In February, the markets have picked up where January left off.
has been the theme of 2016 and there is no indication this will end any time soon.
Although most stock and commodity markets have fallen significantly this year, it's important to remember that there have been a few areas of strength. First and most obvious, has been fixed income or bonds. Generally, when markets fall, investors begin investing in safer areas, and fixed income is the main area they look to.
The second area of strength this year has been gold. As I'm typing this on Thursday morning, the ETF we own in virtually all of our portfolios is up over 5% today. Leading up to our rebalancing of portfolios last year, the yellow metal was one of our underperformers. This required us to add to our gold position as it was underweighted. Given gold's recent strength, our performance has benefitted from that rebalance. In turn, if current trends continue, our next rebalance will see us trim our gold and fixed income positions to add to ones that are underweighted.
With all of this in mind, please remember that long term performance is often heavily determined by what investors do in bear markets such as this. I have written a series on the psychology behind investment biases, and in the
I discuss why most investors buy and sell at the wrong times- leading the average investor to dramatically underperform the markets.
This often happens because they assume the recent past will predict the future. For example, during the technology bubble, investors over-invested in tech companies based on a great narrative along with recent stellar performances.
Just as detrimental is when investors look at the recent returns in a poor market like we are having now and assume this will be what the future holds. Please take a few minutes and check this series out. It'll give you some context so you can appreciate the difference between a danger and a threat!
Financial Planning Corner
With the RRSP deadline of February 29th fast approaching, you may want to consider whether you need to make an RRSP contribution sooner than later. For those of you thinking of doing so, I have found a few tools you may find helpful. The first tool is a link to the 2015 and 2016 tax brackets in Ontario. It always helps to have an idea of what marginal tax bracket you're in. If you're in another province, just Google your province and add "tax bracket tips".
Next, is a
for all provinces to see how your taxes will change depending on your income and your 2015 RRSP contribution(s). Lastly, I wrote
a blog post
a little while ago on the differences between TFSAs and RRSPs. Please note, as it's slightly dated, the lifetime contribution amount of TFSA accounts is now $46,500.