Where We’ve Been, Where We’re Going:
Forecasts and Analysis at the Dawn of a New Year
For financial planners, economists and investors alike, a new year is a time to reevaluate wealth management strategies — to analyze the factors that shaped an investor’s portfolio over the past 12 months, and evaluate how trends may impact performance in 2023.
In the financial pages and across the cable channels, crystal balls haven’t always been clear about the direction of markets, earnings or the economy in general. One year ago, many commentators were underestimating the severity of inflation. In the U.S., the Treasury Secretary and Federal Reserve Chairman were using the word “transitory” to describe escalating prices.
Looking ahead, there are myriad predictions about the general direction of both the Canadian and U.S. economies. A few short months ago, many were forecasting a sharp recession for 2023. JPMorganChase CEO Jamie Dimon warned an economic “hurricane” was coming.
“You’d better brace yourself,” he advised in May. “JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.”
Recently, however, some analysts have begun suggesting that any recession in 2023 could be mild, or may be avoided entirely.
The job market is also sending mixed signals. While there have been deep cuts at some of the high-flying tech companies, overall unemployment rates are still at historic lows in Canada and the U.S., and every small business owner has a story to tell about how difficult it remains to find workers.
As for financial markets, your view of 2022 is colored by the equities and other investments in your portfolio. But the overall market didn’t march off a cliff in 2022, and there were still plenty of opportunities waiting to be discovered.
As always, balanced asset allocation and long-term thinking were winning strategies amid market uncertainty.
Stocks, bonds and cash comprise the basic asset classes. There are many choices among these categories: Stocks range from blue chip to more volatile small-cap
opportunities. International securities expand the range of options, while adding the complicating factor of currency exchange rates. Commodities, real estate and private equity are increasingly popular ways to diversify a portfolio and spread risk. Traditionally, when economic conditions pull down one class, another asset class may still thrive.
Research has demonstrated that the choices you make early in diversifying your portfolio will be key in determining your investing success. A classic study of pension funds found that 93.6 percent of the performance variation among the portfolios they examined could be explained by the “strategic asset allocation decisions” made by investors.
Gary Brinson, L. Randolph Hood and Gilbert Beebower’s “Determinants of Portfolio Performance” examined asset allocation in nearly 100 large U.S. pension funds, and found that investors who chose asset classes that were tied to market indexes beat the returns that the professional pension fund managers were able to achieve. The keys to this success were asset diversity and a willingness to hold investments for the longterm, through market peaks and troughs.
The conclusion of the study is that prudent asset allocation and long-term perspectives are the best strategies for finding safe harbors amid market storms. That has been true historically — and can confidently be predicted as a winning strategy for 2023.
Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Unit values and investment returns will fluctuate.
Insurance products, including segregated fund policies, are offered through Beyond Business Financial Solutions Inc., and Investment Representative Nathan Garries offers mutual funds and referral arrangements through Quadrus Investment Services Ltd.