The final month of 2024 was a bit of a downer for both stocks and bonds, but outside of that, the rest of the year produced abnormally strong returns! Most of Justwealth’s 80+ portfolios finished the year with double-digit gains, with a number of more aggressive portfolios returning over 20%. Virtually NOBODY predicted this magnitude of returns at the beginning of last year, proving once again that patience is a superior investment strategy compared to one based on prediction.
It can be very easy to let abnormally strong returns distort your perception of investing, shifting focus from long term to short term in one of two ways:
- “the strong markets will continue and I have to take advantage of it” (greedy);
- “a market correction is inevitable and I have to get defensive or I will lose my gains” (fearful).
Both perspectives are unwise! Do not let short-term thoughts override long-term principles. Short-term planning almost always involves prediction (or speculation), whereas long-term planning is about patience.
The other distortion that tends to happen when strong market returns happen is that most investors believe that their investments “are doing well”. From an absolute perspective, this may be true, but from a relative perspective, it may not be the case. Your investments should always be evaluated from a comparative perspective. “My investments returned x%”, but what return could you have received from another option which is comparable to my risk level over the same time period? If you could have earned x+1% elsewhere, without taking on additional risk, you would have been better off.
Periodically, we mention our performance relative to competitors, and the year-end commentary seems to be the most appropriate time for such an evaluation. Consistent with our investment principles, we emphasize longer-term comparisons (ideally 5 years), which we have now been able to measure since 2020. Without further ado, here are comparisons against our traditional rivals (bank-based mutual funds), and our online rivals (other robo-advisors) for a Balanced (or “average”) risk profile:
While the absolute numbers change from year to year, the relative comparisons have barely budged for four straight years! And the results are similar across the other risk profiles. It seems hard to believe that the bank-based mutual funds are more than 100 times bigger than Justwealth with so much evidence that the opposite should be true. Please continue to spread the word to your friends and family members.
Shifting focus forward, we are fielding a lot of client inquiries about the political situation in both Canada and the United States. First and foremost, we would categorize ANY political event, anywhere in the world, as “short-term”. Therefore, by definition, we are not too concerned (or excited) about any particular political agenda item as it will be quickly forgotten and its impact on markets will be negligible in the context of longer-term performance.
But, rather than simply dismissing politics, and asking you to “take our word for it”, let’s examine a few different issues:
Trump Tariffs
Has Donald lost his marbles? Before even re-entering office, Trump has declared a tariff war on virtually the entire world, including Canada. Every economics text book would conclude that would be bad for the global economy. Trump clearly does not care about the global economy, he only cares about the U.S. economy. C’est la vie.
One could argue that this is a baseless threat, or one could take it seriously. Trump does have a flair for the dramatic and thrives on being perceived as a bully, so perhaps it is all just part of negotiating. Regardless, we have to put the potential impact into perspective if tariffs were to be imposed:
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- Canada would retaliate and impose tariffs on the U.S., so if both exports and imports drop equally, the net direct impact on GDP is zero.
- Tariffs will not be applied “unilaterally to everything”. Some sectors may be more exposed than others, but many industrial sectors may be completely unaffected.
- An impactful increase in tariffs would likely result in depreciation of the Canadian dollar, potentially offsetting some or all of the intended effect.
- Consumption is a far bigger component of GDP than exports, so if one wishes to worry about something negative for the Canadian economy, worry about the strength of the consumer, not tariffs.
The bottom line here is that there is probably more bark than bite, and Canadians have more to worry about than Trump’s blathering nonsense.
Canadian Politics
The resignation of Justin Trudeau after a tumultuous public display of waning support adds a great deal of uncertainty about the governance of our country. Combined with an economy that has sputtered compared to the United States, the value of the Canadian dollar relative to the U.S. dollar proves that Canada has become increasingly dysfunctional. That much is “priced in”.
Regardless of your political beliefs, it would seem that the only direction from here is…up. Whether a new Liberal leader takes the country by storm or the Conservatives become elected, change is coming in 2025, and it seems hard to imagine that it could get any worse than the current climate.
From an economic perspective, things are fine in Canada, pretty good in the United States, and okay elsewhere. Interest rates have come off their highs, growth is still positive, inflation is under control and employment conditions are still favourable. Honestly, it is hard to find any concern just by looking at economic data, but admittedly, economic data is backwards looking and can change without warning or notice – it is one of those things that is simply not predictable.
We remind all of our clients to try and be calm and rational, in times of good markets and in times of not-so-good markets.
Here is a recap of market performance as of December 31, 2024*
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