Understanding Markets and Long-Term Investing. December 31, 2011

Transcription

1 Understanding Markets and Long-Term Investing December 31, 2011

2 The story behind these charts The beauty of newspapers, from a publisher s perspective, is that they re addictive. A story doesn t unfold all in one go, like a novel. It fills in, bit by bit, over days. So, you have to keep buying the next day s newspaper. The story of markets and individual investments, as presented in various media, is like that. Every day, we get a few disjointed pieces of information. But, for some reason, they rarely add up to a practical investment principle, like diversification. More often, they simply stir up emotions. The charts in the following pages are, by contrast, the accumulation of years and years of data. They tell a long-term story of market behaviour good and bad. They lay the groundwork for an understanding of risks and rewards. They set the stage for rational discussions of asset mix and individual investments. We assembled these charts because we re not interested in selling papers. We re interested in growing wealth for long-term investors. 2

3 Predicting the winner is difficult Canadian Bonds DEX Universe Bond Index Emerging Markets MSCI Emerging Mkts Index(CAD) Foreign Equities MSCI EAFE Index (CAD) Canadian Lrg Cap S&P/TSX Composite TR Index Global Bonds Citigroup World Gvt Bond Index (CAD) US Small Cap Russell 2000 Index (CAD) Small Cap BMO NB SMCap Blend Wgt'd Index Global Equities MSCI World Index (CAD) US Large Cap S&P 500 Index (CAD) Source: Mackenzie Financial & Morningstar, as at December 31,2011 3

4 40 years and 40x your investment S&P/TSX Composite Index ( ) e of $1 g scale) $100 $ % +44% +253% -20% -25% +109% +203% +16% -38% -21% -27% +168% -43% +59% $41.45 December 31, ,045% cumulative return (9.7% annualized) = 40x your original investment Valu (log +41% -39% $1-35% $0 Dec-71 Dec-81 Dec-91 Dec-01 Dec-11 Sources: Datstream & Mackenzie Financial Based on the S&P/TSX Composite TRI including reinvested dividends between Dec. 31, 1971 and Dec. 31,

5 2011: Saw Tooth market cuts deep, but... S&P/TSX Composite Index -8.7 % Total return 2011 Closes at 13,443 Dec 31 Closes at 11,955 Dec 31 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 S&P/TSX S&P 500 Euro Area Japan Emerg. Mkts World Global Market Indices 1-Yr returns to December 31*: -8.7% +2.1% -8.8% -18.6% -12.5% -5.0% Source: Datastream, MSCI indices unless otherwise noted, as at December 31, 2011* Total returns, local currency. EM 5

6 2011 at-a-glance: Key Events S&P/TSX Composite Index Fed and BOC rates remain at/near historical lows 13,443 0% % (through 2011) 1.00% (through h 2011) European debt crisis spreading (other PIIGS hungry and in need*) Global Growth Moderates (but not slow) Middle East Tension Mounts Crude hits $114/bbl (Apr 29-11) $31/bbl (Dec 22-08) Crisis in Japan Earthquake Tsunami Nuclear Disaster Gold shines $1,898/oz. (Sep 5-11) $712/oz. (Nov 12-08) S&P lowers U.S. credit rating (Aug 8-11) Loonie soars/dips Wall of worry on risk / off risk $1.06 USD (Jul 26-11) 98.3 USD (Dec 31-11) European sovereign debt crisis deepens Prolonged challenges but corporate resilience Slower global growth -8.7 % Total return ,955 Supply chain disruptions carry-forward January February March April May June July August September October November December * PIIGS: acronym for Portugal, Ireland, Italy, Greece & Spain related to national debt level. Source: Datastream, as at December 31,

7 June 2008 Peak December 2011 S&P/TSX Composite Index (May 30, 2008 December 31, 2011) -50 % peak-to-bottom Peak at 15,073 Jun % bottom at 7,567 Mar 9-09 bottom to Dec-11 Wall of worry on risk / off risk Closes at 11,955 Dec European sovereign debt crisis deepens Prolonged challenges but corporate resilience Slower global growth Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Worst case scenario did not happen Less bad is good Markets lead sustained recovery Debt / slowdown concerns (improvements solidifies but many economies (primarily in developed economies) surfacing) & consumers remain challenged fixing the broken no easy task Source: Datastream as at December 31, 2011; Price index returns, local currency. Visual Source: The Wall Street Journal 7

