Summer 2023 Market Update

Employee Resources

The summer began on an optimistic note for stock markets, with the S&P 500 closing the first half of this year with a gain of more than 20% since its October 2022 low. As a result, many believe that this was the start of a new bull market cycle. However, in my opinion, I don’t believe this to be true. There’s no denying that a 20% rise (U.S. markets) from the recent lows sends out a powerful signal. However, in theory, the end to a bear market is considered only when the previous high has been surpassed, which is still not the case. Also, until just recently the S&P 500’s year-to-date rise was driven almost exclusively by tech giants (see chart #1).


Ytd Total 2023 Return

Source: Data via Refinitiv

So where should one invest? Well for the first time in decades, the earnings yield on equities is no higher than the yield on cash and high-quality corporate bonds. When a 5% return is available in cash, investors need to be able to make a case for a double-digit return in equities to justify taking the risk of owning stocks. However, there are few market sectors where you can do this right now. As central banks move closer to the end of the interest rate cycle, the more compelling fixed income becomes in client’s portfolios (see Chart #2).


Asset Allocation 6.5 Yield

Source: Blackrock iShares 03/31/23

The Bank of Canada decided to raise its policy rate again in June and may do so again this week (July 12th Bank of Canada meeting). Whether central banks raise a few more times, whether they pause, or eventually start to drop interest rates, ALL these scenarios produce positive outcomes in most fixed income portfolios, 12-24 months out. Therefore, for the second half of the year, the focus will be to continue to increase the weighting in high credit quality corporate and government bonds with considerably higher yields than a year ago. Furthermore, our team will continue to look at reducing our weighting in equities where there is cyclical risk of a more pronounced economic slowdown. Having some cash (high interest savings account) on the sidelines is not a bad idea either!

Returns As Of 10july2023

Decumulation & Longevity Risk

In Canada, the 3 pillars to planning for your retirement are government programs (CPP, OAS, etc.), workplace programs (Group RRSP’s, private pensions, etc.) and personal savings (RRSP, TFSA’s, etc.). In some cases, your business could be considered as the 4th pillar. ALL of which factor into how much income you will receive in retirement. However, there are challenges across all these pillars, some of which the retiree has no control over. Government funded programs have been changed over the years and there is no guarantee that what you get now is what you will get when you retire. Furthermore, there is no guarantee that your employer has a pension or group plan. It’s therefore important to have retirement savings that are in your control, namely self-directed investment accounts like RRSP’s and TFSA’s.

It’s also important to have an effective “decumulation” strategy. Decumulation refers to the process of systematically withdrawing funds from retirement savings to compliment other sources of income from the other pillars. A proper strategy is critical to ensure a comfortable lifestyle, navigate market volatility, optimize tax efficiency, and manage longevity risk.

What is longevity risk? Longevity risk refers to the risk of outliving one’s financial resources, primarily due to an individual living longer than anticipated. It’s the #1 risk to Canadians when it comes to retirement planning, particularly as life expectancies continue to increase globally. Nearly 50% of retirees miscalculate their own life expectancy by more than 5 years! 1

So how do you know if your money will outlast you? That’s where our team comes in!! In summary, we can provide a roadmap for managing retirement savings and generating a strategy that provides a reliable income stream throughout retirement. This allows our clients to enjoy the retirement and gives them peace of mind.

If you have any questions at all about your retirement planning, please don’t hesitate to reach out to our team. We are here to help!


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