As we near the end of the first quarter of 2019, I surmise that we’re all breathing a little easier, as the markets have improved dramatically. As of March 15th (year-to-date) the TSX is up +12.7% and the S&P500 +12.6%. The 12-month return numbers are: TSX +3% and S&P500 +2.7%.

Despite this impressive recovery there is still no shortage of headline news attempting to capture us within its fear-based clutches. During the 22 years I have been advising clients on their portfolios, no matter what the news is, or how dire things might appear, markets always rebound. Yet here we are, still climbing that proverbial “wall of worry”. Whether it’s the deranged behaviour of you-know-who in the US or predictions of a looming recession (I’m not in this camp), we humans tend to have an unfailing habit of automatically assuming the worst and looking at the half-empty glass. This unfortunately has now become a large part of what contributes to market volatility. As you have done, the trick is to ignore these impulses and thanks to this, we sit here today - up significantly from the end of December.

Real Estate versus the Stock Market:

Over the years I have discussed the merits of owning real estate and how that can contribute to a well-balanced financial portfolio. I have occasionally heard people say that real estate is a “better” investment than having money in the stock market. Thanks to research by RBC Global Asset Management, this actually isn’t the case. Here’s some of what they had to say:

“When comparing real estate and equity investments, it is important to understand the historical growth associated with these different asset classes. A common misconception among many investors is that, historically, real estate has been a better long-term investment than equities. Looking back, however, the data suggests otherwise.

In comparing Canadian real estate to Canadian equities, RBC GAM’s data crunching suggests that the stock market has been a more effective way to grow wealth compared to real estate (see chart below).

Two key factors to consider when making the comparison:

• Real estate purchases are typically highly mortgaged (or leveraged), which can magnify gains. In Canada, it’s not uncommon to see loan-to-value ratios of 80% or more. By contrast, equity market investments are typically not purchased with borrowed funds.
• Costs such as real estate commissions, land transfer taxes, and maintenance and repairs are not included in the data and would also negatively impact investment returns in the real estate markets.

Federal Budget:

March 19th Bill Morneau delivered what has been coined a “free-spending” budget. I think it would be safe to say many were surprised by the federal government’s strong fiscal performance (2018/19), which included a smaller-than-projected deficit of $14.9B. It has been widely accepted that this government’s interest in spending (with no plans to balance the budget), comes on the back of 2019 being an election year. The spending announcements were directed at numerous sectors (read voter-friendly measures). $21 billion in new expenditures were revealed, including what’s known as human capital infrastructure initiatives, which are vital to improving the output and productive capacity of our human capital – an area of increasing importance given the impact of technological disruption on Canada’s already well-educated and flexible labour force.

As RBC Chief Economist Craig Wright stated, “…the budget doesn’t balance itself without effort, economic growth and correct policy decisions. If we create a more flexible, dynamic and productive labour market, we are creating the conditions for a stronger economy. That would give the government more leeway to balance the books… at a date before 2024, hopefully”.

RBC Wealth Management Services was granted access to the Federal Budget lock-up and as a result, they’ve provided us with highlights of the key tax measures that are of most interest to Canadian investors. For more details, please refer to the 2019 Federal Budget article.

In closing, my goals remain the same. I’ll continue to be vigilant regarding sector allocation and the search for value.

Happy Spring!

 

 

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