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As the economy recovers, staying the course is more important than ever

You have probably heard that when times are tough – like a recession or market correction – that’s it’s wise to “stay the course.” Ironically, with a recovering economy and robust investment markets, this advice bears repeating. Here’s why.

Money to Spend

A forecast from the Conference Board of Canada in March noted that Canadians saved almost 15% of their income last year, the highest rate in 35 years. That’s an average of $5,000 per person. The Board predicts that consumers will be spending big, driving the economy to grow by 5.8% in 2021. In April, the Bank of Canada said households look intent on spending some of the billions built up during the pandemic either because they cancelled purchases or had no place to spend the money.

The overheated housing market suggests Canadians are spending here too. Prices have increased more in Canada than in any other G7 country, with the national average home price reaching a record $716,828 in March, up 31.6% from the same month last year.

Some are predicting another “Roaring Twenties” with consumers spending freely – even recklessly – as we celebrate the end of pandemic restrictions. At times like this, it’s easy to be blown off course on the way towards your long-term goals, like a successful retirement. What to do? Keep these key principles in mind:

1. Keep investing. No one would begrudge Canadians some enjoyment spending after last year but stay committed to your future too. Keep up or begin a regular investment program so that some of your discretionary income is always earmarked for a future that will come, come what may.

2. Take a portfolio approach. If the markets continue at their current pace, the temptation of exotic investments is likely to increase. The run-up in cryptocurrencies and the GameStop fiasco suggest some investors have become less fearful, even complacent about their money. Staying true to a well-constructed, diversified portfolio aligned to your goals and risk tolerance provides a bulwark against fads, impulsive actions, and herd mentality.

3. Build resilience. “This too shall pass” is a great mantra in both bad times and good. A prolonged expansion can lead us to forget about the tough times and ignore some of our safeguards, like an emergency fund or our insurance coverage. Keeping these safety nets in place and strong while we can will prepare us for the next financial challenge we’ll face.

Value of advice

Studies have shown that one of best defences against investor behaviour that destroys wealth is having an advisor. Handholding, providing perspective, reminders about your plan and goals are all as important as the investment work we do. Let us help you be successful today and tomorrow.

Headline versus core inflation: which really matters?

There are two key measures of inflation: headline inflation and core inflation. This year, headline inflation has dominated the headlines, but which is the most important for investors?

Headline inflation. Headline inflation is a kind of “raw” inflation figure reported through the Consumer Price Index (CPI) as measured by Statistics Canada. The index measures the cost to purchase a fixed basket of goods. The basket contains quantities of specific goods and services, weighted according to how much consumers buy on average. Headline inflation is a way of determining how much inflation is occurring in the broad economy, and as it’s related to changes in the cost of living, it provides information of most interest to consumers. The CPI is also the measure of inflation that the Bank of Canada uses in its inflation targeting, with a goal of keeping inflation at or near 2%.

Core inflation. Core inflation removes the index components that can exhibit large amounts of volatility from month to month, such as the price of food and energy, which may distort the headline figure. These distortions may not be indicative of the underlying or ongoing inflation pressures in an economy. For instance, a crop failure or poor weather may cause shortages and a short-term spike in food prices. Without these distortions, core inflation provides a better indicator of the direction of inflation in an economy and serves as an important measure for investment managers and investors to understand how inflation may affect markets going forward.

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