What an incredible year 2013 has been for world equity markets and investor s .  The S+P 500 (US Equity) rose +29.6% ; its best year since 1997 bringing the average annual return to 9% since inception in 1872.  Canada finished +9.6%, Germany +25.5% , and London +14.4%. Japan was the rock star at 56.7%. Our typical portfolio model of 20% bond funds and 80% equity funds returned over +20%.

 The good news is that the recovery is strong and likely to continue but keep your expectations in check.  This was a phenomenal year unlikely to be repeated soon.  We are indeed in a sweet spot where most world economies are strengthening and are calling for another positive year for 2014 but most likely not a double digit  world market scenario again after two in a row.

 Here are 5 main points of what happened this year and what pans out for 2014 (1)

  1.  The US saw its biggest annual one-year decline in the budget deficit on record.  Of course, little of that was mentioned in the press. While much of the focus this year was on the US Fiscal showdowns, the fiscal cliff, the October shutdown, the debt ceiling drama and finally a two-year budget deal in December, the biggest story yet barely reported was the collapse in the deficit by $680 billions and is still heading lower.
  2. Gold suffered its 1st annual price decline in 13 years.
  3. The Euro was the strongest major currency in the world.
  4. Canadian housing added to growth, home sales rose and prices accelerated (slightly).
  5. The stock Market outperformed bonds in the US by the widest margin in 50 years.

What’s coming ~ our humble forecasts (2)

  1. The US economy will lead the G7 growth, again.
  2. The Bank of Canada will keep its rates unchanged again and inflation will remain low.
  3. The Fed ends QE3 and the markets will handle it.
  4. Canada will stand to gain from  the strengthening in the US and a low Canadian dollar.
  5. Someone somewhere will call for a housing market crash and they will be wrong again, at least in 2014.

As far as you the investor is concerned , keep all of this in perspective.  Simply remember that while it is nice to see positive annual returns , it is the long-term average that matters.  Ensure that you invest regularly no matter what the market conditions are, in a well diversified portfolio of good qualify, well managed funds. Our annual review meetings are imperative to make sure you are properly allocated and stay on track to produce the biggest retirement paycheque when the time comes.

source (1) & (2) BMO capital markets and TD Asset Management.