As I sit down to write this post, the S&P/TSX and S&P 500 are both at or near record highs. Barring an unexpected occurrence, both the Canadian and US markets will close out 2019 with gains of +20% for the year.
What has this meant for Dri Group investors? Currently, as of December 17, the Richard Dri Canadian Dividend model * stands at an annual gain for 2019 of 27% and the US dividend model** has posted a gain of 27.3%. Meanwhile, our Smart Fixed Income model*** recorded a gain of 6.1%.
In tangible terms, this means your specific statements show an increase in the equity portion of your investments with Dri Group of approximately 25%, while the fixed income portion is up approximately 3%. That results in an overall gain of roughly 14% to 16%, depending on your particular asset allocation. (i.e. The larger the equity portion of your portfolio, the higher your overall return.)
Pulling the lens back to look at the wider economic trends in 2019, the major factor that drove the economy this year was the change in the momentum of interest rates.
At the end of 2018, the consensus was that 2019 would see increases in interest rates in Canada and the US and that would lead to an economic slow down. However, like economic predictions often are, this one was dramatically wrong. In 2019, five-year Government of Canada bond rates dropped from 1.85% January 1 to 1.64% December 17, with a stop as low as 1.15% on September 31.
These low and dropping interest rates have helped economies around the world expand, which fueled modest growth across the G7 economies in 2019, consequently pushing global stock markets upward. In essence, the decline in interest rates provided an updraft for the economy and your investment portfolio.
What do we know about the year ahead?
Since most economic predictions prove to be wrong, I will refrain from making a forecast. Instead I will focus on what we know.
We know the following:
1. Our models are working
Historically, stocks of companies that pay an increasing annual dividend provide above-average returns, as evidenced by the returns of the Richard Dri Canadian Dividend Model. Based on this evidence, we developed an investment mission that has been enabling us to deliver solid returns for our clients for years. We only invest in companies with growing dividends, and we sell if their dividend growth momentum begins to slow.
Guided by this mission, we built the Richard Dri Canadian Dividend Model, which has a 10-year compounded return of 14.2% versus a 7% return for the S&P/TSX2. Additionally, our model has had only two negatives years out of ten [2018 (7.9%) and 2015 (5.4%)] while its benchmark had three negative years [2011 (8.7%), 2015 (8.3%) and 2018 (8.9%)].
That means that over the last 10 years, our model’s emphasis on dividend growth companies has led it to outperform its benchmark (S&P/TSX) and have fewer negative years. We are elated and proud that the model that we developed some 15 years ago is still achieving our objectives of higher returns with fewer negative years than the S&P/TSX.
2. Dividends keep growing
As of December 18, 2019, dividends in companies we invest in continue to grow. In the Canadian dividend model, 19 out of 20 companies increased their dividends in 2019. On the US side, 16 out of 20 companies increased their dividends. If these dividends keep increasing, we expect increases in stock prices as well, though we cannot predict when that will occur.
3. We rank stocks daily and sell/buy when prompted by our models
Each day, the team at the Dri Group receives an electronic feed from our supplier, Morningstar, which ranks about 800 Canadian companies and about 2,000 US companies according to how well they fit the filters set in our models. If a stock falls out of the top 33% in rank, it is sold and replaced with a stock in the top 15% of the rankings.
This keeps the stock positions in our models fresh by eliminating companies that are not able to increase their dividends and replacing those stocks with companies that have a stronger probability of continuing to increase dividends.
Without sounding like a broken record, we will not buy a stock that is not recommended by the model nor will we override a buy/sell signal from the model.
I have written extensively about the harmful effects of relying on emotions, tips or guesses to make investment decisions. (You can find my book Introduction to the Investment mindset here. It explains how unproductive emotional investing can be.)
4. The Dri Group team is the best I have ever worked with
Over the 25+ years I have been a wealth advisor, I have worked with many different team members, but I have never worked with a team as impressive as the one I have with me now.
Grace Gomes, Ashley Land and Lora Shapiro (in order of seniority) are the best group of people I have ever worked with. They come to the office each day fueled by a passion to provide our clients with excellent investment advice and comprehensive answers to financial planning issues.
Our emphasis on exceptional service will continue in 2020.
Things that we do not know about the year ahead
Let’s take a brief look at three topics that are providing some uncertainty as we head into 2020.
1. Are stocks going to crash in 2020?
The question I most often hear from clients is a version of “since the economy has not experienced a recession in more than 10 years, which is the longest period of growth in history, are we not due for a big bad recession next year?”
The answer is simple: I don’t know and neither does anyone else.
Please don’t get caught up in reading and believing the “end of world” predictions that are popping up as we turn the corner into a new decade. The headlines may be loud and sound accurate, but remember that many predictions turn out to be terribly wrong.
Instead, focus on the strength and solidity of the asset allocation we have selected for your personalized investment portfolio based on your risk profile, cashflow needs and time horizon. Your portfolio consists of Canadian/US dividend paying stocks, laddered bonds, laddered GICs and a tactical portion that moves in and out of the market.
And, as always, if you are feeling anxious about your portfolio, call our office, and we will review your asset allocation with you.
2. Will President Trump sign a trade agreement with China?
Again, I don’t know if this will happen. Recently, the US Government indicated that a Phase 1 trade deal with China had been negotiated and could be ratified shortly. As well, the US and China deferred tariff increases that were due to come into effect in December of 2019, which was a positive sign.
3. What about other major global questions?
What impact will Brexit have on the economy in Europe? Or on trade between Canada and England? How will demonstrations in Hong Kong impact the economy in China or the entire Asian-Pacific region? In what ways will climate change continue to impact markets? And what will the economic impact of other major developments be, such as the possibility of military aggression by China and Russia, the US Presidential election, or growing government and consumer debt levels?
Again, I don’t know if these issues will or will not cause a global slow down, but here’s what I do know: the team at Dri Group closely monitors political and economic events as they occur as part of our commitment to look out for your best interests.
Also, there are many positives to consider as 2020 arrives. The Canadian and US economies are growing, interest rates are low, net immigration is positive, inflation is muted, and unemployment is low. These are all positive signs.
In closing, on behalf of the Dri Team, I want to wish clients and non clients a Happy Holiday season. We wish you all the best for a safe and prosperous 2020.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
The process of finding a financial planner can be overwhelming. Our proprietary financial planning process is designed with you in mind. Its simple framework helps you make an informed decision about hiring the appropriate advisor.
Call me if you want to map out how you can Never Retire. You can also subscribe to our Never Retire newsletter, contact us to Order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a wealth plan to investment advice or help you take advantage of our investment models. Call me at 416-355-6370 or email me at richard.dri@scotiawealth.com.
*Model Performance as of Dec 24th(1)
1Source: https://ycharts.com/
2as of Sept /19 and before fees
source https://richarddri.ca/the-year-that-was-2019-in-review/
Dri Financial Group 