A Volatile Year As Expected

A lot has gone on in our market since January 1st, 2022. We have had a war between Russia and Ukraine and experienced the highest inflation in Canada since 1983; we have experienced a very aggressive interest rate hike with the highest rates since the Financial Crisis in 2008, all while our society gets back to “normal” after COVID-19.

The events listed above have led to a volatile marketplace in 2022. But is that out of the ordinary for our markets? When we reflect on each of our years, we can come up with negative news stories that impacted our needs, and we can also come up with positive news. Volatility is a regular part of the investing process; accepting volatility will mean a much more enjoyable investment experience.

The chart below illustrates the last 20 years in the US market, a period where we ended with 17 positive calendar year returns. There was not one year we had where the market remained positive from January 1st to December 31st. That means in the last 20 years, the US stock market returns were negative at some point during each calendar year.

This year has been no different. 2022 will be remembered as a negative year in our market, but we have seen a drastic turnaround in the last three months alone. Let’s look at the DFA Global Equity Portfolio; for example, this is an all-stock portfolio invested in different countries and industries worldwide.

As of September 30th, 2022, this portfolio had a year-to-date return of -14.34%.

From the period of October 1st, 2022, to December 13th, 2022, that same fund had a rate of return of 11.84%.

Therefore, leaving the total year-to-date return of the fund at -4.2%. Which is a significant improvement in under three months.

So, while this year will be remembered as a “negative year” by most investors, I recognize it as a volatile year, no different than any of our past 20 years in the market. While the negative news articles are the ones that get the most attention, let’s shed some light on positive financial news that is going unnoticed and is playing a role in the market’s recovery in the past three months.

Positive news:

Supply Chain is recovering – Oxford Economics in the UK developed a measure for Supply Chain Strain. According to their metrics, the supply chain has improved significantly over the past several months.

Inflation is declining – With the supply chain recovering and interest rates increasing, inflation has begun to decline in Canada and the US. We still have a way to get back to our normal inflationary levels, but we are heading in the right direction.

Unemployment is low – In Canada and the US, unemployment numbers are historically low, which has improved dramatically since coming out of the pandemic.

The most common question from our clients is, what do you expect next year? Well, I think you can continue to expect volatility. You can continue to expect positive and negative news to impact our markets. But most importantly, if you stay committed to your financial plan, Invest in a globally diversified portfolio, rebalance where necessary, and accept the volatility we will continue to face, you can expect successful markets in your future.

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