8 Closer look at TSX... Returns on TSX for 2011 (and 2010) S&P/TSX Index Health Care Telecom Services Consumer Staples Utilities Industrials Financials Energy Consumer Discretionary Materials Information Technology January 1 to December 31, % -2.9% -9.9% -15.5% -21.2% 2% -52.5% 6.8% 6.5% 42% 4.2% 24.9% 50.4% % 57.0% 22.4% 10.3% 18.4% 16.9% 10.5% 13.3% 25.3% 36.5% -11.6% -80% -60% -40% -20% 0% 20% 40% 60% Source: Datastream, as of December 31,

9 Currency the hidden difference Comparing 2011 returns in local currency to CDN$-based Canada U.S. Euro Area Japan Emerg. Mkts World Stock markets Local currency returns CDN$-based returns -8.7% 87% +2.1% -8.8% 88% -18.6% -12.5% -5.0% 50% -8.7% +4.6% -8.3% -12.1% -16.2% -2.7% EM Note: Above expressed in total returns (Canada: S&P/TSX; U.S.: S&P500; Euro: MSCI Europe; Japan: MSCI Japan; World: MSCI World) Source: Datastream, as at December 31,

10 The next move may not be clear S&P/TSX Composite Index Closes at 11,955 Dec 31? Closes at 8,988 Dec 31 Closes at 7,567 Mar 9 Jan-09 Jun-09 Jan-10 Jun-10 Jan-11 Jun-11 Dec-11 Source: Datastream as at December 31, 2011; Visual Source: Barron s, July 13,

11 Looking back at what may lie ahead The market recovery may provide insights Dow Jones Industrial Average since WWII (to December 31, 2011) Bear / Bull / Rollercoaster (Oct 2, 1972 Jan 3, 1983) 1,200 1,100 1, O-72 O-73 O-74 O-75 O-76 O-77 O-78 O-79 O-80 O-81 O Vietnam War / oil crisis end of gold standard Source of concept: MarketWatch 11

12 Market cycles: Investing & emotions don t mix S&P/TSX Composite Index (December 31, 1994 to December 31, 2011) Not to worry, I am a long-term investor! Optimism Dec ,955 I am buying MORE! Euphoria This is great! The price is going up! Confidence Denial Relief Panic Sell NOW! Optimism Dec ,214 Capitulation Sell NOW! Mutual Fund Sales (net sales $ billion) $35.4 $17.7 $21.8 $28.9 $2.5 ($1.4) $14.3 $22.6 $20.8 $34.9 $0.1 $1.5 $12.0 $21.1 Sources: Datastream (index) and IFIC (mutual fund net sales) as at December 31,

13 Always remember... it s only a cycle Market cycle relative to economic cycle... but each has differences Stock Market Cycle Economic Cycle Top Peak Late Bull Early Bear Early Bull Mid Recovery Mid Recession Bottom Trough Late Bear For illustrative purposes only 13

14 Bull & Bear Facts* Average gain in bull market: +121% Bull & Bear Markets Average length of bull market: 46 months Average loss in bear market: -28% Average length of bear market: 9 months S&P/TSX Composite Index to December 2011 * Based on data since See page 2 for more details. og scale) % Change (lo % 81 months 253% 61 months 140% 120% 203% 90 months 168% months 100% 109% 80% 85% 24 months 81% 82% 59% 48 months 43 months 63% 40 months 34 months % 44% months 25 40% months 16% 6 20% months 1.2 0% 0-20% -17% -15% % -26% 6 months 8 months -20% -21% % -25% 10 months -28% 6 months 17 months 13 months -35% 4 months 4 months -60% 11 months -39% -38% 12 months 13 months -43% -80% 9 months Source: Mackenzie Financial (Datastream: month-end data points as at December 31, 2011; total return, local currency) 14

15 Bull & Bear Markets: S&P/TSX The Risks and Rewards of Investing: This chart represents the bull and bear markets in the S&P/TSX Index since All bars above the line are bull markets; all bars below are bear markets. For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months. The first bar represents a bear market which, at its lowest point, dropped to -26% and lasted 17 months. This was followed by a bull market rising 85% and lasting 48 months. Since 1956 there have been 12 bull markets and 12 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change. Bear markets during this period have averaged -28% and lasted only 9 months. Bull markets during this period have averaged 121% and lasted 46 months. This is the reward for accepting the risk of bear markets. Investor Behaviour: According to the chart, markets spend more time in positive territory (bull) than negative (bear). Bull markets are, on average, longer and more intense, providing a more significant percentage change. On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment bargains to be found. Investor discipline during bear markets is critical. 15

