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Bull vs Bear
Some investors may be concerned that equity markets have become overpriced, and are on the brink of a pullback. Perhaps they are passing time on the sidelines, holding onto cash and the belief they have lost out on the longest bull market in the last 60-plus years. Or possibly they are contemplating that it’s time to sell stocks and reposition to cash out of fear of the next bear market.
However, looking back over the last 90-plus years, it is unmistakable that bull markets have, on average, lasted longer than bear markets. In addition, bull markets have historically more than made up for any losses in bear markets. While there are a number of leading indicators when trying to foretell when the next bear market will be (flattening of the yield curve, inflated price-to-earnings ratios, etc.), it is nonetheless impossible to precisely predict when the bear market will begin. Given the fact that predicting the next market downturn is next to impossible, we believe the best approach for long-term investors is to stay invested, and dialed in on their long-term objectives.
Over the past 92 years, as shown in the chart above, we observe 33 bull and bear market cycles, with the average bear market seeing a 31% decline, in contrast to the average bull market increasing by 175%! What’s more, the average bear market has been 15 months in duration while the average bull market has sustained for almost 51 months.
Even after periods of a more considerable downturn, most notably in the 1930s, we see that the market rebounded substantially in the years that followed. So, although exiting the market might feel like the right thing to do when volatility increases and a bear market ensues, history demonstrates this approach typically has not paid off over the long run.
In the chart below, we lay out five distinct hypothetical accounts, with $12k invested in each account annually over a span of the last 10 years. Short of possessing a magic crystal ball, being invested—and staying invested—would yield the best outcome for the long-term.
Time is on your side. By setting long-term objectives and possessing the discipline to stay invested through the ups and downs of the market, we believe a diversified portfolio has the best probability of meeting its goals.
Almost half (45 per cent) of Canadians are confident they’ll be able to maintain their standard of living in retirement to a life expectancy of 85, according to a new study by market research firm Mathew Greenwald & Associates Inc. and Cannex Financial Exchanges Ltd.
The survey, which questioned more than 1,000 Canadians aged 55 to 75 with more than $100,000 in investable assets, found that as expected longevity increased, confidence decreased. For example, 58 per cent of respondents said they’re not confident they can maintain their standard of living to age 90.
Reflecting those concerns, 80 per cent of respondents to the survey rated guaranteed income products, such as annuities, as a highly valuable supplement to government-sponsored retirement plans. That compares with 60 per cent who said so in 2015.
“Concerns about being able to afford retirement appear to be universal, whether we are talking about Canadians or their American counterparts,” said Doug Kincaid, senior research director at Greenwald & Associates, in a news release.
A similar survey has tracked the issues in the United States since 2014. “Although they have a more robust safety net in retirement, Canadians are similarly worried about meeting their financial needs and see greater value in guaranteed lifetime income.”
The Canadian survey also found the majority of people approaching retirement anticipate a substantial cut in income when they retire and believe what they receive will decline over time. Some 42 per cent of respondents expect their highest expenses to occur early in retirement. In addition, more than a third (35 per cent) of women expressed significant concern about outliving their retirement savings. That compares to 20 per cent of men.
The survey found the top retirement concerns among Canadian respondents include retirement savings not keeping up with inflation (48 per cent), low interest rates (47 per cent), not earning as much as possible on investments (46 per cent), losing money during downturns in the stock market (46 per cent), not being able to afford long-term care expenses (45 per cent), outliving savings (43 per cent) and not having money for an emergency (43 per cent).
Funding a healthy retirement with
One of the chief concerns for those in or nearing retirement is whether your income will be
sufficient to meet your retirement spending needs. As investment portfolios gyrate along with the
markets, it has become increasingly important to ensure that your retirement portfolio is designed to provide the cash flows necessary to help you meet
your retirement goals. Tax-efficient cash flows can provide you with peace of mind knowing that your income stream will be steady and consistent during your retirement years.
A well-designed retirement portfolio will make use of both registered and
non-registered assets to supplement income provided by government and/or company pension plans. Assets held in registered accounts benefit from tax-sheltered growth during
their lifetime. Apart from a few credits and deductions which serve to reduce the tax payable, withdrawals from registered accounts are fully taxed as income at the owner’s marginal tax rate.
While there is little flexibility in terms of the tax treatment of withdrawals from registered plans, there are several options to consider in order to help maximize the after-tax income that can be provided by non-registered assets. Let’s review the various types of income and the tax rates that apply:
› Interest – taxed at the investor’s marginal rate
› Dividends – eligible dividends receive a tax credit, which may make them
an attractive source of income for many investors in high tax brackets
› Capital gains – 50% of the gain is taxed at the investor’s marginal rate
› Return of Capital (ROC) – while not taxable in the year it is received, ROC
reduces the adjusted cost base (ACB) of your investment, which generally
results in a capital gain and the ensuing tax when the investment is sold.
Clearly, income in the form of ROC with its tax-deferral characteristics is
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