The investing disappointments of last year have made a return appearance in early 2023.
Bonds and bond funds have given up their gains in January, and stocks have lost momentum. We won’t see a clear up or down market trend emerge until there’s more confidence that inflation is easing enough to project a path for lower interest rates. Meantime, prepare for some unpleasantness in your monthly investment statements.
Rona Birenbaum, a Toronto-based financial planner and founder of Caring for Clients, has been dealing with clients asking pointed questions about their portfolios ever since 2022 statements were issued several weeks ago. She’s found a few areas where she’s been able to calm clients with some context about their results.
One of these areas is frustration about the value of investments in a portfolio falling below the book value. It’s quite common for investing account statements to show these numbers side by side, which suggests book value is some kind of a benchmark for comparing how you’re doing.
That would be wrong. “Book value is a figure for tax purposes only,” Ms. Birenbaum said. “It’s not designed to help you understand the performance of your investments.”
Book value sounds like the original amount you paid for your investments. But what it really reflects is the original invested amount plus reinvested distributions of income, dividends and capital gains from your mutual fund holdings. “Every time you get a distribution, your book value goes up,” Ms. Birenbaum said.
Book value is also relevant to investors using a non-registered dividend reinvestment plan, or DRIP. The book value for stocks in a DRIP will be purchase price plus reinvested dividends.
What’s the point of book value, also known as book cost? When you sell an investment in a non-registered account, your capital gain or loss is your selling price minus book value.
Using book value to assess your investing results is a mistake because it can result in the false impression that you’ve lost money. The market value of your investments could be higher than the purchase price, but below the book value. For a better comparison of current market value, check out the annual investing performance report your investment firm issued earlier this year. It’s sure to be archived online if you didn’t see it.
Ms. Birenbaum said bond funds offer a particularly tough comparison between book value and market value right now. These funds make regular distributions of interest, so book value will increase every year if the distributions are reinvested.
But in 2022, the market value of bond funds fell as interest rates moved higher. The background here is that the price of bond funds moves in the opposite direction of rates. Bonds did rebound in January, but they’ve given up those gains recently on concern that interest rates may yet have to rise to cool down inflation.
Another source of frustration for investors is that even their longer-term results have taken a hit. Ms. Birenbaum looked at one balanced fund where the average annual three-year return to the end of 2021 was 8.9 per cent and the three-year annualized return to the end of last year was 4.2 per cent. “These numbers are bouncing around like crazy,” she said. “I haven’t seen variability in compound returns like this in a long time.”
Seeing your longer-term results worsen is frustrating, but things can change quickly. Strong market returns in January meant that same balanced fund was up 5.8 per cent for the three years to Jan. 31.
A mistake people make in assessing their short- and long-term results is comparing them haphazardly to other investments that did better. Ms. Birenbaum cited the example of a client who noted that his globally diversified portfolio was down over a 12-month period while the S&P/TSX index was up. The correct point of comparison is a mix of Canadian, U.S. and international benchmarks.
One more issue in comparing returns is that results contained in annual investment reports are shown on a money-weighted basis, which factors in money flowing in and out of the account as well as the performance of underlying assets.
If you sell an investment that later rebounds, you could end up with worse results than the funds you own, Ms. Birenbaum explained. “You only getting a return on the money you have at work.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
