Post Pandemic Portfolio Positioning - Part 1

Flat-Fee Retirement Income Planning, Calgary

The big story so far in 2021 is the third wave of rapidly climbing cases of COVID 19. We don't know how effective a vaccine is going to be or how fast it can be administered, so we are in the midst of this pandemic for a while yet. Please follow the protocols and do your best to stay safe. Change is painful, but it always brings about growth and opportunity.

Post-Election & Post Pandemic Portfolio Positioning 

The transition from Trump to Biden happened as usual on January 20th and there's a lot less drama in American politics these days. The election didn't have a big impact on the economy or the markets one way or the other. It's the post-pandemic recovery that's the big story. There is a lot of economic pent-up demand that will be released once we get the all-clear. It's called the "Rapid Re-opening".

The next 10 years will be marked by rapid growth. Don't miss out because of investing in the wrong areas of the economy.

Here are a few points to be made in regards to economic recovery/activity over the next 10 years.

1. Separate the near-term from the longer-term. Anything can happen from week to week. But, the longer-term trend will stay in-tact. The big trends like technology, artificial intelligence, big data, cloud computing, cybersecurity, eCommerce, remote working, green energy, electric vehicles, 5G - these trends will continue. Just think of how many things you can do now without leaving your home - things you didn't even know about 7 months ago. One of the biggest impacts of COVID will be changes in human behaviour. 

2. The US will lead the way. Big companies like Amazon, Apple, Facebook, Google, Tesla, Microsoft, are the companies leading this advancement. The US represents 50% of the world's stock markets, so, not being invested in the US is to miss out on a big part of investing. The US will be one of the first countries to have their people vaccinated.

3. Canada is a surprise. We love our country, but there wasn't much upside here for the next couple of years. Canada only represents 4% of the world markets, so in that regard, it shouldn't be a huge percentage for your portfolio. However, a commodity boom would definitely see the Canadian stock market climb and so far in 2021 it has. Real Estate is Canada's biggest contributor to GDP, followed by manufacturing and then natural resource development. There are opportunities within Canada, especially within specific sectors.

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We do believe that Alberta will lead the economic recovery in Canada. We have the cheapest real estate of any major city in Canada. We have a tonne of inexpensive office and warehouse space. We have a young, well-educated, and eager workforce. We have the lowest corporate tax rate in Canada and we have a pro-business attitude at most government levels. It's still going to take some time. We are at rock bottom and have nowhere to go but up.

4. Massive shift in Consumer behaviour. Consumption makes up 70% of the economy, but what is changing is how that consumption is taking place. The delivery of items to your home, whether it is a household good or an evening meal. 

5. The energy sector 

It may never be what it used to be, but it is on the rebound and natural gas is gaining favour and will continue to do so. It's not realistic that we can convert the world to clean energy in the time frames that the uninformed public thinks. Currently, electric vehicles represent 1% of vehicles in the US. Imagine if that number was 10% - how much power it would take to power these cars? There will be a massive need for natural gas-powered electric generation. It is the most logical and cleanest choice. There is also a move towards hydrogen and Alberta companies will lead advancements in this area. This is new and I am just learning about it. There are reasons to be optimistic about Alberta. We have to be patient and keep in mind that government interference is probably the biggest threat to our economic future.

Currently, there has been a dramatic reduction in land travel, air travel, sea travel. But, at some point over the coming months, people will return to these activities and the energy need will increase. 

6. Outside of North America

In the meantime, where do we go to find investment opportunities? Well, there are many great countries, industries, and trends all over the world. The south pacific is an area of great opportunity. Countries like Taiwan and Vietnam are leading the way with technology and their people are moving up the socio-economic ladder. Eating better food, buying automobiles, and travelling. This is creating more economic activity. Also, these countries are managing COVID much better and will come out stronger and faster. Taiwan hasn't had a COVID case for 200 days.

7. Low-Interest Rates

You can lock in mortgages and lines of credit for 1.73% and maybe even lower. These low rates may not last, so lock it in. Low rates also translate into higher stock market returns. The time to invest is now - the future has never been more promising.


"COVID is going to bring about so much change and growth potential - personally, I have never been more excited about the future of investing."

Conclusion

Our recommended asset allocations for a Growth portion of your portfolio are 40% in the US and 40% international, 10% Canadian equity, and 10% in emerging markets,  specifically the south pacific countries. How much of your portfolio should you be allocating to growth? It depends on a number of factors: age, years to retirement, size of your portfolio, time horizon, risk tolerance, and income needs. every person is different in this regard and needs independent advice.

If you have extra money that you want to grow, then now is the time to get it invested. Check your coat pockets and lift up the couch cushions. If you have money then get it working for you. Dormant money is actually losing value because of the impact of inflation.

 

CPPIB has also put out a great article on, "How COVID 19 is shaping the landscape for long-term investors" 

Learn more about our retirement income planning process for clients 55+. 

 

Retirement Income, Investment & Tax Planning,

Willis J Langford BA, MA, CFP

Nancy R Langford CRS

Our mission is to help our clients get their total financial house in order and retire more confidently with purpose & peace of mind


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