We wish you a Happy New Year full of health and happiness above all. The rest will come easy and we are looking forward to a bright future ahead.

Let’s start off the year strong with a few early-year financial housekeeping items.

• A little market snapshot

We had a very strong year in 2021 and most equity markets deliver double-digit returns despite a rocky start early in the year. 2022 starts off with a bit of volatility, similar to last year. YTD ending Jan 24th 2022 at 1pm, the S&P/TSX is down (-5.46%), The S&P 500 is down (-10.42%), the Dow Jones is down (-7.96%). XBB, The aggregate bond index in Canada is down (-2.93%). The USD/CAD is now at 1.267, up (+0.24%).

• Petrov’s 2 cents:

By historical standards a roughly 10% decline is considered a minor correction in equity markets and it happens almost every year on average. Markets always price businesses very efficiently with whatever information is available in the current time. Whenever a new variable that was not previously priced in is thrown into the mix, it usually causes a bout of volatility for some time. The main trigger of the sell-off since the start of the year is the fact that central banks and the Fed in the US have hinted at a possibility of raising rates earlier than the markets anticipated. The markets are asking: Is the economy stable enough at this stage to withstand higher interest rates? This causes markets to re-price (hence the word correction).

I would consider the reaction so far a normal reaction and it is a sign that the market is still rational and healthy. I would be more concerned if markets were in constant euphoria regardless of what you throw at it. That would just defer a bigger problem later.

As it pertains to our clients’ portfolios, we focus on large businesses, with robust business models that have healthy balance sheets and strong earnings growth. Indeed interest rates affect the business cycle but a business with a strong balance sheet (enough assets to cover debt and then some…) can generally withstand this part of the cycle. This part of the cycle will test stocks that had questionable valuations with weak fundamentals.

As a reminder, we have a proven process for handling market declines: Rebalancing. When an asset class (equities or a category of equities like growth stocks) in this case drops below its target threshold in our model, we trim other asset classes (bonds or more defensive equities) to buy more of what went down at lower prices. Our process ensures we take advantage of temporary volatility to enhance the effect of the recovery whenever it occurs. While nobody enjoys watching their accounts decline in value, we must remember that this is normal and even healthy for the long-term. We have enjoyed fantastic returns last year but we cannot expect markets to go up in a straight line. The most important thing is to keep this in perspective and to never allow fear to take over our thoughts.

I am optimistic about the future of business and capital markets over the long-run as long as we remain diversified and selective about our investments.

• 2022 Handy Financial Planning Facts

Please click here for a “cheat sheet” with the most common and useful financial planning facts. Save it as a PDF or print it and keep it close by.

• Contribute to your RRSP

We strongly encourage you to check this task off your checklist early before the RRSP season deadline. The deadline to make a contribution count towards a deduction for 2021 income is March 1st 2022. Find out what your available room is and contact us to help you make the contribution. If you have significant unused RRSP contribution room we can strategize on how to use it optimally.

• Contribute to your TFSA

The Tax-Free Savings Account (TFSA) contribution limit for 2022 is $6,000. The cumulative TFSA contribution room since 2009 is now at $81,500. For the TFSA, we recommend making the contribution as early as possible. The earlier you make the contribution, the longer the investments can benefit from being sheltered in a tax-free environment and enhance growth. You can find out what your unused TFSA contribution room is through CRA Online.

• We will send you (or may have already sent you) a 2021 year-end portfolio update report

You will receive a consolidated 2021 year-end portfolio update report by email. By “consolidated” we are referring to a combined view all of the accounts in your household in one simple report showing you asset allocation, portfolio history, returns and market commentary.

You will also receive a separate set of documents by mail showing you figures separated by account and separated by currency. Clients have given us the feedback that those reports may be confusing which is why we also send you the consolidated view above. These reports are sent to you as a regulatory requirement.

To understand the status and progress of the portfolio overall, we recommend referring to the simpler consolidated report that will be sent by Rina, our associate.

• Let us know if there is a material change in your circumstances as soon as possible

If you are a client, we took the time to understand your circumstances before implementing your financial plan. Then, life happens and things change. If there is material change in your situation, let us know and we will determine if it warrants an adjustment to the strategy. For example if you foresee needing cash in the short-term (6 months-1 year), we may recommend a change in the asset allocation.

• Reminder: Estate Planning discussion with our specialist was recorded

We recently held a virtual event last year with our estate planning specialist and we went over pertinent topics. The event was bilingual and we went back and forth between French and English. We got your feedback and understood that it would be preferable to have one language at a time going forward.

For the time being, we uploaded this to our team website (Petrov Wealth Management Group - Video -Transmettre le patrimoine à la prochaine génération - Passing on Wealth to the next generation (rbcwealthmanagement.com)

Feel free to watch the recording and we hope you derive value from the content.

• Finally… Start the year by surrendering to the truth

While we have plenty of opinions, information and resources about geopolitical risks, interest rates, the economy and the markets, we will always remind you of the undeniable truth. We can make arguments and counter-arguments for any of these topics. If we agree that we cannot travel time, we agree on the undeniable truth which is that we cannot time the markets. To forecast what will cause the next bout of volatility is to predict future events which there is no evidence of yet. If there is evidence of your reasoning for a drop, most of the time, it is already priced in.

The Petrov Wealth Management is as committed as ever to provide the very best wealth management process and unparalleled service. We feel a sense of privilege to have an active seat in the economy during these times and it is our duty to be all-in for you, our clients. Please never hesitate to reach out to us and we will always seek to impress you with a quick response.

Yours truly,

- Alex & The Petrov Wealth Management Group