TheAnswerIs.ca Inc. announces a total return for the Model Portfolio from inception October 26, 2016, to December 31, 2022 was 53.86%.
The corresponding total return for the Toronto Stock Exchange (TSX), as represented by the ETF XIC, was 57.48%. The recent Canadian TSX outperformance is largely due to Canada’s heavy weighting in oil & gas, as well as mining stocks.
The annualized return for the TheAnswerIs.ca Model Portfolio for the 6.18 years since inception was 7.22%.
The trailing 3-month total return for TheAnswerIs.ca Model Portfolio was positive 5.17%. The trailing 12-month total return for TheAnswerIs.ca Model Portfolio was negative 10.73%.
Past returns are not indicative of future returns.
With respect to the year 2022, the good news was that the world largely emerged from Covid, with China as a notable laggard. The bad news was that global markets got ahead of themselves during 2021, and as the sugar rush of cheap money faded with rising interest rates, stock markets had a tough time. The US S&P 500 was down almost 20%, global markets on average were down about 18%. The TSX outperformed, declining by only 9%.
From this juncture, there seem to be two schools of thought emerging about the direction of the stock market in 2023. The first school of thought says rising interest rates will choke demand so much it will cause a recession, which in turn will cause company profits and stock prices to decline even further, possibly another 20% to 30% lower. The other school of thought is that inflation may drop faster than expected, due to a weakening economy and supply chain recovery, thus causing global central banks to "pivot" to lower interest rates sooner than expected, which would likely result in rising stock markets.
Clear as mud!
Having said that, stock markets are now cheaper then they were last December, so continued periodic investments from this level, focusing on the ETFs that have dropped the most since last year, should turn out well in the long-term. For more on how to help your mind deal with “Bear” or declining stock markets, please see Understanding the difference between Risk and Volatility and also How to survive a Bear market with Goldilocks and the three bears.
As a reminder TFSA limits are increasing to $6,500 this year.
The key to investment success is to make sure any money invested in the stock market can be left untouched for a minimum of 10 years, and preferably much longer. Not selling into a stock market downturn will ensure time for a portfolio to recover and provide potentially attractive long-term average equity returns. Five years before one slows down working, and begins to draw money from their portfolio, one should move a significant portion of their portfolio into Fixed Income.
Invest long-term and prosper.