It’s hard to find a financial asset that isn’t priced way above the levels of early 2020.
And yet, the news is all bad in stocks and housing today. Everything is about how much prices are down from peak levels.
Measuring declines from the peak is useful in documenting a reversal of fortune in a particular asset. But for individuals who own stocks and houses, these numbers distract from what can still be a positive underlying story of investing gains.
The narrative in money today has turned viciously negative. The rising stock and housing markets of 2020 and 2021 have U-turned into declines because of a mix of worries – inflation, rising interest rates, high oil prices, risk of recession, war in Ukraine and more. Lots of people are rattled by this shift, even if it was predictable in the sense that all huge rallies end.
Here’s what to do when you hear how much houses or stocks are down. Figure out roughly what price you paid and then compare it to the current price. Don’t measure the gap between the peak and current price. Instead, look at where you started and where you are now.
Let’s say you bought a stock at $20 and it doubled to $40 in late 2021 before settling back down to $30. It’s human nature to look at this progression and see yourself as being out $10. But the more valid comparison says you’re still up 50 per cent.
Home values went up for so long, and with such momentum, that it’s jarring to see prices in many cities coming off their peaks of winter 2022. I had some thoughts for people who bought at the peak in a recent column – basically, you’re fine if you plan to own for five to 10 years.
The people who bought homes years ago are still in great shape. In April, the national average resale housing price was up about 50 per cent over the same month of 2019. The truth of it in housing is that even hefty price declines will not bring us back to the prices of the pre-pandemic world, which at the time was considered pricey.
Thanks to the pandemic, almost nothing in economics and finance is running according to the usual script today. Expect today’s uncertainties to cause more adversity for many financial assets, and generate dire-sounding reports on how much prices have fallen from peak levels.
Keep your cool by knowing your buy-in price. For all the commotion over falling prices, a lot of people are sitting on big gains in both stocks and housing.
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Stocks to ponder
Laurentian Bank of Canada (LB-T) Why take a chance on a pipsqueak with inconsistent financial results and a dividend that was slashed by 40 per cent in 2020 when you can simply buy one of the behemoths and relax while the dividends come pouring in? An answer may be emerging, says David Berman.
How long can the corporate sector keep delivering double-digit profit growth?
Earnings season has been one of the stock market’s few recent bright spots, providing a steady drumbeat of solid corporate results in the midst of an on-again, off-again investor freak-out. But how long can the corporate sector keep delivering double-digit profit growth in the face of rampant inflation, central bank tightening and the growing risk of a recession? Tim Shufelt takes a look.
Will higher interest rates kill dividend stocks?
Financial pundits have been telling two stories about how rising interest rates affect dividend stocks. Both stories have some merit, but they say opposite things, writes Ian McGugan
Even with new broker commissions, the economics of owning mutual funds have improved hugely for DIY investors.
The cost of buying stocks from digital brokers is slowly trending toward zero, but mutual funds are heading in the opposite direction. Digital brokers serving clients online and by mobile device used to be pretty consistent in not charging clients anything to buy and sell most mutual funds. But in response to changes in securities regulations, some brokers have reintroduced the fund commissions they abandoned years ago, according to Rob Carrick.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Portfolio manager Kash Pashootan trades meat-processing firm for cable company
Why my dog was the best investment I ever made
Six dividend stocks with pricing power to combat inflation
Large cap health care stocks bring dividends and products that are always in demand
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Ask Globe Investor
Question: For the past five years I have had an online broker account (non-registered) with about $50,000, all invested in seven or eight different stocks. I sell off approximately two positions each year. I have never reported these on my income tax filings and understand this might be required? I’m not even sure what forms are required. Can you please clarify how important this is given how minimal my gains or losses have been over the past five years? – Phil B.
Answer: There’s no way to put this gently. You are in violation of the tax laws. If the Canada Revenue Agency twigs to the fact you haven’t declared your capital gains for the past five years, you would be reassessed and charged penalties and interest on the money due.
The CRA makes it easy to change returns going as far back as 10 years. For details, go here
— Gordon Pape
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Compiled by Globe Investor Staff
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