The Canadian Press - ONLINE EDITION

Keep investment expectations realistic

  • Print

(Special) - It's easy to get carried away when your investments do well. The tendency is to expect the good times to continue, which may cause you to abandon your long-term financial strategy and forget to rebalance your portfolio.

Last year was an exceptional one for stock investors. A report from Edward Jones shows U.S. large cap stocks in 2013 achieved returns of 32.4 per cent followed by overseas developed large cap stocks at 26.9 per cent, 13 per cent from Canadian large cap stocks and 3.4 per cent from stocks in emerging markets.

This compared to returns of only one per cent from cash, -1.2 per cent from Canada investment grade bonds, and - 5.5 per cent from real estate investment trusts, publicly-traded stocks which own real estate assets in Canada and some in the U.S.

"While last year was an exceptional one, recent experience can significantly distort investor expectations based on emotions, a narrow time period or unsustainable performance." says Craig Fehr, investment strategist with Edward Jones in St. Louis.

Edward Jones predicts stock returns will remain positive this year but more moderate than in 2013.

The global economy is expected to improve and reach a three-year high, helped by expansion in the United States, Europe and Japan. This growth can help support sustained corporate earnings growth -- the foundation for long-term market improvement - and rising consumer and investor confidence.

Domestically, Canada's Gross Domestic Product has risen to its highest level since 2011 and the economy is expected to grow at a reasonable, but below average, rate this year.

Edward Jones sees prospects for renewed business investment, with corporations in Canada and the U.S. sitting on cash reserves of nearly $2 trillion. It expects Canadian and U.S. corporate earnings to reach new all-time highs this year and predicts a return to normal and higher volatility, including periodic short-term market dips.

Interest rates also should begin to rise, leading to lower bond return potential compared to the last several years. The improving economy is expected to result in less aggressive monetary policy and slightly higher inflation expectations, which should lead to higher interest rates and lower fixed-income returns.

The Federal Reserve Bank of Atlanta recently predicted the U.S. central bank will end a bond-buying program at the end of this year and start raising interest rates in the second half of 2015.

Bonds delivered an average annual return of 6.4 per cent from 2008 to 2012 and an average of 11 per cent over the past 30 years. Investors should expect more modest returns in the future but they also should maintain an appropriate bond allocation in their portfolios to help reduce volatility. Since 1960, the average volatility of bonds has been roughly half that of stocks.

Fehr sees good "pockets of opportunities" for investors this year, but they need to be selective.

Equities in general look more attractive than fixed income securities, with more upside potential for equities in developed overseas markets such as Europe and Japan and less in emerging markets such as China and India.

"We doubt the above-average gains will be repeated in the coming year … but we believe domestic and international stocks are poised to deliver solid mid-to-upper single-digit returns, but with more bumps along the way," the report says.

"It's very important when equity performance has been so good to set your expectations, build the portfolio that is right for your situation and then align it with your long-term goals," says Fehr. "This can help you not only avoid emotional reactions but also put you in a better position to capitalize on opportunities that may arise, both of which will help keep you on track toward your long-term goals."

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2014 Talbot Boggs

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Tree remover has special connection to Grandma Elm

View more like this

Photo Store Gallery

  • Marc Gallant / Winnipeg Free Press.  Local- (Standup Photo). Watcher in the woods. A young deer peers from the forest while eating leaves by Cricket Drive in Assiniboine Park. A group of eight deer were seen in the park. 060508.
  • Young goslings jostle for position to take a drink from a puddle in Brookside Cemetery Thursday morning- Day 23– June 14, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)

View More Gallery Photos

Poll

Do you like Gord Steeves’ idea to sell four city-owned golf courses to fund road renewal?

View Results

View Related Story

Ads by Google