Here’s to the year that was

As 2010 comes to a close, it is time to look back and reflect on the events and happenings of the past year.

As 2010 opened, the recovery from the international economic crisis continued, although the situation was and is still somewhat fragile depending on the country considered. The stimulus packages instituted by central banks around the world injected a significant amount of liquidity into economies. As a result, interest rates remain at or near historical lows and several stock markets have reacted positively.

For example, at the beginning of the year the S&P/TSX index stood at approximately 11,900 and at of the time of writing this column it was around 13,187, an increase of 10.82%.

Some industry sectors such as gold and precious metals have had a banner year. However, we should not fool ourselves into believing that we are ‘out of the woods’ just yet. The stimulus packages implemented also served to dramatically increase the debt loads of several governments, delaying the chances of running balanced budgets and with deficits now being the norm. We are also starting to see the belt tightening effects of these budgets from most levels of government around the world, including Canada and particularly in some of the countries in Europe such as Greece and Ireland.
While the macroeconomic efforts at the governmental level are really out of our hands, we can and should still consider how we can best manage our finances to ensure that we are reacting appropriately to the economic environment. While equity portfolios have generally performed well this year, it is essential that we also manage the liability side of our balance sheets. The historically low interest rates were designed to stimulate demand but far too many people have been enticed into assuming unreasonable amounts of debt as a result. Currently, the debt to income ratio of the average Canadian household stands at approximately 1.45 to one - this is an historical high and should be of concern and managed closely. Interest rates cannot remain at these levels for ever and an increase in rates will result in financial stress for many families.

The increase in household debt presents a compelling argument for proper financial planning and management. If you have any questions on this topic or would like to find out more about a financial planning topic of interest, please call 250-762-4100 or email [email protected]

I hope that 2010 has been a good year for you and your family and I would like to extend my warmest regards to you and your family and wish you a wonderful festive season and a prosperous and happy new year.

This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, or life insurance, and should not be taken as providing, investment, financial, legal, accounting or tax advice.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.