Not the best year for investors
The collective net worth of Canadians fell by $332 billion in the third quarter of this year.
That’s about $8,700 per person. If we annualize this amount it comes out to roughly $35,000.
Unfortunately RBC is forecasting further decline to net worth until the second quarter of 2023.
Asset prices across the board have dropped. It doesn’t matter if you own stocks, bonds, or real estate. Pretty much everything has been hit this year.
There’s a global effort by central banks to tighten monetary policy.
It’s meant to lower inflation, but it also makes borrowing more expensive and reduces liquidity in markets causing asset prices to fall.
But during times like this when we may not feel as wealthy as before, it’s important to keep a few things in mind.
First, net worth is simply a number. It can swing up or down abruptly, but what actually matters is what you’re doing with your net worth. Are your assets earning you capital gains over time? Is your debt tax deductible? Is your passive income increasing? Much like a game of Exploding Kittens, it’s not just about what cards you’re dealt. It’s also about how you use them. 🙂
And second, financial markets can be very volatile in the short term, but tend to revert back to the mean. This year may feel like a drawn out bad dream. But let’s not forget the euphoria investors experienced the year before from the end of 2020 to the end of 2021. It was the complete opposite of this year. Stocks, bonds, real estate, and even some alternative assets such as cryptocurrencies all performed exceptionally well. The S&P 500 gained 28% including dividends in 2021 for example.
When markets move substantially in one direction it often overcorrects in the opposite direction soon after. In fact, technical traders rely on this feature to help make their decisions about when to go long or short. So experiencing a pullback this year after an incredible run last year is really just par for the course and expected.
And finally, the silver lining to a lower stock market is that it correlates with higher future returns. 🙂 Stocks have most likely already taken the bulk of their losses this year. The chance of two consecutive years of losses for the S&P 500 has only been 9% historically.
This means there is a very high probability that stocks will perform much better in 2023 than this year.
And that is certainly something to look forward to. 😀
Which is why I have recently bought some stocks such as Alphabet (GOOGL) in anticipation of higher prices next year. My margin debt is now at $307,000 which is probably the highest it has ever been. But when there’s a discount going on I can’t help but buy, lol.
You can watch my latest video here to see how I’m managing my margin account so I don’t get margin called.
Random Useless Fact:
Hollywood has been depicting air vents wrong this whole time.
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Real estate in Alberta and Sask isn’t declining since it never got to the bubble levels of the GVR. Also Energy stocks have performed like a champ this year.
Good points. 👍 If you work in the oil fields and are exposed to Alberta real estate and energy stocks then you have probably done okay this year. 🙂 Other people, not so much. But the TSX contains quite a lot of oil and gas names so Canadian investors overall should have done better than US investors.
Yes, here’s to hoping 2023 is better than this year. Interesting that the probability is only 9%, lots of people calling for a recession next year. I’ve been buying some discounted stocks in the last 3 months, like SWK, TSM, and INTC, all long positions! Happy Holidays!
All of those great companies as far as I can tell. I’ve been looking to pick up some TSM as well.
I do believe there will be a recession next year. What I’m not sure about is how much of it is already priced into the financial markets. 🤨
I’m up 270K for the year. Haven’t changed asset values for any RE holdings. Of the 270K some is savings and some is investment returns. I don’t own any stocks so I haven’t seen much go on there. Hoping the loan LTVs are hedged well for the private mortgages I hold.
That’s amazing. Having non correlated assets to the stock market really helps out when traditional investments underperform. Way to be an independent thinker and investor. 😁 Maybe you can retire earlier now knowing your finances are more resilient than most.
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