2023 Year in Review
Jan 02, 2024
Let’s just say it – despite all the headlines, twists and surprises along the way, 2023 was a great year for investors.
The S&P 500 was the star at +23% (all returns are total return in CAD). Not to be left behind, Japan was up +19%, Europe +18%. Of course, we can shed a tear for our home market, up only +12% but let’s not forget in 2022 the TSX suffered much less damage comparatively. When +12% has you trailing the pack, it has been a good year to be an investor.
It wasn’t just stocks, bonds went up too, ending two consecutive down years. The Canadian aggregate finished up +6.5% while the U.S. aggregate was up +3.1%. A strong Canadian dollar sapped a couple points of performance for U.S. denominated indices. Bonds were helped by inflation starting to subside, central banks hitting the pause button. Credit spreads also came down materially in the final weeks, driving even stronger returns in more credit tilted parts of the bond market.
Despite the end point of the year being rather favourable, it certainly wasn’t a straight smooth line. Here is a brief walk down the investing memory lane of 2023:
Strong start - To say that people were bearish to begin 2023 is a bit of an understatement. Central banks were still hiking, inflation was still a problem and investors were still licking their wounds from 2022. If you could encapsulate the general consensus, it was cautious on the U.S. market, recession calls were abundant and yields would come down. And as potentially an omen for the rest of the year, January turned out to be the 2nd best month of the year as markets rallied to start despite all the bearishness.
With hindsight, 2023 had a decent setup for returns. Investor sentiment was already bearish, which is a contrarian indicator. VIX was elevated, valuations were low or at least reasonable. This certainly does make 2024 look more challenging from a starting point.
Strong start - To say that people were bearish to begin 2023 is a bit of an understatement. Central banks were still hiking, inflation was still a problem and investors were still licking their wounds from 2022. If you could encapsulate the general consensus, it was cautious on the U.S. market, recession calls were abundant and yields would come down. And as potentially an omen for the rest of the year, January turned out to be the 2nd best month of the year as markets rallied to start despite all the bearishness.
With hindsight, 2023 had a decent setup for returns. Investor sentiment was already bearish, which is a contrarian indicator. VIX was elevated, valuations were low or at least reasonable. This certainly does make 2024 look more challenging from a starting point.
Bank failures
- The early gains to the year were all given back in February and March as a number of U.S. banks failed. With total assets in excess of $500 billion, First Republic, Silicon Valley and Signature became among the biggest bank failures in U.S. history. Of course there were many moving parts including deposits being pulled in search of higher yields in money market vehicles and excess capital being investing in bonds which were now sitting in unrealized loss positions. Quick action by money center banks to provide loans and the Fed opening up a bank stability mechanism helped stabilize the situation. Amazing what throwing a few billion dollars at a problem can solve, or at least mitigate.
Artificial intelligence – As markets recovered from the bank scare, hype around AI really started to fuel the market rise. Opening up of large language models has increased accessibility and exposure from largely coders to the masses. Now the race is on for firms to re-characterize revenue with an AI label, the familiar dance has begun. Still, the potential applications are considerable and largely unknown. It will be exciting.
Barbie & Swifties save the economy – Of course an exaggeration, but as the market advance entered the summer months the resilience of the economy was on full display. The recession talk that became louder during the bank failures was giving way to first a soft landing and then a no landing scenario.
Artificial intelligence – As markets recovered from the bank scare, hype around AI really started to fuel the market rise. Opening up of large language models has increased accessibility and exposure from largely coders to the masses. Now the race is on for firms to re-characterize revenue with an AI label, the familiar dance has begun. Still, the potential applications are considerable and largely unknown. It will be exciting.
Barbie & Swifties save the economy – Of course an exaggeration, but as the market advance entered the summer months the resilience of the economy was on full display. The recession talk that became louder during the bank failures was giving way to first a soft landing and then a no landing scenario.
Too much good news
– All this good economic news helped global equity markets rally into the middle of summer, before the good news became bad for the markets. Bond yields were on the rise and when the 10-year U.S. Treasury yield moved firmly above 4%, equity markets began to suffer. Yields didn’t stop rising around 4%, they marched up to 5% due to better economic conditions and a very heavy government issuance schedule following debt ceiling dances.
This led to three consecutive down months, dragging global equities down a bit over 10% from the high at the end of July. As it was primarily rising yields that was the culprit this was especially painful for dividend paying companies. More on that later.
But Santa delivered – Once yields started to come back down, thanks to some softer economic data and cooling issuance of bonds, it was an “everything up” rally. Bonds moved higher, credit spreads fell, equities rocketed higher. Let’s call it the cherry on top of a great year. Inflation data continued to improve and central bankers backed off their rate hiking ways. They were certainly late to start hiking to combat inflation, next year we will learn if they were late to stop as well.
 For North American equities, this rally into year end has been 100% multiple expansion. Earnings estimates for the S&P 500 have not turned up at all and have actually been coming down for the TSX. Globally, things are a bit better with some positive earnings revisions but nothing compared to the rally in the market.
But Santa delivered – Once yields started to come back down, thanks to some softer economic data and cooling issuance of bonds, it was an “everything up” rally. Bonds moved higher, credit spreads fell, equities rocketed higher. Let’s call it the cherry on top of a great year. Inflation data continued to improve and central bankers backed off their rate hiking ways. They were certainly late to start hiking to combat inflation, next year we will learn if they were late to stop as well.
 For North American equities, this rally into year end has been 100% multiple expansion. Earnings estimates for the S&P 500 have not turned up at all and have actually been coming down for the TSX. Globally, things are a bit better with some positive earnings revisions but nothing compared to the rally in the market.
