I REALLY DON’T LIKE THIS NAME
In the July edition of the Journal, I wrote about FAANG and MAMAA.
FAANG: Facebook, Apple, Alphabet, Netflix, Google.
MAMAA: Meta, Amazon, Microsoft, Apple, Alphabet.
And now we have The Magnificent Seven, a name I really do not like. More on that in a moment. The seven are:
Alphabet
Amazon
Apple
Meta
Microsoft
Nvidia
Tesla
These are the seven companies that drove the tech rally in 2023. The tech-heavy NASDAQ index is up 43% as of December 20th, for example, and most of that is due to just those seven stocks.
Back to the name: I don’t like it because it gives the impression that these companies are infallible. Sure, their stock prices have been elevated partly on the basis of their development of AI, technology that, to say the least, is not going away any time soon. But the world and the stock markets are volatile, unpredictable places, and no one should ever be thinking that a particular company is a sure thing. Because nothing is a sure thing.
But here’s a very good thing: earnings, and the fact that stock prices follow them. These companies currently have strong earnings, and the current outlook is that this will continue. On the other hand, in just the past few weeks, we have Vladimir Putin talking about expanding the war in Ukraine. And we have Houthi rebels attacking shipping in the Red Sea, just one factor that could lead to an expansion of the Israel-Hamas conflict. Any or all of this could lead to further uncertainty in the markets.
And so the message is ultimately this: stay diversified and hence in position to absorb and even take advantage of market volatility. It is something I have written about a number of times before - here and here, for example - because it is that important. If you have any questions at all, please let me know.
BOOM
Millennials sure take a lot of heat for - compared to Baby Boomers - for living with their parents too long, and for not being financially responsible. In fact, for years it has been generally accepted that Millennials will end up financially worse off than the Boomers.
A recent study by Vanguard casts doubt on that idea. To summarize, the study found that Boomers are projected to be less prepared for retirement than younger generations (even Gen X). It is important to note that the study did not include the value of housing owned, and that homes certainly make up a significant portion of wealth for many people. But still, Boomers were found to be lagging Millennials when it came to holdings of stocks, bonds and cash.
How can this be? As part of answering that question, I will say that most of our clients are very-well-prepared indeed for retirement. Partly, this is the result of having a comprehensive financial plan, and sticking with it year after year.
It is also the result of having access to the holistic wealth management we offer. Advice offered decades ago was not as comprehensive. This in contrast to wealth managers such as us, i.e. a team intensely focused on long-term growth by providing the end-to-end services - including estate planning, insurance and tax planning - essential to ensuring your successful retirement. Thus, many Boomers would have had a slower start than Millennials in building their retirement nest egg.
Millennials have had access to holistic wealth management since the start of their earning and investing lives. They have also always had access to tax-free savings accounts (TFSAs, which were only introduced in 2009) and other products that simply were unavailable to their older counterparts.
So, should Boomers be expecting something more impressive under the tree this year - a better gift from their kids and grandkids? Maybe, although I would not be expecting Taylor Swift tickets. More on that below.
SPEAKING OF TFSAs…
The TFSA doesn’t have the most appropriate name, either. Because it is known as a tax-free savings account, too many people make withdrawals to finance current expenses. Which means they are losing out on the ultimate promise of the TFSA, which is compound growth over time. That’s right: TFSAs are an investment tool, and that is why the name TFIA would be more appropriate.
In important news, the power of the TFSA as an investment tool is set to increase: in 2024, the annual contribution limit will rise from $6,000 to $7,000 per person, and the lifetime limit will increase from $88,000 to $95,000. We expect, of course, that this money will grow over time, which is why we have clients with $400,000 or more in a TFSA - money that can be withdrawn, ideally at retirement, tax-free!
The TFSA really is a remarkable investment tool. One I strongly encourage clients and Canadians at large to take maximum advantage of. I see, for example, some people who are investing in real estate before they have maxed-out their TFSA contributions. With respect, this does not make good sense. Rental income is taxable. Selling a property (one that is not your principal residence) is taxable. Buying and selling a property generally requires paying realtor fees. Real estate is not as liquid as a TFSA, and a person can find themselves waiting for months or longer to sell a property without taking a loss - or might end up losing on that property.
TFSAs, on the other hand, are highly liquid and tax-free! (The “TF” part of the name definitely does make sense).
Give me a call if you would like to talk about taking maximum advantage of your TFSA.
INFLATION. AGAIN. AND TAYLOR SWIFT.
I understand if you are tired of hearing about inflation. So, I promise: this will be the last time I talk about it this year.
On December 19th, inflation was announced at 3.1% in November, slightly higher than expected, the key driver being the price of Taylor Swift tickets. I am just kidding, but have you seen the resale prices of her Vancouver tickets?? Tickets behind the stage start at $1,800 each. Anything facing the stage is $3,000-plus. And the show is next December.
Inflation, indeed, could be stickier than some observers expect, although energy prices are down 5.7% from a year ago - driven by lower fuel prices and a removal (which will last three years) of the carbon tax on home heating oil.
LET’S REVIEW
As I argued in the above story about Millennials vs. Boomers, having a comprehensive financial plan is absolutely key to investing and retirement success. Do you have a plan and want to review it? Do you not have a plan, and see the wisdom in having one? My door is always open to clients and non-clients alike.
THE FAMILY FILES
Cara has been telling us recently that winter is her favourite time of year. She loves all the activities: skating (Tara just took her to the Olympic Oval), sledding (there is a huge hill near our house), and skiing (both Cara and Jake have been reminding us how much they want to hit Lake Louise, which we will do over the holiday).
I must like winter as well, considering I am thinking of running the Hypo Half for a second time. That’s “Hypo” as in “hypothermia,” since the race is in February. It is actually a lot more fun than it sounds. In the meantime, Tara and I go to workout classes several times each week, together whenever we can.
Jake is still enjoying soccer, and he has practices or games (his team has only lost twice) four days a week, and I am enjoying being the assistant coach.
And of course, we are all excited for Christmas.
On that note, on behalf of Colleen, my family, and our entire team here at RBC, I wish you a very Merry Christmas, Happy Holidays and Happy New Year. See you in 2024!
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The greatest compliment we can receive is a referral to someone you care about who would appreciate the same value we take pride in giving you. If you have someone in mind, feel free to contact me at any time. Thank you very sincerely.