Market Update – April 3, 2020

Both internationally and here in Canada, government leaders have continued to react to the Coronavirus pandemic, both in terms of the actual health crisis, and also with respect to the economic impact. While these updates are designed to discuss the short and long-term economic impact of this ongoing health crisis, it is important to note that all aspects of our lives are being affected. With that in mind, please take time to unwind and if possible de-stress. There are a variety of programs out there to help cope with these trying times, and those of you with an Employee Assistance Program (EAP) can always take advantage of the services they provide if you are feeling overwhelmed. While not directly related, taking care of your mental health will help when it comes to investing, as it will help to mitigate making financial decisions from a purely emotional standpoint.

From an economic perspective, there have been several developments this week. Most notably, there is an indication that we may be coming to an end of the oil standoff that is currently ongoing between Saudi Arabia and Russia, with the net result being a surge in oil pricing late this week. This bodes well for the Canadian economy as oil typically represents 10% of Canada’s Gross Domestic Product (GDP), and as such, an increase in oil price typically represents an increase in the growth of the Canadian economy as a whole.

Additionally, while we didn’t see the same dramatic market response to the stimulus packages that were discussed in the previous market update, they continue to help bolster the market. This can be seen with the considerable reduction in overall volatility in the North American markets:

Market IndexReturns Week of March 30th
TSX (Canada)3.23%
S&P 500 (US)-0.57%
Dow Jones (US)-1.03%

Additionally, we can see the reduced volatility in the daily valuation changes for these three indices.

When compared to the massive volatility seen throughout March, we can see greatly reduced volatility in late February, and again this week. While the volatility we are currently witnessing is still much higher than is typically seen, this reduction from previous weeks is an indication that the ongoing stimulus packages are helping to stabilize the markets in the short-term.

In terms of your investments, our recommendation is still to keep your assets in the market. A recently released study by Dalbar Inc., a leading expert in the financial services community, studied the previous 10 major market downturns. The results showed, that in almost all cases, it was best for investors to keep their assets invested. A high-level overview of these findings are:

  • In 8 out of 10 of these downturns, taking no action produced the best returns one year later
  • 70% of the cases where underperformance occurred during these downturns, happened when investors withdrew their assets during the market crisis
  • The report concluded the following:
    • “One major reason that investor returns are considerably lower than index returns has been the fact that many investors withdraw their investments during periods of market crises”

Source: Maddie Johnson: Faced with another market crisis, will investors learn from past lessons?

Lastly, I wanted to highlight another government initiative that affects individuals drawing a retirement income. For those that are generating RIFF income, please note that the government has reduced the minimum required income by 25% for 2020. This was done in order to help ease the requirement of having to sell investments in a down market in order to generate this income. Please note, this will only be reduced should you request it, so if you are drawing the minimum amount, this will not be reduced by the 25%, unless you choose.

If you would like to reduce your retirement income, please reach out to me directly. Also, if you would like to schedule a review to discuss your investments and any potential adjustments you might want to make, please let me know and I will get a review prepared.

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