16 Bull & Bear Facts* Average gain in bull market: +142% Bull & Bear Markets Average length of bull market: 46 months Average loss in bear market: -27% Average length of bear market: 14 months S&P 500 Composite Index to December 2011 * Based on data since See page 2 for more details % 118 months 160% 280% months (log scale) % Change 110% 60% 80 10% 0 104% 48 months 90% 43 months 52% 26 months 76% 30 months 86% 27 months 87% 33 months 72% 30 months 108% 61 months 82% 34 months -40% % -15% 17 months -22% 6 months -16% 8 months -29% 19 months -43% 21 months -15% 14 months -17% 20 months -15% 5 months -30% 3 months -45% 25 months -51% 16 months Source: Mackenzie Financial (Datastream: month-end data points as at December 31, 2011; total return, local currency) 16

17 Bull & Bear Markets: S&P 500 The Risks and Rewards of Investing: This chart represents the bull and bear markets in the S&P 500 Composite Total Return since All bars above the line are bull markets; all bars below are bear markets. For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months. The first bar represents a bear market which, at its lowest point, dropped to -15% and lasted 17 months. This was followed by a bull market rising 104% and lasting 48 months. Since 1956 there have been 11 bull markets and 11 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change. Bear markets during this period have averaged -27% and lasted only 14 months. Bull markets during this period have averaged 142% and lasted 46 months. This is the reward for accepting the risk of bear markets. Investor Behaviour: According to the chart, markets spend more time in positive territory (bull) than negative (bear). Bull markets are, on average, longer and more intense, providing a more significant percentage change. On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment bargains to be found. Investor discipline during bear markets is critical. 17

18 S&P/TSX Declines Greater Than 30% Period Peak Trough Months from Peak Price Return (from trough) Peak Date Trough Date Value Value Decline to Trough 3 months 1 year 10 years Sep Jun % % 79.2% 37.9% Jul Dec % % 26.8% 108.1% Oct Sep % % 17.2% 186.5% Nov Jul % % 84.1% 153.7% Aug Oct % 3 7.9% 20.0% 137.4% Apr Oct % % 31.0% 102.5% Sep Oct % 0% % 33.5% N/A Jun Mar % % 57.5% N/A Average: -43.5% % 41.7% 121.0% Ex- Period 1 (Great Depression): -37.4% % 35.4% 137.6% Annualized Price Return (excludes dividends) Average: Ex- Period 1 (Great Depression): 8.0% 9.0% 18

19 Bear market decisions Value of $10,000 invested in the S&P 500 (US$) January 31, 1973: 3 months Later $9,285 6 months Later $9,465 9 months Later $9, months Later $8,587 1 year, 8 months later (Sept/74 Market Low) $5,816 At what point do you think most investors would have given up and thrown in the towel? $5,816 removed from the market & re-invested in an interest bearing CD at 10.5%: 6 months later $6, months later $6,426 2 years later $7,101 5 years later $9, years later $16,145 (after re-investment Sept/79 for 5 yrs at Source: Datastream prevailing rate of 11%) 19

20 Bear market decisions What if you had kept your $5,816 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 1974? 10 years later $24,671 5 years later $12,596 2 years later $10, months later $ 8,033 6 months later $ 7,820 Food for thought. Source: Datastream 20

21 Bear market decisions What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 1974? 10 years later $67,091 5 years later $34,254 2 years later $28, months later $21,846 6 months later $21,266 Food for thought. Source: Datastream 21

22 Bear market decisions Value of $10,000 invested in the S&P 500 (US$) August 31, 2000: 3 months later $8,688 6 months later $8,216 9 months later $8, months later $7,561 2 years, 1 month later (Sept/02 Market Low) $5,527 At what point do you think most investors would have given up and thrown in the towel? $5,527 removed from the market & re-invested in a 5-year GIC at 3.28%: 12 months later $5,708 2 years later $5,895 3 years later $6,087 5 years later $6,493 Source: Datastream 22

23 Bear market decisions What if you had kept your $5,527 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 2002? 5 years later $11,334 3 years later $ 8,787 2 years later $ 7, months later $ 6,875 6 months later $ 5,804 Food for thought. Source: Datastream 23

