Good news for the economy isn’t so good for investors. That’s at the crux of the flat returns many Canadian investors have experienced so far this year.
If we dig a little deeper, we can see the domino effect of healthy early economic performance numbers and rising employment rates in the first quarter of 2017. That upward momentum extended into May when oil output surged and pushed an already strengthening Canadian dollar higher. GDP was up 4.6% over the previous year, outpacing any and all expectations for the second quarter. It’s no surprise that for many investors, their best month in terms of returns was May.
With all this momentum, it only made sense that the Bank of Canada would raise interest rates first in mid July and now once again in September. This latest increase has boosted the Canadian dollar to more than US80 cents, up about 10% from the start of the year. At the same time, the U.S. dollar is at a three-year low compared to currencies around the world.
What does all this mean for Canadian investors who are buying U.S. stocks? When you have a strong Canadian dollar buying U.S. investments, when converted back into Canadian dollars, investors see their rate of return negatively impacted.
The good news? A weaker Canadian dollar is in the best interest of the country economically and Bank of Canada Governor Stephen Poloz, having come from Export Development Canada, knows this. He’ll be watching the impact of recent rate hikes and will adjust strategy accordingly.
In the meantime, here are a few key pieces of advice to help you stay calm and carry on:
- Hold your position. If you already own U.S. investments, do not rush to sell because of currency valuations.
- Re-evaluate your portfolio based on the merit of the individual investments.
- Put the strong Canadian dollar to work. If you have Canadian dollars, this is the time to buy foreign stocks.
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My approach to investing is straightforward. I study the markets, global economies and what’s happening within industries to be in a position to best help my clients find good quality investments that will help them meet their goals. I build custom portfolios for each client. I welcome you to call me at 416-332-3863 or email me at allan@allansmall.com.