Our investment approach generally considers two key factors: Macroeconomic and Microeconomic.
Macroeconomic Themes
Macroeconomics examines large-scale economic factors such as inflation, interest rates, productivity, and government policy. Here are our macroeconomic observations from the past three months:
Inflation & Interest Rates
Central banks in developed economies are working to bring down inflation. Canada’s inflation rate dropped to 2.7%, within the acceptable range of 1% to 3%, signaling price stability which is beneficial for planning and investing. The Bank of Canada recently reduced its policy interest rate to 4.75%, the first among G7 nations. More cuts may follow this summer. (Source: Bank of Canada)
Economic Growth
Canada’s economy grew by 0.5% in the past year. However, per-capita GDP decreased by 0.75% when we factor in our 1.25% population growth over the same timeframe. Based on per capita GDP growth, the average Canadian is slightly worse off compared to a year ago. (Source: Economist)
Renewal Rate Risk
The Office of the Superintendent of Financial Institutions (OSFI) reported that 76% of mortgages will come up for renewal by the end of 2026. Higher mortgage rates (which will still apply – even with recent rate reductions) could lead to payment shock for homeowners, particularly those with variable rate mortgages that are negatively amortizing. (Source: http://www.osfi-bsif.gc.ca)
Understanding macroeconomic trends is useful, but these factors are generally beyond our control. We are well-served to remain focused on microeconomic themes and decisions to best grow and protect what is ours.
Microeconomic Insights
Microeconomics focuses on individual-level economic factors such as personal spending, investment decisions, and incentives. Here are some key points we are considering:
Mutual Fund Enhancements
Recent amendments by Canadian Securities Regulators have shortened the settlement cycle for mutual funds to one day. This means you can now access redeemed funds within three business days, making mutual funds even more convenient and liquid.
Artificial Intelligence and Fraud
A recent case at the British engineering firm Arup involved AI impersonation to convince a firm employee to send HK$200 million (CAD$35 million) to a criminal organization. Artificial Intelligence increases the risk of fraud to us all. To combat such risks, we emphasize authentic relationships with you. When you request funds, we may initiate a conversation to confirm that it is really you, not to make your life difficult, but to ensure your protection through a strong, trusting and personal relationship. (Source: The Guardian)
Government Programs and Incentives
We enjoy discussing government programs (such as CPP and OAS) and incentives (FHSAs, RESPs etc.) with clients. We tailor our advice to individual circumstances, avoiding one-size-fits-all rules. We’re here to help you make the best decisions for your specific situation.
Over the past month or so we have especially enjoyed conversations with you, wanting to make good decisions concerning these government programs and incentives. In these conversations we review several individual factors before offering our advice. We also find that it is counterproductive to apply a general rule such as “wait to apply for CPP” or “everyone should get an FHSA”. Each of our circumstances are unique and the best decisions are usually made focusing on microeconomic themes. We are always honored to engage in discussions with you to ensure you make the best-possible decision – just for you.
thomsonallison.blog 