Why Staying Invested for the Long Term is Important: Canadian Example

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Equity markets in most countries go through periods of bull and bear markets on a regular basis. Bull markets propel valuations to astronomical levels sometimes and that leads to a eventual plunge. Bear markets, though painful, are not a time for investors to thrown in the towel. The recent decline during the Covid-10 pandemic was a classic scenario of this case. Stocks fell dramatically only to recover strongly in a few months. According to a report by TD Asset Management, Canadian equities have also recovered strongly after bear markets based on historical data. So it is important to remain invested even during bear markets as an investor can miss the strong recovery and further gains. The following chart shows the bull and bear markets in the Canadian equity market based on the S&P/TSX Composite Index returns from 1977 to Oct, 2023:

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Missing a few trading days can make a big difference in returns especially over the long-term as the following chart shows:

Source: Bulls & Bears: Let History be your Guide, TD AM

The duration of bear markets are smaller than the duration of bull markets for Canadian stocks also.

Related ETF:

  • iShares MSCI Canada Index Fund (EWC)

Disclosure: No positions

Overview of Canadian Government Spending by Function: Infographic

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One of the arguments often made by Americans about its allies is their defense spending. It is not secret that most of Europe depends on the US to provide security while they focus their spending on social and other items. The same scenario is true with its neighbor Canada as well. Canadian defense spending is just 1.22% as a ratio of GDP in 2022 according to The Economist. Though the Canadian economy is about a tenth of the US economy, it is still huge at over $2.0 Trillion in 2023. So if Canada spends low on defense, what does the government spend on? The following infographic from Statcan provides some answers:

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Source: Statcan

On a per capita basis, the spending on defense is very low as hi-lighted above. The highest spending goes to social protection and health based on 2022-23 data. One could argue that Canada can increase its defense expenditure. On the other hand, Canadians could argue their security is covered by the US and hence there is no need to increase it.

Fixed-Income Annual Returns 2014 to 2023: Chart

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One of the simplest and easiest strategies for reducing risk with investing is diversification across asset classes. In addition to equities, it is important to hold fixed-income assets in a portfolio. Bonds can provide a cushion during adverse market conditions and one can also reinvest coupon payments in equities for instance or reinvest in other bonds. Cash also generates a decent return in this high interest time. I came across the below showing the annual return for fixed-income assets from 2014 to 2023. In the past 10 years, high-yields have earned positive returns in most of the years. Historically cash been the worst performer and earned poor returns in the period noted above as well.

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Source: Thrivent

Related ETFs:

  • iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
  • Vanguard Total Bond Market ETF (BND)
  • SPDR® Barclays High Yield Bond ETF (JNK)
  • iShares Core Total U.S. Bond Market ETF (HYG)
  • iShares TIPS Bond ETF (TIP)

Disclosure: No positions