The stock market rally of the past year has healed Roy Gunell's psyche as well as his investment portfolio.
"A year ago, I was depressed, concerned and worried," the 66-year-old snowbird said from his winter home in West Palm Beach, Fla. "I'm way more optimistic now."
Mr. Gunell's retirement investments are once again worth more than he paid, and he's feeling quite pleased about the 63-per-cent pop he got from the Bank of Montreal shares he bought for his Tax-Free Savings Account last January. "I've called myself the poster boy for investing this year," he joked Wednesday as he and his wife prepared to travel home to Stoney Creek, Ont., for Christmas and the impending birth of their first grandchild.
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Call Mr. Gunell an example of what could be the most unexpectedly positive financial development of 2009. Despite the worst market conditions most of us have ever seen, the wealth of Canadian households has bounced back to a degree no one expected.
Household wealth is all of your assets minus your liabilities. In other words, the equity in your home plus your stocks, bonds, mutual funds, guaranteed investment certificates, bank accounts, pensions and insurance products, minus what you owe. Statistics Canada tracks household net worth on a quarterly basis and its most recent report shows total wealth of $5.6-trillion at June 30. That's 6 per cent lower than the 2008 peak of $5.96-trillion, which sounds small but actually isn't when you consider that the dollar amount of the decline is in the area of $360-billion - that's a little more than $10,500 in lost wealth per person.
The latest Statscan tally however shows that we've regained about $141-billion in wealth from April through June. Given what's happened to both house prices and stock prices through the summer and fall, it's a cinch that net worth has climbed even more.
A danger at a time of falling stock markets and house prices is what economists call a wealth shock. People see their wealth shrinking as their investments and home equity decline, and that can choke off the consumer spending needed to keep the economy growing. Here in Canada, this hasn't been the case, though.
"Canadian households have escaped much of the negative wealth effect that was experienced in the U.S. due to falling real estate price and, of course, falling stock market prices," said Jim Stanford, economist for the Canadian Auto Workers union. "In Canada, real estate prices did not significantly decline, and the stock market has come back most of the way."
Mr. Stanford's worried about what the future holds for household wealth if, as he expects, unemployment rises and family income stagnates. But right now, a year after the worst financial turmoil seen since the Depression, Mr. Gunell and others are benefiting from rising markets.
An extreme example is Andrew Guilfoyle, who was shrewd enough to use $250,000 in borrowed money to invest in the stock market last Dec. 5. Since that day, the S&P/TSX composite index is up close to 40 per cent and global markets are up sharply, too. "I think I got lucky," said the 37-year-old Toronto investment adviser. "It turned out to be pretty good timing."
Mr. Guilfoyle, profiled in a Personal Finance column a year ago, declined to say exactly how much his $250,000 has grown. But he does want everyone to know that his investment experience has been trying at times. After horrific plunges through the fall of 2008, the stock market seemed to stabilize around the 8,500 level at the time he made his move. Then came a new round of declines that took the index another 1,000 or so points lower by early March. The index has lately been trading in the 11,300 range, which is still well off its peak in mid-2008 of around 15,000.
There are still quite a few analysts and economists who believe the stock market could fall again, but Mr. Guilfoyle has no immediate plans to sell his investments. That said, the money might end up being used to solve the family's housing issues.
"We have three little boys and we have a three-bedroom, one-bathroom house - my wife loves that," he joked. "A move or a renovation is in our future."
The housing market is the other leg that has supported household net worth in 2009. In February, the national average selling price for a resale home was $281,792, down from $310,379 a year earlier, and the Canadian Real Estate Association was predicting an 8-per-cent drop for the year. That's ancient history now. Resale housing prices averaged $341,079 in October, a new record.
Lingering weakness in the U.S. housing market suggests it's possible that a loss of household wealth will weigh on the economy there. Here in Canada, there's reason to be more optimistic about the wealth trend and, in turn, the economy.
For starters, there's the outlook for housing. "We're fairly upbeat on house prices for at least a year as we get tight supply and low interest rates coming together," said Derek Holt, vice-president of economics for Scotia Capital.
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Mr. Holt is also bullish on the Canadian stock market. While he thinks a pullback is possible in the next while, his medium-term outlook is positive because of Canada's heavy exposure to the commodities that will be increasingly in demand as the global economy heals.
Mr. Stanford is less upbeat, largely because of his concern about the unemployment rate rising from its already elevated of 8.5 per cent. Back in mid-2008, the jobless rate was close to a 60-year low at 6.1 per cent. He's also worried about how income growth for Canadian workers has stagnated. With no income growth, families may struggle to pay expenses and have nothing left to build new wealth by investing.
The unemployment situation bears watching, both in terms of what happens to the jobless of the moment and its potential to worsen. But this is also a time to focus on some good news. Given how it started, this past year could have been a lot worse.
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Rob Carrick