Wow I can’t believe I’m actually writing this but it looks like Canada’s stock market, the TSX, will hit 17000 this year! Oh and by the way, I also read a report that Canadian household net worth has dropped to its lowest level since the Global Financial Crisis of ’08-’09! How do we reconcile these two things?
First, the net worth report. Some of you may have read the article in the Financial Post that Canadian household net worth dropped to its lowest level in a decade. That was a big scary headline that a lot of media outlets jumped on.
But what’s the real deal with that report?
Well, the report looked at data from December 2018 and found that a weak housing market, rising interest rates and a weak stock market were the big reason for the decline.
Of course, what happened in December 2018 was a perfect storm of wealth destroying forces.
First off, throughout the Fall of 2018 the stock markets were sinking until bottoming out on Christmas Eve morning trading! Since then, and in the past few weeks, markets are hitting all-time highs!
Next, 2018 was a horrible year for the housing market on the back of interest rate increases and the new mortgage stress-test. I think what we’ve seen so far this year has been housing holding its own with some small increases in sales and small upward price increases.
And then the Bank of Canada cut rates!
Finally, as for the stock market in general, it seems as though everyone was preparing the for the next global recession that seemed like a sure thing, until it didn’t happen!
So it was this toxic mixture of forces that killed Canadian household net worth.
When I look at my own net worth numbers from Jan. 1 2019, I said that in terms of my overall numbers, 2018 was a lost year for me. Since then I’m up nearly 20% if not more!
This goes to heart of our problem with measuring financial things. For those who don’t know, net worth is simply all of a person’s liabilities subtracted from all of their assets. Basically everything you have that’s worth money minus all the debt that you owe.
The net worth number is just a snapshot of where we stand at a given moment in terms of our finances.
The biggest problem with the net worth number is that it bundles all our debt together to be repaid all at once. Sure we have short term debt like credit card balances, a car loan or lease and a line of credit or something.
But also included in the debt numbers are long term debts like student loans and mortgages.
Of all debt, it’s really been the mortgage debt that’s responsible for the lion’s share of the huge debt to income increases we’ve seen in the last decade. And this translates into the household net worth numbers too.
So to improve our net worth numbers we need to start saving more money and buy more assets, pay down debt or do a combination of both.
If you already own financial assets like stocks or funds, then don’t panic and sell when the market drops like it did 3 times this year. Ignore the headlines and stay invested. The markets always recover…eventually.
Cheers! And have a great weekend everyone!
In case you’re wondering here are some financial services I use:
For my Daily banking and no-fee cash back credit card I use Tangerine. Curious? Check out my Tangerine vs Simplii Financial review and the Tangerine Money Back Credit Card Review.
For investing I use a combination of TD Waterhouse (for legacy investments) and Questrade (low cost stock purchases and free ETF purchases). If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around. Get $50 in Free Trades when you signup for Questrade through this link.