As investors look to manage their personal finances, and therefore their retirement portfolios, considering what central banks and governments around the world will do in terms of monetary and fiscal stimulus is very important.
Recent news around a weaker than expected increase in non-farm payrolls in the United States has spurred market anticipation that a stimulus bill could be pushed through sooner than expected. This has pushed interest rates lower, depreciated the U.S. dollar, and pushed equities higher.
Canadian investors ought to keep a close eye on such developments, as these factors directly impact the returns one can expect in the short-term for many investments with U.S. dollar exposure and affect the performance potential of asset classes (i.e., equities vs. fixed income).
When poor news stemming from underlying economic weakness pushes interest rates lower, equities tend to go higher due to the impact the risk free rate has on the valuation of any risk asset. For investors expecting this economic weakness to persist, as I do, staying invested in equities continues to make sense, despite the obvious headwinds that are likely to persist for some time.
Canadians ought to likewise consider adding U.S. exposure or reducing hedges should Federal Reserve stimulus outpace Canada over the near-term. With so many Canadian investors under-invested in international markets, opening one’s investing horizons can pay excellent long-term dividends, particularly in the context of higher long-term returns from the U.S. and emerging markets investors have seen for some time.
Staying invested, staying patient, and focusing on the long-term will always be more successful over the long-term, so staying positive (good news can be bad news) is generally the way to go for long-term investors.
Invest wisely, my friends.
