Now is the time to invest
Most seniors, as well as many risk-adverse investors, tend to flock to GIC. If you are a regular reader of my column, you know I am not a big fan of this method.
Maybe years ago, the GIC had a purpose, but nowadays with the extremely low interest rate environment, and after paying taxes on the pittance of interest you will earn, it makes no sense to invest in this product. It is my view that this is the fastest way to go broke safely!
Please consider talking to an experienced adviser, one who will work with you and provide alternative products to provide capital protection and growth potential to at least keep up with inflation.
For those readers who invest in equity markets, you may have noticed that your portfolio has taken a bit of a hit at the end of November, prompting many to ask if it was the beginning of a pause in Canadian markets after the huge run-up we had with the U.S. presidential election.
Other advisers, like myself, believe it is more likely due to the month-end pension fund portfolio rebalancing done by large mutual fund companies and institutional managed accounts.
Pre-market futures were up 41 points on Nov. 30 and demonstrate a pretty good indication that it's probably the latter.
Typically, markets are always headed into a bit of a soft patch toward the Christmas season and we should expect a slight pullback. Often viewed by advisers as the “sweet month,” this would be a good time to put money into the market to continue to build a higher return anticipated to come in the new year.
We expect a pullback of three to five per cent this month and for those who have not contributed yet to their RRSP, now would be the time to continue putting money into the market to work for you in 2021.
If we look at the past for an example, in December 2018 we saw the markets come in with the weakest numbers for the S&P 500 in 70 years.
However, remember that typically, December tends to gain strength toward the end of the month and going into January, with an average monthly gain expected to be 1.57 per cent.
The odds still favour a small “up” month-end price increase this year despite the inauspicious start.
Another thing to keep in mind if you are thinking of investing at the end of the year is the “January Effect,” which is often viewed as a seasonal increase in stock prices.
Since 1928, analysts have been tracking stock movement and have found that the S&P tends to rise on average 60.5 per cent of the time in January alone.
Analysts who have studied this theory (market trends from 1905 to 2005) speculate that January has a four- to six-times greater increase in stock performance than any other month during the year.
One theory is that many investors tend to sell high-year-end stock in December due to capital gains tax and then purchase weaker stock picks in January.
It is my view that year-end sell-offs tend to attract January buyers interested in low price deals. Investors usually know that the drop in stock prices in December is not based on corporate fundamentals, but rather tax loss harvesting, and therefore prices get driven up higher in January due to buying frenzies. I am the first to suggest that you should never try to “time the market” when planning to invest. However, the stats from tracking December to January buy/ sell movements over the last 100 years speak volumes.
Always save and invest throughout the year to ensure you retire debt free and wealthy.