘work cessation test’ will no longer apply.  This means people will no longer have to stop working or reduce their earnings for the two months prior to receiving their benefits.  This change will help people make a slower transition into retirement.

Change #5

The Post-Retirement Benefit (PRB).  This PRB is similar to CCP but applies to people who start receiving their CCP benefits, and continue to work.  It will be mandatory to contribute if you are over 60, working in Canada and receiving CCP benefits.  Once you fully retire; you will receive this secondary pension (PRB) as well as your CCP pension.   

Whether or not to start taking your CCP benefits can be a daunting decision, if you need help figuring it out, give me a call.

Have a great weekend,

Tracey

Source:  Advisor’s Edge Report, 12/11

Equity Markets Will Bounce Back in 2012

Finally some good news!
Don Reed, CEO of Franklin Templeton Investments shared his thoughts as to why he thinks 2012 will be a positive year for the markets; in an article posted on Advisor.ca earlier this week, here is what he said:

 Expect 2012 to mark a turnaround in equity markets and for opportunistic investors to reap the rewards. Smart investors will make money. The markets have been beaten up in the latter half of 2011 – and therein lies the value creation for stock pickers, and, by extension, mutual fund investors.

The good news is…
Volatility is returning to normal levels. The VIX (the Chicago Board Options Exchange Market Volatility Index) is often referred to as the fear index; as it is a forward-looking gauge of the volatility and expectations impacting the world’s largest equity markets. The VIX’s long term average is normally around 20, in the peak of the financial crisis in 2008 it reached 81, throughout 2009 and 2010 it retreated and then climbed again this past summer spiking at 48 in August. By the end of 2011 the VIX returned to the low 20s, suggesting volatility has subsided; and slowly but surely, we will return to some normal equity trading patterns.

Furthermore, after months of baby steps, the euro zone can be expected to finally reach a definitive debt agreement in the first half of 2012. Europe is a life boat and it is in the interest of all nations, including Italy, Greece and the reticent United Kingdom, to keep the ship afloat. Stay tuned.

Mixed view on the US
The debt stalemate may fester through 2012 and we may have to wait until 2013 for any significant developments. But a double-dip recession in the world’s largest economy is looking increasingly unlikely. Corporate America is cash-rich, retail spending is up, consumer confidence is improving, gas prices are falling and businesses are restocking shelves and warehouses. These are all positive indicators the U.S. is on the mend.

Emerging economiesThe outlook remains positive for the emerging economies of Asia, Latin America and South America. Collectively, they have made huge strides over the past decade to restore economic growth and improve corporate balance sheets.

Debt levels in emerging markets are a fraction of what the world’s more mature economies are; and fast-growing middle class means consumer spending will remain strong. Expect emerging markets to speed along at about 5% to 8% growth in 2012. The Chinese economy may cool slightly, but will nevertheless record a healthy 8% to 9% growth next year.

Nowhere to go but upThe 2011 correction has presented some excellent buying opportunities for those ‘buying on the bottom.’ The share prices of some of the world’s best blue-chip companies may be down, but the fundamentals that drive long-term returns remain solid. These well-managed global companies are sitting on billions in cash; dollars that will fund future growth, share buy-backs or dividend increases. This is all good news for prospective investors.

Getting back to the basics in 2012 will help you dismiss the short-term market noise and remain focused on your long-term goals. A well-diversified investment portfolio and some good financial advice; will ensure you reach your goals, and take advantage of opportunities in these uncertain and complicated markets.

Have a great weekend and a positive 2012,



Tracey


You can read Don Reed’s full article at advisor.ca