Midyear market check: How does your portfolio stack up?
The first half of 2023 marks a turnaround for the broader equity markets. After suffering a nearly 20 per cent decline in 2022, the benchmark S&P 500 is up 16 per cent from January 1; officially entering bull market territory last week.
The other benchmark for Canadian investors, the S&P/TSX Composite Index has turned an eight per cent decline in 2022 into a 3.4 per cent gain so far this year.
It seems inflation fears have waned in the wake of massive central bank interest rate hikes - at least for now.
HOW YOUR PORTFOLIO STACKS UP
The halfway point of any year brings an opportunity for long-term retirement investors to reflect on their portfolios, see how they compare with the broader markets, and make tweaks to improve overall performance.
A properly diversified portfolio should mimic the broader indices to some extent; investing across sector and geographic lines to minimize risk and maximize opportunity. Major shifts in the broader market should be matched by similar shifts to rebalance your portfolio.
As an example, the S&P 500 information technology sector is up a whopping 41 per cent so far this year after posting a 30 per cent decline in 2022. That means technology stocks now account for a greater portion of a diversified portfolio, and it might be time to divert profits to lagging sectors.
TOO MUCH CANADA?
Inversely, the S&P 500 energy index is down by 7.5 per cent so far this year after advancing by over 50 per cent in 2022. That helps explain relative weakness in the energy-heavy TSX.
It also explains why Canada’s largest stock market is a poor benchmark for a diversified portfolio. Two thirds of all companies trading on the TSX are related to the resource or financial sectors, and account for less than three per cent of global equities.
Canadians should always have some Canadian companies in their portfolios but too much Canada can have too much sway in volatile times.
FIXED INCOME IS A NEW OPTION
Diversification is also important beyond equities to asset classes. That means holding a significant portion of a portfolio in fixed income to cushion it against wild swings in the stock market.
The biggest positive from higher interest rates are higher yields from fixed income. As an example, one-year guaranteed investment certificates (GICs) are currently yielding over five per cent; adding capital appreciation to safety.
Bull markets are the ideal time to trim profits from equities to bulk up fixed income.
RISK TOLERANCE AND AGE
A mid-year portfolio review also allows individual investors to adjust their portfolios to personal changes in their lives. As we age, and approach a time when we need cash for living expenses, our risk tolerance should fall. That often means sacrificing opportunities for big gains from risky investments for smaller gains from safe investments like fixed income.
While aging is a unique experience to each of us, a qualified investment advisor should have experience in adjusting portfolios as their clients age.
A qualified advisor could also be a big help when it comes to rebalancing a portfolio, tax-efficiency and estate planning.
ARE FEES DRAINING YOUR PORTFOLIO?
Any portfolio review should include a review of fees. If your portfolio is balanced with the broader markets but performance is still lagging, fees could be the culprit.
Fees on some mutual funds could be higher than three per cent, which means annual returns would need to exceed eight per cent to generate a five per cent return.
Speak with your advisor about fees, understand how they work and ensure they are adding to the overall value of your portfolio.
The other benchmark for Canadian investors, the S&P/TSX Composite Index has turned an eight per cent decline in 2022 into a 3.4 per cent gain so far this year.
It seems inflation fears have waned in the wake of massive central bank interest rate hikes - at least for now.
HOW YOUR PORTFOLIO STACKS UP
The halfway point of any year brings an opportunity for long-term retirement investors to reflect on their portfolios, see how they compare with the broader markets, and make tweaks to improve overall performance.
A properly diversified portfolio should mimic the broader indices to some extent; investing across sector and geographic lines to minimize risk and maximize opportunity. Major shifts in the broader market should be matched by similar shifts to rebalance your portfolio.
As an example, the S&P 500 information technology sector is up a whopping 41 per cent so far this year after posting a 30 per cent decline in 2022. That means technology stocks now account for a greater portion of a diversified portfolio, and it might be time to divert profits to lagging sectors.
TOO MUCH CANADA?
Inversely, the S&P 500 energy index is down by 7.5 per cent so far this year after advancing by over 50 per cent in 2022. That helps explain relative weakness in the energy-heavy TSX.
It also explains why Canada’s largest stock market is a poor benchmark for a diversified portfolio. Two thirds of all companies trading on the TSX are related to the resource or financial sectors, and account for less than three per cent of global equities.
Canadians should always have some Canadian companies in their portfolios but too much Canada can have too much sway in volatile times.
FIXED INCOME IS A NEW OPTION
Diversification is also important beyond equities to asset classes. That means holding a significant portion of a portfolio in fixed income to cushion it against wild swings in the stock market.
The biggest positive from higher interest rates are higher yields from fixed income. As an example, one-year guaranteed investment certificates (GICs) are currently yielding over five per cent; adding capital appreciation to safety.
Bull markets are the ideal time to trim profits from equities to bulk up fixed income.
RISK TOLERANCE AND AGE
A mid-year portfolio review also allows individual investors to adjust their portfolios to personal changes in their lives. As we age, and approach a time when we need cash for living expenses, our risk tolerance should fall. That often means sacrificing opportunities for big gains from risky investments for smaller gains from safe investments like fixed income.
While aging is a unique experience to each of us, a qualified investment advisor should have experience in adjusting portfolios as their clients age.
A qualified advisor could also be a big help when it comes to rebalancing a portfolio, tax-efficiency and estate planning.
ARE FEES DRAINING YOUR PORTFOLIO?
Any portfolio review should include a review of fees. If your portfolio is balanced with the broader markets but performance is still lagging, fees could be the culprit.
Fees on some mutual funds could be higher than three per cent, which means annual returns would need to exceed eight per cent to generate a five per cent return.
Speak with your advisor about fees, understand how they work and ensure they are adding to the overall value of your portfolio.
