The financial markets in 2009: how did your portfolio do?
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The beginning of a new year is the ideal time for all of us to critically review the performance and composition of our portfolio. In this, the first of two commentaries on the year 2009, we look at how the various financial markets behaved, and the performance that would have been produced by a portfolio created following some admittedly arbitrary criteria but which are nevertheless based on the philosophy of our site. We hope it will encourage you to look at the returns and composition of your own portfolio, and consider what changes might be appropriate. In a subsequent commentary on the year 2009 we'll look more generally at the highlights of the year for a self-investor.
2007 and 2008 financial markets
Many of the factors at work in 2009 are the same ones that affected prior years. So let’s start with a recap of those years.
We performed the same exercise for the years 2008 and 2007, and it is interesting to note how the same factors influenced results in those years, but not always in the same direction; see The markets in 2008 and your investments and The market in 2007 and your investments
. Thus the markets in 2007 were directly affected by rising oil prices with the resulting dramatic increase in the Canadian dollar against the U.S. dollar and to a lesser extent against the euro. In 2008, just the opposite: the price of oil plummeted (according to Economagic.com the price started the year at U.S. $ 91.73, reached a peak of U.S. $ 145.90 and ended the year at U.S. $ 41.02), causing a sharp fall in the Canadian dollar against the USD and against the euro.
Other notable events in 2008 included a very strong bond market for the most secure of debt securities, notably for treasury bonds in the United States, and to a lesser extent in Canada. The collapse of the housing market in the U.S. in 2007 continued and accelerated in 2008, while the Canadian real estate market in 2008 resisted - see our commentary How that other market is doing: residential real estate .
Finally, in response to the collapse of the housing market in the U.S., an unprecedented financial crisis began in 2008 in that country, and spread across the world. The result: a historical decline in equity markets everywhere.
2009 financial markets
In 2009 the price of oil rebounded sharply ( without threatening the historic highs of 2008), the Canadian bond market remained relatively stable, the housing market hit its low in May and ended up for the year in Canada (see the Teranet National Bank Housing Index site), the Canadian dollar, propelled by the comparatively better economic performance of the Canadian economy and by rising oil prices rose against almost all currencies, and global equity markets, after hitting rock bottom in March 2009, made a spectacular recovery.
All these factors have created wild swings and much volatility (and fear) in financial markets. When the dust had settled here are the numbers for the year:
The beginning of a new year is the ideal time for all of us to critically review the performance and composition of our portfolio. In this, the first of two commentaries on the year 2009, we look at how the various financial markets behaved, and the performance that would have been produced by a portfolio created following some admittedly arbitrary criteria but which are nevertheless based on the philosophy of our site. We hope it will encourage you to look at the returns and composition of your own portfolio, and consider what changes might be appropriate. In a subsequent commentary on the year 2009 we'll look more generally at the highlights of the year for a self-investor.
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