The Future of Your 2011 Finances

January 7, 2011

By Heather Compton and Dennis Blas

Double Digit Market Relief!

Canadian investors are breathing a sigh of relief as the Toronto stock market – the S&P/TSX composite index closed 2010 at 13,443.22, a solid double-digit gain of 14.45% on the year!  Base metals lead the market with a 47% surge, followed by a 26% increase in the gold sector. The energy sector advanced about 8.6% as oil prices ran ahead, with financials, the other big weighting on the TSX, finishing the year up 4.4%.   The Canadian dollar had its highest close since May 2008, closing over par against the U.S dollar, at 100.54 cents U.S.

Canadians who feared they were on the Freedom 95 plan or looking at taking on paid work in their retirement as 2008 came to a close are breathing a sigh of relief that 2010 produced such good news for their investment portfolios!

U.S. markets put in a solid show as well with the Dow Jones Industrial Average up 11% and Standard & Poor’s 500 finishing 2010 up close to 13%.  Many, but not all of the world’s leading stock markets ended the year higher as the global economy showed some signs of recovery over the past 12 months from its worst recession since the Second World War.  Hong Kong’s Hang Seng index was up 7%, South Korea’s Kospi  22% higher but China’s Shanghai index closed the year down 14% and Japan’s Nikkei 225 ended 3% lower.

Europe was a mixed bag with Germany’s DAX 16% higher, the FTSE 100 index of British shares up 10% and France’s CAC 40 ending the year down 3%.

The Look Forward: 3 Major Fears

Three major fears that challenged 2010’s outlook continue to cloud the view looking forward into 2011.  Inflation worries in the wake of higher commodity and energy costs, the outlook for Chinese monetary policy as they move more aggressively to control prices and cool their booming property market and Europe’s continuing debt crisis means 2011 won’t be clear sailing.

As individual investors it’s only possible to manage those elements of our financial life that we can actually control.  We don’t control stock market returns or interest rates but we are in charge of savings rates, spending levels, debt pay down, portfolio asset mix and diversification.  According to a survey released by TD Bank Financial Group, Canadians are promising to be better with their money in 2011.  Top financial resolutions are to spend less and avoid buying unnecessary things (53%), look for better bargains when shopping (38%) and to build up savings (30%).

Resolution Reality Check

For those resolutions to become reality Canadians have some hard work to do.  The ratio of household credit market debt-to-personal disposable income hit a record 148.1 per cent in the third quarter of 2010 up from 143.4 per cent in the prior quarter, according to Statistics Canada.

Bank of Canada Governor Mark Carney has been beating the drums regarding his concerns over the debt loads of Canadians and while he indicated  further interest rate hikes would need to be carefully considered, he stressed that borrowing costs would inevitably begin rising again.

Perhaps paying down debt will give investors their best possible returns in the year ahead.  You could easily be paying interest of as much as 5 to nearly 20 per cent on your debts; can you beat that in the markets in 2011?

Staying On Track

Keeping track of your assets, liabilities and spending is the first step to managing them.  Step one is to track your Net Worth – our article “Your Financial Report Card” in July 2010 showed you how.  Follow that up with a look at where the money went – your Cash Flow Statement was covered in “Your Financial Report Card – Part 2” last August.

Keeping track just got easier – promise.  All of the major banks have added on-line tracking services that help clients get a view of where the money’s going.  If you are dealing with several financial institutions then check out  This site was just launched in Canada in November 2010.

Rob Carrick, personal finance writer for the Globe and Mail reviewed the service. “Users register anonymously using a valid e-mail address, and then add login information for the online banking, credit card and other financial accounts they want to consolidate. Mint connects securely to more than 40 Canadian financial institutions, and is adding more. After registering, Mint automatically aggregates their accounts and transaction information, providing up-to-date views of the user’s financial life. There are various ways to view and graph information, and you can scan the big picture or focus on specific details.

A big focus is analyzing spending: patterns are revealed by categorizing expenses, showing how much a user pays for gas, groceries, parking, rent, restaurants, entertainment etc. Another useful function is its ability to make money-saving recommendations among financial products and services offered by competing financial institutions.”

I haven’t tried Mint yet but as readers know I’m on a continuing quest to simplify my life – financial and otherwise – I sense a resolution coming on!

About the Authors: Heather Compton has presented seminars on financial and retirement lifestyle issues for over 30 years. She retired as Vice President and Senior Investment Advisor with a major financial services company. Heather and husband Dennis Blas co-present retirement seminars for a variety of corporate clients and are the co-authors of Retirement Rocks! Canadian Boomers Invest in Life. You can find their book, online or in independent bookstores. See more of their advice at Retirement Rocks.

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