Recession
The definition of a recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. In simple terms, a recession is merely a time out, allowing the economy catch its breath between growth spurts.
There was a great article in the October 29th edition of the Report On Business in the Globe and Mail written by President Jonathan Durocher of National Bank Investments Inc. It is titled, Seven do’s and don’ts before the Next Recession hits, and it is well worth reading.
Mr. Durocher states:
- Don’t try to time the next recession
- Take a proactive approach to asset allocation
- Don’t assume it will be as bad as 2008
- Diversify your portfolio
- Don’t wait for a recession to deal with its impact
- Have a financial plan in place
We couldn’t agree more! The following table which was included in the article illustrates that over the past sixty years there have been eight recessions, reflecting a seemingly a random pattern as to frequency of occurrence, duration and depth. The main take-a-way here is that recessions are normal so rather than fear them, take steps to deal with them instead.
Impact of previous U.S. recessions on the S&P/TSX Total Return Index
|
Recession |
Recession |
12 mos. |
During |
12 mos. |
Full |
|
|
Start |
End |
Before |
|
After |
Period |
|
|
% |
% |
% |
% |
|||
|
Dec. 2007 |
May 2009 |
10 |
-22 |
17 |
1 |
|
|
Mar 2001 |
Oct. 2001 |
-19 |
-9 |
-8 |
-31 |
|
|
July 1990 |
Feb. 1991 |
-7 |
-1 |
7 |
-1 |
|
|
July 1981 |
Oct. 1982 |
7 |
-16 |
38 |
23 |
|
|
Jan. 1980 |
June 1980 |
56 |
4 |
19 |
93 |
|
|
Nov. 1973 |
Feb. 1975 |
2 |
-10 |
12 |
3 |
|
|
Dec. 1969 |
Oct. 1970 |
-1 |
-11 |
3 |
-9 |
|
|
Apr. 1960 |
Jan. 1961 |
-8 |
18 |
22 |
32 |
|
|
Average |
5 |
-6 |
14 |
14 |
National Bank Investments Inc. (Recession dates are those of the United States, determined by the U.S. National Bureau of Economic Research. Returns during recessions are measured from the end of one month to the other.)
*From 12 months prior to 12 months after a recession
Managing the financial risks associate with the market must be done in the context of our clients’ constantly changing circumstance.
The risk associated with trying to “beat” the market simply isn’t worth taking. Why do we need to beat the market anyway? Is there something else we should be doing instead such as saving more, spending less and avoiding debt?
In our next blog, we will talk more about risk and how best to handle it
David J. Angas
Senior Vice President, Financial Advisor
Family Wealth Counsel Advisor Group/Raymond James Ltd.
Scotia Plaza – Suite 5300, 40 King Street W., P.O. Box 415, Toronto, ON, Canada M5H 3Y2
T: 416-777-7110
F: 416-777-7020
david.angas@raymondjames.ca
www.raymondjames.ca/familywealthcounseladvisorygroup
Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Family Wealth Counsel Advisory Group, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.
