It’s the year of fear in personal finance. The dollar, stocks, oil, economic growth – they’re all in under attack in 2016. But the news isn’t all bad in the financial world. To help buck up your confidence, let’s look at four things that are going right for you and your family.
1. The risk of an interest rate shock is declining
I warned as much as anyone in the years following the global financial crisis that a return to more normal interest rates was coming. Wrong. There’s now a growing sense that we’ve moving into a slower-growth world with interest rates that will be well below what we used to think of as normal (my new Carrick on Money e-mail newsletter delves into the impact of our slow-growth future on your finances – sign up at tgam.ca/financenewsletter).
Many people overindulged on low interest rates and are devoting too much of their household budgets to debt repayment. Higher interest rates would ramp up their financial stress levels considerably, but this risk appears to be slim to non-existent for the near term. In fact, it’s conceivable we could see lower rates and remotely possible that rates could go negative, as they have in Sweden.
A weak economy means the biggest risk to your finances is a job disruption. An interest rate spike that results in higher payments on lines of credit, loans and mortgages seems unlikely.
2. Low gasoline prices
Food prices have jumped this year as a result of the low dollar, but the cost of filling up your car or truck has been chugging steadily lower. GasBuddy.com shows the average price of gas per litre has fallen roughly 25 per cent in the past six months. In fact, we’re paying pretty close to the same price as 10 years ago. If gas prices merely kept up with inflation over the past decade, we’d be paying a total 18 per cent more.
A Bank of Montreal report late last year said the cost of a litre of gas should actually be lower than it was as a result of the plunge in oil prices. “Consumers don’t appear to be reaping the full benefit of lower oil prices,” the report said. Even so, we are paying ever less for a staple that many families must buy every week. Imagine how painful those higher grocery costs would be without the break we’re getting at the gas station.
3. Young people have a great opportunity for long-term investing success
If you won’t need your money for 10 years or more, the recent stock market decline is an opportunity to get in at marked-down prices. Forget timing the exact market bottom – it won’t matter if you’re looking years ahead and not dwelling on day-to-day blips.
A few seniors have e-mailed me recently to ask if this thinking applies to people like them, with no certainty of a 10-year outlook. That’s something for me to delve into. What we do know for certain is that the current stock market downturn is a great chance for millennials to benefit from long-term stock market growth.
If you’re 30, you’re probably aware of stock market plunges in 2001-02, 2008-09 and now 2015-16. Stocks do at times seem to shred wealth, but the long-term numbers are still good. Over the past 30 years, a combination of share price gains and dividends has provided a total return of 7.9 per cent from the Canadian stock market. Don’t ask what stocks can do for you in a year or two – three or four decades is how you judge if you’re in your 20s or 30s.
4. Gold prices are rising
Gold’s supposed to be a source of value in uncertain times for financial markets and the economy. Or, not. The truth is that gold prices defy any rational explanations on a long-term basis, even if they happen to be rising right now. In fact, as of Friday the S&P/TSX global gold index was up almost 40 per cent for the year.
Gold mining stocks are rising along with the price of gold itself, and this is helping the Canadian market this year because of its heavy weighting in resource stocks. Basically, we’re falling a little less than others. In the year of fear, that’s something.
