LAST YEAR

As we anticipated, the market finished strong last year. In 2023, our all-equity portfolios generated double-digit returns, and our fixed-income portfolios delivered above average returns (per the iShares Core Canadian Universe Bond Index, or XBB).

The S&P 500, which we consider the authoritative indicator of how the markets are doing, was down 5% in September, and as we shared with you in that month’s edition of this blog, “after a drop of 1% or more in August and September, the S&P 500 tends to rebound in October and perform well in the fourth quarter.”

And that is exactly what happened.  In fact, the S&P 500 was up 24% in 2023, and the double-digit returns of our equity portfolios were achieved despite the fact that our investing philosophy - as it pertains to dividend stocks - was out of favour (more on that a few paragraphs below).

Our clients, and regular readers of Marche Monthly, will recall that in our equity portfolios, we favour companies that pay dividends and have the ability to grow those dividends over time.  Dividends are not only a hedge against inflation, but also there is this advantage:  over the long run, the majority of gains from investing in the stock markets come from dividends, and not growth in share prices. 

For example, if a person in 1960 had invested $10,000 in the S&P 500, it would be worth more than $4-million now, with more than 80 per cent of that gain from dividends (assuming all dividends were reinvested) and 20 per cent from capital gains.

By “out of favour,” I mean that in 2023, rising interest rates reduced the attractiveness, relative to bonds, of dividend-yielding stocks. We expect this relationship to flip in 2024.

THIS YEAR

In other words, we believe that this year, the dividend component of our strategy will be back in favour - that the outlook for dividend stocks is more favourable this year than it was in 2023.  Why?  Because inflation is in decline, and thus central banks should start reducing interest rates this year, which would lead to a decline in bond yields.  This will increase the attractiveness of dividend-paying stocks relative to bonds.

WHERE ARE YOU?

In the last two years - from the start of 2022 to the end of 2023 - the markets delivered negative returns on a price basis.  Specifically, the S&P 500 was down 0.19%, the TSX was down 1.24% and the Canadian Universal Bond Index was down 10.95%.  As an example of what this means, if you had a portfolio that consisted of 50% stocks and 50% bonds, you would be down more than 5% in the past two years.

(It is important to note that even though the S&P 500 rose 24% in 2023, almost 75% of that increase was driven by only seven companies, dubbed the "Magnificent Seven": Amazon, Apple, Alphabet, Microsoft, Tesla, and Nvidia.  More than two out of every three stocks in the S&P 500 had negative returns on the year).

And yet, our portfolios have delivered positive returns over the past two years. So, if you are a client, where are you?  The answer is straightforward: you are ahead of the benchmarks in your financial plan.  And as noted just above, our clients are well-positioned for 2024, in that we believe the outlook for our portfolios - especially their dividend and bond components - is more favourable this year than it was in the last.

EPILOGUE

Fifty percent of Canadians say they don’t have a will. That’s shocking enough, but wait until you hear the percentage of people in the 18–34 age range who are will-less:  70%.

We have been receiving tremendously positive feedback, from the many Millennials and Gen Z’ers in our client families, about a service that seeks to fix this problem among people with uncomplicated estate planning needs and who do not require direct consultation with our Will and Estate Planning Lawyer.  It is called Epilogue, and it is an online service that creates a will, power of attorney and other crucial estate planning documents in as fast as 20 minutes - right on their smartphones if they wish.

Here’s how incredibly simple the three steps are:

Epilogue is a primary example of the value we create for our many multigenerational client families:  we give the younger generations access to services and pricing they would not be able to obtain on their own. In this case, through a special partnership with RBC, Epilogue is offering a 20% discount until December 31, 2024.  This is reduced from pricing that is already very affordable at either $139 or $199, depending on the package chosen.

Do you - or a younger person in your family - want to get started?  Just click here.  Or let me know if you have any questions at all.

MORE IMPORTANT THAN EVER:  TAX PLANNING

Tax planning is now more important than ever. Because of the power of tax-sheltered compound growth, your registered plans are one of the most important components of your financial plan. A strategy of careful planning, consistent management and making your maximum allowable contributions on a consistent basis is essential to maximize the value of these vehicles.

As we approach the RRSP deadline and tax season, we want to remind you of the details surrounding the use of tax-sheltered savings plans as an effective way to grow your savings.

RRSP Deadline and Contribution Limits

The 2023 RRSP contribution deadline is February 29, 2024 and the RRSP contribution limits are $30,780 for 2023 and $31,560 for 2024.

If you have the funds available, consider making your 2024 RRSP contribution early in 2024, rather than waiting until the deadline in 2025. The simple act of contributing early maximizes the tax-deferred growth of your investment portfolio.

TFSA

You are allowed to contribute $7,000 to your TFSA in 2024. If you did not contribute to a TFSA in prior years, with the contribution room from 2009-2024, you will be able to contribute up to $95,000 to grow tax free.

FHSA

The First Home Savings Account is a new registered plan that gives eligible Canadians the ability to save up to $40,000 on a tax-free basis, for the purchase of their first home. It combines the features of an RRSP and TFSA where contributions are tax deductible (like an RRSP) and withdrawals, including earned income, are tax-free (like a TFSA), provided funds are used to purchase a qualifying home. The annual contribution limit is $8,000, with a maximum lifetime contribution limit of $40,000.  For more information, please click here. 

To determine your available contribution room, check your latest Notice of Assessment, RRSP Deduction Limit Statement (Form T1028), or log on to your Canada Revenue Agency account, here.

If you would like to explore these strategies, please give us a call, and we will help you develop a plan that makes the most sense for your situation. You can also make a contribution by transferring funds to your RBC Dominion Securities account directly from any RBC Royal Bank account through DS Online. For DS Online help or more information on transferring funds, please contact Joy at 416-974-4811.

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We don’t speak jargon.  We’re all about uncomplicating your life, so we speak plain English.  If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.

Want to discuss any aspect of this month’s blog, or any other issue on your mind?  Have a story idea?  I am always happy to receive your call or email.

WHO WE ARE

**To learn about our unrivalled team of experts, delivering Canada’s widest array of wealth management services to our clients, visit our website, here and here.

WHAT WE DO