Wow how time flies! It’s been one whole year since this blog first started. I started out with the goal help educate my readers about personal finance. I wasn’t going to try to predict stock winners or tell people what to invest in. My hope was to increase awareness around personal finance and have people make their own educated decisions. Personal finance is a topic that is rarely talked about within classrooms and households across Canada and America. Hopefully readers of my blog have been able to absorb some of the ideas that I have been writing about and I hope to continue on improving on my own knowledge in 2014 and sharing it with my audience.
Before we get into 2014, let’s recap what an amazing year 2013 has been for investors in North America:
- Real estate in both Canada and the United States have risen dramatically. Canadian real estate prices rose an average of 9.8% across the country. The United States had an even larger jump of 13.6% across the board. Certainly owning a home was beneficial to investors on both sides of the border.
- Wall Street had the best gains on the stock market in decades. It was definitely the greatest gain that I have experienced since I started investing. The Dow Jones Index ended up 26.5%. The S&P index rose an astonishing 29.6%. If you thought technology was dead, guess again. The NASDAQ composite index rose 38.3%, outpacing any other American index.
- Canadian stocks didn’t fare as well, but even with an index heavily weighted on falling commodity prices, the S&P TSX index rose 9.6%. Not too shabby for an index that really comprises mainly of financial and commodity based companies.
- I always said that it is necessary to diversify into markets outside of North America. It helps mitigate risk, but it can also be beneficial because the global economy doesn’t just revolve around just Canada and the US. For the year, the Tokyo Nikkei index rose an astonishing 56.7%. Yes you read that right, a group of the biggest companies in Japan accounted for a greater than 50% gain. It’s not just Twitter and Apple that make sexy picks. Even indexes can go that high!
- With all the talk of how fast China is growing, the Chinese index was by far the worst performer losing 7% for the year. See why past winners are not always next year’s winner? It’s totally unpredictable.
- Despite the riots and the political unrest in Europe, even indexes in countries like Germany were up 26%, Spain was up 20% and France was up 18%.
- Were there any losers in all of this? Conservative investors holding bond funds took a hit of around 5% this year as bond prices fell and long term interest rates started climbing.
So what can 2013 tell us about the future? Nothing. The past is never indicative of the future as the markets behave in ways that we cannot comprehend. Emotions are hard to judge, and as investor sentiment remains positive we could see even bigger gains. It would be good to note; however, that long term trends will always hold true. Growth of double digits in the 20 and 30 percent range is unsustainable and thus we should temper our expectations for 2014. If you missed out on the 2013 rally, then I’m sorry, but things like this happen that are beyond our control. Don’t try chasing gains and playing catch up by extending yourself beyond your comfort zone. Stay with a plan you are comfortable with and stick to it.
With such astronomical gains already in the books for 2013, we should be wary of an overheated market. At any point during the next year markets may correct because we get too far ahead of ourselves, but this shouldn’t deter you from your original goal. Remember that investing is a long term commitment and not a short term play. Stay persistent, be strong and continue to utilize the same techniques like rebalancing and dollar cost averaging to bolster your portfolio even in turbulent conditions.
The same goes for our real estate market. As prices continue to rise at such quick paces, be very careful not to overextend yourself with large debts with low interest rates. As the economy picks up steam, bond prices will continue to fall, interest rates will rise, and so will long term fixed rate mortgages. Be careful not to get yourself trapped with a large mortgage when rate renewal time comes.
2014 should hopefully start a trend towards normalizing back to the norm. Interest rates have been historically low for years, but with the American economy picking up steam, hopefully we see a return to things that are more normal: Respectable unemployment rates, positive GDP growth, normal interest rate levels, and better government balance sheets. We’ve been relying on generous monetary policies for many years, but now it’s a chance for the world economy to show that it has legs of its own.
For those that have followed my blog throughout the year, I truly hope that it has helped you in your quest to achieve financial independence. If you have friends or family that are struggling to manage their finances, help them out and more importantly point them to my blog and hopefully they too can learn something new.
I hope you all had a great 2013 financially, and I hope for better things in 2014.
Happy New Year!