Happy New Year!!
I have had a couple of weeks to compile a whole list of pertinent topics as I monitored all the end of 2015, beginning of 2016 media output.
Bloomberg suggested that 2015 was "the year that nothing worked".
The All Country World Index (the equity index which we benchmark ourselves against) total return (inclusive of dividends paid by constituent companies) dropped by approximately 2%.
The Canadian Bond Index (fixed income bench mark) total return (including interest paid / accrued) added approximately 3.25%.
Therefore the benchmark for a fully invested portfolio of 60% equity, 40% fixed income, (not adjusted for currency) would have had pretty much no growth at all. If you were able to get anything in the plus column (total portfolio return before fees), then you were ahead of the benchmark.
If you are (for example) a paying 1% fee (don't forget to include hidden third party management fees in your own cost evaluation), then you would have to have had at least a 1% positive return in order to have a break even year.
If your portfolio was skewed to a greater degree of fixed income, perhaps 60%, then the benchmark would have returned a 1% rate of growth.
If you were fortunate to have part of your international equity portfolio hedged or in fact part held in $US, then you could have seen a significant improvement over the benchmark as the $US was higher by close to 20% over the course of the year.
I have always held that it is important to have part of a portfolio held in $US because in times of greater volatility, the $US becomes a safe haven and while risk asset prices may fall more buying of $US will push the price higher and can offset lower asset prices.
As we suggested often through my blog and our weekly webinars over the course of 2015, we have entered into a "low-return" environment.
Slow global economic growth, declining corporate revenue and earnings growth, low inflation (especially from low commodity prices) and low interest rates will likely continue to put pressure on risk asset prices (equities and high yield bonds) over the course of at least the first half of 2016 (and perhaps longer).
For the time being, expect higher levels of volatility as the US Federal Reserve has taken a divergent monetary policy (tightening, by raising interest rates and draining liquidity from the monetary system) from most other central banks in the world.
Therefore, having larger cash balances than normal and less risk assets in a portfolio could be a prudent stance for the time being.
Of course, we also need to remember that it is important to take a long-term perspective and not to get caught up in the year to year data.
We should not make significant adjustments to our long-term strategies on the back of a difficult year or 2. The key to a successful financial plan is to stick to it, making minor adjustments as is necessary (when to put new cash to work, for example), but sticking to the basics of balance and diversity.
Tomorrow is the first High Rock client webinar of 2016 and we will cover some of our key successes for our portfolio models from 2015 and some of our objectives for 2016.
Feel free to tune in to our recorded version which will be posted at or about 5pm at
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