Yahoo Finance Ask the Expert: Top tips for building your 2024 investment plan
After a dismal 2022, many Canadians ought to be relatively pleased with their investment returns last year, says Michael Currie, senior investment advisor at TD Wealth.
In addition to high rates on cash and fixed-income investments, Canada’s main stock index (^GSPTSE) is close to its average annualized return, he notes. And there have been significant gains south of the border, driven largely by the “Magnificent 7” tech giants.
“There does seem to be a general vibe and feel out there that things are really, really bad, and at least in terms of the overall markets … things are actually pretty good,” Currie said in an interview with Yahoo Finance Canada.
So, what does this mean for 2024?
Experts say now is a good time for Canadians to reevaluate their investment strategies and prepare for the evolving market conditions.
Adjust to falling interest rates
Although Bank of Canada Governor Tiff Macklem has said it is too early to consider rate cuts, the central bank could begin cutting interest rates as early as April or May, Currie says, citing forecasts from TD.
He advises investors to act accordingly.
“The biggest message is you don’t invest the same when rates are falling as you do when rates are rising,” Currie said. “It’s not a real coincidence that almost every gain we’ve seen this year has come in the last two months, because that’s when the market assumed we hit the peak of rates and they’re starting to come down.
“So, falling interest rates will absolutely be the story of 2024.”
Last year, many investors chose to park money in savings or a short-term Guaranteed Investment Certificate (GIC), earning risk-free returns of 5 per cent or more. Although it was an effective strategy in a high-interest-rate environment, Currie notes that “completely opposite market forces” are starting to take shape.
“GIC rates are already falling,” he said.
As a result, Currie says Canadians looking to simply protect their cash in 2024 could be in for a “rough year,” potentially missing out on greater gains elsewhere.
'Bonds are going to make a comeback'
As interest rates fall, bond prices tend to rise.
This is among the reasons why experts are predicting a big year for bonds. In fact, RBC Wealth Management states in its 2024 outlook that bond investing is the most attractive it’s been in 16 years, emphasizing the higher base rates.
Richardson Wealth shares a similar view.
“It’s looking like bonds are going to make a comeback and provide almost equity-like returns,” Diana Orlic, portfolio manager at Richardson Wealth, told Yahoo Finance Canada.
Although the yield curve is currently inverted, meaning short-term interest rates are higher than long-term ones, Orlic and Currie agree there could be greater upside with securing longer-term bonds before rates decline.
“If you think we’re going to be seeing 3-4 per cent rates, why not lock in 5.5 now for the next 7-10 years?” Currie said, adding that many bonds are trading at a discount.
As there’s uncertainty over how some companies will cope with the higher costs they’ve been experiencing, Orlic suggests focusing on investment-grade and government bonds.
“There’s a little more safety there,” she said.
Seek out stock market opportunities
Typically, Currie says his clients look for two things from the stock market: low risk and dividends.
“Well, they’re absolutely the two worst places you could have put your money last year,” he said, citing poor performance from the TSX's low volatility and dividend indexes.
But this could present an opportunity for some “bottom fishing” entering 2024, provided investors aren’t already overweight in these areas.
“It should be good for some of those beat-up sectors, like real estate, utilities, the phone companies,” Currie said. “We’ve already seen that even though they’re all negative year-to-date, they were all up about 7 per cent in November.”
He describes the energy sector as a wild card.
“It’s a big, big part of the market,” Currie says, “and a lot of Canadian investor portfolios have zero there.”
Currie’s final piece of advice: “Don’t ignore the growth companies.”
Large-cap growth companies were the “big winner” of 2023, he notes, with the technology sector outperforming in both Canada and the U.S. Valuations might be “on the high side,” but Currie says there’s nothing wrong with having some exposure there to help diversify a portfolio.
Potential for volatility remains
While there are opportunities to be had, Orlic expects 2024 to be a volatile year.
Richardson Wealth is calling for a recession, citing the lingering effects of inflation and high interest rates. As such, it's adopting a “moderately defensive” approach – at least for now.
“We love bonds, we like cash, and we worry about equities,” it wrote in its 2024 outlook.
In addition to interest rates and inflation numbers, Orlic says they’ll be monitoring the job market and the overall health of the consumer. Ongoing geopolitical risk and the U.S. presidential election could also play a big role, she notes.
“I think it’s going to be a bit of a rollercoaster,” Orlic said.
Establishing a core position in stable, dividend-paying stocks can offer a buffer, she says. Investors should also feel comfortable holding some cash, or exploring other liquid alternatives, until a clearer picture emerges, she adds.
“Sometimes, you have to take your profit, sit on the sidelines, look for what is thrown your way, and then be ready to deploy again,” Orlic said.
Most importantly, she advises clients to consider their time horizon and risk tolerance when making such decisions.
Farhan Devji is a freelance journalist and published author based in Vancouver. You can follow him on Twitter @farhandevji.