24 Bear market decisions What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 2002? 5 years later $31,842 3 years later $24,685 2 years later $21, months later $19,315 6 months later $16,306 Food for thought. Source: Datastream 24

25 Bear market decisions Value of $10,000 invested in the S&P 500 (US$) January 31, 2007: 3 months later $10,353 6 months later $10,210 9 months later $10, months later $9,769 2 years, 2 months later (Mar/09 Market Low) $5,826 At what point do you think most investors would have given up and thrown in the towel? $5,826 removed from the market & re-invested in a 5-year GIC at 1.96%: 3 months later $5,852 6 months later $5,881 9 months later $5,910 1 year later $5,937 2 years, 9 months later $6,146 Source: Datastream 25

26 Bear market decisions What if you had kept your $5,826 invested in the S&P 500 (US$) instead of going into cash on March 31, 2009? 2 years, 9 months later $ 9, months later $ 8,726 9 months later $ 8,280 6 months later $ 7,808 3 months later $ 6,754 Food for thought. Source: Datastream 26

27 Bear market decisions What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on March 31, 2009? 2 years, 9 months later $26, months later $23,702 9 months later $22,491 6 months later $21,210 3 months later $18,347 Food for thought. Source: Datastream 27

28 Staying invested improves returns Crisis Market Low 1 Year Later 2 Years Later The Korean War 13/07/ % 8% 39.3% 3% Cuban Missile Crisis 23/10/ % 57.3% JFK Assassination 23/11/ % 33.0% 1969 to 70 Market Break 26/05/ % 53.9% 1973 to 74 Market Break 06/12/ % 66.5% 1979 to 80 Oil Crisis 27/03/ % 5.9% 1987 Stock Market Crash 19/10/ % 54.3% Desert Storm 11/10/ % 30.2% Soviet coup d'état attempt 19/08/ % 21.2% Asian Financial Crisis 02/04/ % 76.2% Dot-com Bubble crash / Sept 11 / Enron 09/10/ % 44.8% Invasion of Iraq 11/03/ % 50.6% North Korean Missile Test 17/07/ % 2.1% Subprime Mortgage Crisis i 09/03/ % 6% 95.1% Average Appreciation 33.7% 45.0% Snapshots in time of significant negative international events from 1950 to Mar 2009, and the subsequent change in market value from the stock market low in that calendar year to one and tw o years hence. Source: Datastream. Benchmark: S&P 500 Composite, US$ return. 28

29 Real Return of a GIC 20% 1 Yr GIC Returns 15% 1 Yr GIC After 40% Marginal Tax 1 Yr GIC Real Return (After Inflation) l Returns (%) ( ) Tota 10% 5% 5 0% 0-5% Dec-81 Dec-86 Dec-91 Dec-96 Dec-01 Dec-06 Dec-11 Source: Datastream, as at December 31,

30 Real Return of $10, $70,000 Ma arket Value $60,000 $50,000 $40,000 $30, S&P/TSX Real Return: $39,304 MSCI World Real Return: $38,266 S&P 500 Real Return: $38,431 1 Yr GIC Real Return: $10,226 $20,000 $10,000 $ Source: Datastream, as at December 31, Marginal Tax Rate = 40%. 30

31 20 years of the S&P/TSX You can t afford to miss the best weeks Value of $10,000 invested Dec.1991 to Dec $40,000 $30,000 $33,956 $30,717 $22,418 $20,000 $16,589 $10,000 $0 63% 6.3% 5.8% 4.1% 2.6% Fully invested since Dec Missed best week Missed best 5 weeks Missed best 10 weeks Sources: Datastream & Mackenzie Financial, S&P/TSX Price Index, From Dec. 31, 1991 to Dec. 31,

32 20 years of the S&P/TSX Stock market gains are often swift and unpredictable. Investors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities. This chart assumes an investor put $10,000 into the S&P/TSX 20 years ago (Dec. 31, 1991). Over this period the average annual return for the S&P/TSX was 6.3%. Look what happens if the same investor attempts to time the market. Being in the market for the entire 20-year period would have resulted in a portfolio value of $33,956. If the investor missed the top ten weeks the portfolio value drops to $16,589. Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 6.3% to 5.8%. Missing the best five weeks: Return drops to 4.1%. Missing the best 10 weeks: Return drops to 2.6%. Considering that there are 1,040 weeks in 20 years 10 weeks make up less than 1% of the available time missing those time periods reduces the investor s gain by more than $17,000. That s over half of the investor s total return! 32

