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2019 – Year In Review

A year ago it was doom and gloom. However, fast forward one year later and we’re all popping champagne. For the average investor, 2019 represents one of the best investing years ever. Who could complain about these numbers:

  • S&P 500 up 28.7%
  • S&P TSX up 18.9%
  • MSCI EAFE up 18.4%

Those numbers are astronomical for stock market gains. In fact, we might not see these numbers anymore for a while.

What started as a tweeting storm by President Trump, with trade wars and tariffs, reverted to become a banner year for corporate profits and share buybacks. The biggest surprise were the rate cuts implemented by the Federal Reserve after many moves to increase interest rates.

Cheap Money

Just when you thought money couldn’t get any cheaper. It did! The talk of trade wars and a slowing economy caused central banks to shed interest rates. During the course of the summer in 2019, interest rates hit extreme lows.

2019 Year In Review - 10 Year Bond Rates
Courtesy Bank of Canada

In fact, long term bond yields got close to 1.3%. This was in fact lower than short term bond yields. The dreaded inverted yield curve that happened is supposed to mean a recession. But that recession never happened.

Those that took advantage of low interest rates to renew their mortgage rates are hailed as heroes. Who would have thought 1.99% mortgage rates would ever appear again!

Rising Asset Prices

Cheap money spawns higher prices. This couldn’t be more true for all sorts of asset types including real estate and stocks. As mentioned in the introduction, stocks enjoyed a record year posting near 20% gains across the board.

Corporate tax breaks implemented by President Trump helped goose profits. Corporate profits in conjunction with low borrowing rates meant that corporations repaid investors through increased dividends and a gargantuan amount of stock buybacks. With cheap money this will continue, as I have already mentioned how corporations will continue to repay investors at the expense of workers.

Rising Debt

Cheap money has one negative consequence. Rising debt. Despite the notion that a mortgage is “good” debt, there really isn’t a good thing when you owe hundreds of thousands. Unfortunately many Canadians do.

2019 might be remembered as the year where Canadians racked up a huge amount of debt buying real estate. We are at the point now where Canadians spend a record amount just on interest payments. When $105 billion dollars go towards paying interest it’s hard for the economy to grow.

Disposal income remains an issue for Canadians as more and more Canadians want to buy expensive homes in expensive cities. At some point Canadians will need to show some restraint. Mortgage debt can only be so “good”.

Lessons To Learn

If 2019 tells us anything it’s that we should expect the unexpected. It’s impossible to predict the stock market. So we should stop trying. Trump’s tweets can take the economy in any direction. This means we should always be diligent and prepared for anything to happen. Keep your investments diversified and keep thinking long term. Trump can only have 4 more years and that might happen.

Money can get cheaper, but that doesn’t mean we should keep borrowing. At some point we need to pay it all back. Remember that just because you can afford the monthly mortgage payment doesn’t mean you should take it. The goal is to become financially independent, not to pay the bank interest for the rest of your life.

Remember to keep budgeting properly and maintain positive cash flow. Try to top up your TFSA, save for your kid’s education using an RESP, shift your taxes using an RRSP and try to save 10% of your income. But most of all, enjoy your time off with your friends and family. Money you can always make, relationships are harder to come by.


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