A review of the stock markets in 2011

Unfortunately for most investors, 2011 was another year of volatility and negative returns from the stock market. The TSX finished the year in negative territory (-8.89%) despite some hopes for a Santa Claus rally. The TSX hit a high of 14,329.50 and a low of 10,848.20 with negative returns in 8 of 12 months. September was the worst month of the year where the TSX lost 8.66% in a single month. October followed with the best month rebounding a 5.61% return.

Surprisingly the US market outperformed Canada and finished in positive territory with a 4.41% return (in CAD) in 2011.

Global Markets lose money

According to the MSCI Index (in local currency), 23 of 25 world developed markets lost money in 2011. The only two markets that managed to stay in the black were Ireland (15.09%) and New Zealand (1.22%).

It should be no surprise that the worst market in 2011 was Greece with a whopping loss of 62.38%. Austria (-35.71%) and Finland (-32.02%) were experienced the next biggest losses.

The bull in Bonds continues

Despite the continue concerns that bonds may get hit from rising interest rates, bond returns were solid in 2011 with a 9.67% return. The last time bonds lost money was back in 1999 and that was only a loss of 1.1%. Although no one knows what the future returns of bonds will be, they remain an important asset class for diversification purposes.

What’s in store for the markets in 2012?

Ah, this is the billion dollar question and unfortunately my answer is the same every year . . . I have no clue. At this time of year, lots of experts try to make predictions about the following 12 months but I feel strongly that these predictions are purely for entertainment and provide very little purpose for making good investment decisions.

Despite my avoidance in providing forecasts about the markets, I get pressed to comment all the time so if I were a betting man, I would bet that the markets will be positive, not because I have a crystal ball or have any intuition about the future. My prediction is only based on the probability that a back to back negative year is very low. It’s possible but unlikely. Just do me one favour . . . do not use my predictions as to influence your investment portfolio decisions.

What should investors be doing?

2011 was not the first year that markets have fallen and it certainly won’t be the last. In my line of work, I see a lot of investors who have accepted the volatility as normal and others who are just sick and tired of all the ups and downs and the market taking away any gains they make the previous weeks, months or years.

The best general advice I can give investors is don’t panic and make irrational decisions. Making decisions on emotions is usually one of the biggest mistakes investors make. Take some time, review your portfolio and think before your act.

To help investors, here’s a few articles to help investors deal with the volatility of the stock markets:

So back to the question about what investors should be doing . . . put more energy into things you can control than things you can’t control. You can’t control or predict the markets, economy, or interest rates so stop wasting your energy trying. Focus on your ability to save. Increase your savings, automate your savings, find ways to save more and you will have more impact on your wealth than forecasting the future.

Best wishes to everyone in 2012.

Rating: 4.7/5 (3 votes cast)

A Year end investment review of the markets, 4.7 out of 5 based on 3 ratings