33 20 years of the S&P 500 You can t afford to miss the best weeks Value of $10,000 invested Dec.1991 to Dec $30,000 $26,810 $23,801 $20,000 $16,786 $12,331 $10,000 $0 5.1% 4.4% 2.6% 1.1% Invested all weeks Missed best 1 Missed best 5 Missed best 10 week weeks weeks Sources: Datastream and Mackenzie Financial, S&P 500 Price Index (CAD$); From Dec. 31, 1991 to Dec. 31,

34 20 Years of the S&P 500 Stock market gains are often swift and unpredictable. Investors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities. This chart assumes an investor put $10,000 into the S&P years ago (Dec. 31, 1991). Over this period the average annual return for the S&P 500 was 5.1% (CAD$). Look what happens if the same investor attempts to time the market. Being in the market for the entire 20-year period would have resulted in a portfolio value of $26,810. If the investor missed the top ten weeks the portfolio value drops to $12,331. Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 5.1% to 4.4%. Missing the best five weeks: Return drops to 2.6%. Missing the best 10 weeks: Return drops to 1.1%. Considering that there are 1,040 weeks in 20 years 10 weeks make up less than 1% of the available time missing those time periods reduces the investor s gain by more than $14,000. That s over half of the investor s total return! 34

35 Stay invested: patience is rewarded Rolling 5-year average annual compound returns (S&P 500 TR) Only seven negative periods (since 1954) 30% 25% 20% 15% Rolling 5-Year Average Annual Returns Value Date BEST 28.6% 1999 AVERAGE 11.0% MEDIAN 12.8% WORST -2.4% % 5% 0% -5% Cuban Missile Crisis Source: Datastream, as at December 31, 2011 Vietnam War Gold Hits Black Oil Embargo $850/oz Monday Berlin Wall Falls Asian Crisis Tech Bubble Global Financial European Crisis Sovereign Debt Crisis 35

36 Investor expectations Observations Since 1954, there has been only one 5-year period when investors simply broke even ( ). Since 1954, there have been only seven 5-year periods when investors lost money The average 5-year rolling return has been 11.0% Implications Consider the first bar on the chart. If you had put money into the market at the beginning of 1949, your portfolio would have grown almost 24% annually by the end of Investment strategists and professionals constantly warn investors about important economic variables, such as interest rates, inflation, a depreciating currency, oil prices rising, and even presidential elections. It is often suggested that, before investing, investors wait for certainty to arise around a specific variable. However, there will always be uncertainty in the market. Conclusions If a long-term perspective was maintained, performance did not suffer during times of uncertainty or crisis. Waiting on the sidelines until there is no uncertainty could mean a missed investment opportunity. 36

37 U.S. Stock Market Annual Total Return: 187-Year History 1987 Positive Years: 132 (70%) Negative Years: 55 (30%) Sources: Universal Economics; Datastream; Index: S&P 500, Total Return, USD to to to to to 0 0 to to to to to to 60 Annual Return Range (%) 37

38 A tale of 5 recessions Recession # 1: 1973 to S&P 500 Index Recession started: Nov ended: March 1975 End announced: N/A 50 (recession) 40 Nov-72 May-73 Nov-73 May-74 Nov-74 May-75 Nov-75 Oct Arab oil embargo causes oil prices to quadruple Inflation rate soars from 6.2% in 1973 to 11% in 1974 Sources: Datastream (chart), NBER (recession dates) 38

39 A tale of 5 recessions Recession # 2: S&P 500 Index Recession started: Jan ended: July 1980 End announced: July (recession) 80 Jan-79 Apr-79 Jul-79 Oct-79 Jan-80 Apr-80 Jul-80 Oct-80 Jan-81 Apr-81 Double-digit inflation since mid-1970s Oil imports reduced from Iran in 1979 US central bank aggressively raises interest rates Sources: Datastream (chart), NBER (recession dates) 39

40 A tale of 5 recessions Recession # 3: 1981 to 1982 S&P 500 Index 180 Recession started: July ended: Nov End announced: July (recession) 80 Jul-80 Nov-80 Mar-81 Jul-81 Nov-81 Mar-82 Jul-82 Nov-82 Mar-83 Jul-83 Nov-83 Runaway inflation: $1 in 1975 has same buying power as $2 in 1985 US central bank raises rates from 11% %(1979) to 20% %(1981) Sources: Datastream (chart), NBER (recession dates), US Bureau of Labor Statistics (CPI) 40

