In the past several years, the markets have thrown investors some curve balls acting out in ways that were unprecedented to its long term historical performance. Historical highs followed by historical lows and global economic uncertainty to name a few. It was the start of a shift in the game. It put economists, advisors and investors on their toes trying to figure out what was on the horizon and where best to invest.
The past five years since the end of the financial crisis have been a time of recovery, equity gains, historical declines in bond yields and lower volatility.
What can we expect from the markets in 2015? Some economists are telling us to fasten our seatbelts and get ready to expect some higher volatility and lower returns.
Taking into consideration the variables surrounding corporate earnings, monetary policy and valuations, there is an educated economic belief that we are likely entering a stage where we can expect to see more modest returns from financial assets.
A quote from TD Asset Management, Forward Perspectives December 2014:
“We don’t expect it [volatility] will return to the extreme levels witnessed during the financial crisis, but rather we expect it will normalize. This means that while we do expect equities will provide positive mid-single digit returns over the long term, higher volatility is likely to make achieving those returns a bumpier ride than many investors have become used to.”
What does this mean for the average investor? It means that in this environment, sometimes you need to understand that increased volatility may mean negative returns from equities for short periods. It is also good to consider dividends as an important part of your portfolio if you haven’t already. Dividend investing has always been a cornerstone strategy for us as part of a well planned portfolio, and dividends in your investments means having a portion of your money generating a regular income rather than banking on equity capital gains alone.
As always, it is another opportunity to ensure you are focused on having a well diversified portfolio with your long term goals in mind.
Stephanie Farrow, B.A., CFP., Stephanie has over 20 years experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning, and Certified Financial Planner designation. Stephanie has been writing a financial planning column for the local business magazine Elgin This Month since 2010 and hosts our Farrow Financial Blog and Twitter @farrowfinancial. Stephanie and her husband Ken Farrow own Farrow Financial Services Inc., are busy raising three young children and actively involved in the community. Our Farrow Financial Services Team.