41 A tale of 5 recessions Recession # 4: 1990 to 1991 S&P 500 Index 440 Recession started: July ended: March End announced: Dec (recession) 260 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Real estate bubble of late 1980s bursts Savings & Loan Crisis: 1,000+ institutions bankrupt ( ) Sources: Datastream (chart), NBER (recession dates), FDIC (savings & loan bankruptcies) 41

42 A tale of 5 recessions Recession # 5: 2007 to S&P 500 Index Recession started: Dec ended: June 2009 End announced: Sep (recession) 0 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 US housing downturn, subprime mortgage meltdown, global financial crisis Recession lasted 18 months longest of any recession since World War II Sources: Datastream (chart), NBER (recession dates) 42

43 30 months after recession officially ended... where are we now? June 30,2009 Dec.31,2011: +37.7% Recession ends June Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Source: Datastream, as at December 31,

44 Recession declared officially over The longest U.S. recession since WWII is officially over. NBER stated the recession started in December 2007 and ended in June 2009 NBER release September 20, 2010 Peak Business Cycle Trough Contraction (peak to trough) Duration (months) Expansion (previous trough to this peak) December, 2007 June, March, 2001 November, July, 1990 March, July, 1981 November, January, 1980 July, November, 1973 March, December, 1969 November, April, 1960 February, August, 1957 April, July, 1953 May, November, 1948 October, February, 1945 October, Source: National Bureau of Economic Research, September 20,

45 Expansions vs. recessions in the US Expansions Recessions Current Expansion Number of Months * 2 Recession start dates Average length Recession Expansion 1854 to 2009 (33 cycles) 16 months 42 months 1945 to 2009 (11 cycles) 11 months 59 months Recession is the number of months from peak to trough. Expansion is the number of months from the previous trough to latest peak, eg. 120 months: March1991 to March 2001 expansion. Sources: National Bureau of Economic Research; *Mackenzie Financial; as at December 31,

46 ? When is the right time to invest Five approaches. Two are easy, repeatable & proven Investing $2,000/yr in S&P/TSX over 20 years (total invested: $40,000) It s time in the market... not market timing $100,000 $75,000 $96,811 $95,557 $91,703 $84,929 Even terrible timing trumps not investing $56,034 $50,000 $25,000 $0 Perfect New Year s Dollar Cost Terrible Bought T-Bills Timer Investor Averager Timer not Stocks Sources: Mackenzie Financial, DataStream, S&P/TSX Composite Index, as at Dec. 31, Quick explanation of the five approaches: 1) Perfect Timer able to invest the $2,000 into the market every year at the lowest monthly close, 2) New Year s Investor invested the $2,000 in the market consistently at the beginning of each year, 3) Dollar Cost Averager divided the $2,000 into 12 equal amounts and invested at the beginning of each month, 4) Terrible Timer invested the $2,000 each year at the market s peak, and 5) Bought T-Bills left the $2,000 in cash (using DEX 91-day T-Bill index as a proxy) never investing in stocks. 46

47 We have seen near historic declines Gives hope for better markets in years to come 10-year rolling return of S&P 500 Index, Dec. 31, 1935 to Dec. 31, % 16% 12% 8% % (Aug 31, 1949) % (Sept 30, 1984)???% (Feb 28, 2019) 4% 4 0% 0-4% -8% -9.90% (Aug 31, 1939) -2.77% (Sept 30, 1974) -5.08% (Feb 28, 2009) -12% Sources: Ibbotson Associates, S&P500; USD, price return, as at December 31,

48 Disclaimer The information contained in this document has been prepared by Mackenzie Financial Corporation ( Mackenzie ) using information from sources it believes to be reliable. However Mackenzie makes no representations or guarantees as to the accuracy of any such information. Any statements contained herein that are not based on historical fact are forward-looking statements. Any forward-looking statements represent the portfolio manager s best judgment as of the present date as to what may occur in the future. However, forward-looking statements are subject to many risks, uncertainties and assumptions, and are based on the portfolio manager s present opinions and views. For this reason, the actual outcome of the events or results predicted may differ materially from what is expressed. Furthermore, the portfolio manager s views, opinions or assumptions may subsequently change based on previously unknown information, or for other reasons. Mackenzie Financial Corporation and its affiliates assume no obligation to update any forward-looking information contained herein. The reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. 48