Multiple expansion can be expected when yields come down, expectations for overnight rate cuts build and inflation becomes more tame. The challenge is multiple expansion is a zero some game in the long run, some periods it goes up and then some it comes down. The market will need more positive earnings momentum to backfill this market advance, or it remains at risk in 2024.
It is challenging trying to look back and determine what was most surprising during the year. Below we have highlighted a few contenders:
War - Rising geopolitical risk was certainly a surprise in 2023. Equally surprising was the muted response by markets.
Economic resilience – The global economy proved to be more resilient to higher rates than most had expected. One would not expect to see mortgage rates where they are today paired with record home prices (U.S. prices, little bit weaker here in Canada). Or a consumer spending steadily despite higher rates and inflation.
Markets – Remember the adage don’t fight the Fed? Well, since the Fed started raising rates in March of ’23, the S&P 500 has annualized 8%. Global equities xUS annualized at 6%. Perhaps the surprise of equity markets is greatest amongst those who attempt to forecast such things. The S&P 500 started 2023 at 3,840 and the average year-end target among strategists was a mere 4,078. Given the index finished at 4,770, that is a miss of about 700 points. Funnily enough, in 2022 they missed even more in the other direction with a year-end targe of 4,950, which turned out to be over 1,000 points too optimistic.  By the way , the consensus for 2024 year-end is 4,830 or only 50 points higher than current levels.
Whoops – No denying the destination of the majority of new money coming into the market in 2023 landed in the ‘cash’ bucket. Maybe it was just bank deposits moving to a higher yielding vehicle, but there was a common theme of new money being diverted into cash products. The attractiveness of a 4-5% yield, with virtually no risk was appealing. “Getting paid to wait” was the common statement. As it turned out, you got paid a bit to watch other asset classes rise more.
Year of Surprises
It is challenging trying to look back and determine what was most surprising during the year. Below we have highlighted a few contenders:
War - Rising geopolitical risk was certainly a surprise in 2023. Equally surprising was the muted response by markets.
Economic resilience – The global economy proved to be more resilient to higher rates than most had expected. One would not expect to see mortgage rates where they are today paired with record home prices (U.S. prices, little bit weaker here in Canada). Or a consumer spending steadily despite higher rates and inflation.
Markets – Remember the adage don’t fight the Fed? Well, since the Fed started raising rates in March of ’23, the S&P 500 has annualized 8%. Global equities xUS annualized at 6%. Perhaps the surprise of equity markets is greatest amongst those who attempt to forecast such things. The S&P 500 started 2023 at 3,840 and the average year-end target among strategists was a mere 4,078. Given the index finished at 4,770, that is a miss of about 700 points. Funnily enough, in 2022 they missed even more in the other direction with a year-end targe of 4,950, which turned out to be over 1,000 points too optimistic.  By the way , the consensus for 2024 year-end is 4,830 or only 50 points higher than current levels.
Whoops – No denying the destination of the majority of new money coming into the market in 2023 landed in the ‘cash’ bucket. Maybe it was just bank deposits moving to a higher yielding vehicle, but there was a common theme of new money being diverted into cash products. The attractiveness of a 4-5% yield, with virtually no risk was appealing. “Getting paid to wait” was the common statement. As it turned out, you got paid a bit to watch other asset classes rise more.
Digging deeper into the numbers
Let’s start with the leader, America. The S&P 500 posted a 26% return but there are some interesting takeaways beneath the surface of the headline numbers. The S&P 500 is more concentrated today than arguably any point in its history, or at least rather close to its record. The top 10 of the 500 carry a combined weight of 32% of the market capitalization weighted index, with 5 of those companies carrying valuations north of a trillion. Even more impactful, the top 10 contributors to the S&P 500’s return this year represented 17.5% of the 26.3% gain, or about 2/3rds.
If you weren’t in the megacap names in the U.S., you didn’t enjoy nearly as pleasant of a year. This can be seen, magnified, by comparing the S&P 500 vs the smaller cap Russell 2000 (R2K). The gap between these lines widened in 2023.
The TSX, which generally is less diversified than the S&P 500, also suffered from narrow leadership. The index returned 12% for 2023 and a little over 7% of that gain came from the top 10 contributors. The good news is that top 10 were from a variety of different sectors, unlike the U.S. with a big technology name dominance. The bigger story in Canada was the dividend factor.
The Dow Jones Canada Select Dividend index and the broader TSX were lock-in step until bond yields began to rise in August. Higher yields weighed on dividend companies to a greater extent, leading to the divergence. The fall in yields during the past couple months of the year saw this spread narrow a little, but not much. The dividend factor was a drag on performance in 2023.
The Dow Jones Canada Select Dividend index and the broader TSX were lock-in step until bond yields began to rise in August. Higher yields weighed on dividend companies to a greater extent, leading to the divergence. The fall in yields during the past couple months of the year saw this spread narrow a little, but not much. The dividend factor was a drag on performance in 2023.
2-year round trip
We all naturally suffer from recency bias. This year, for all those with not enough U.S. equity market exposure (in the right part of the U.S. equity market, that is), it’s been a drag. Too many dividend-paying companies lagged in markets. Or how about bonds? Sure they were up in 2023, but down big in 2022. We don’t need to look back far to see a very different environment. In fact, 2023 turned out to be kind of a mirror of 2022.
Looking at index returns for U.S., Canadian, and International equities plus Canadian and U.S. bonds, the biggest losers in ’22 were often the biggest winners in ’23. The biggest drop in 2022 was U.S. equities, which took the top spot this year. Canadian equities suffered the least in ’22 and gained the least in ’23 (+12% is hardly something to cry about). Bonds, too, bounced back, albeit not totally offsetting the declines of 2022.
 So, whether you were growth, balanced or conservative, you likely ended up at the same place after two years. The chart below is based on a range of asset allocations using index returns. Those numbers at the end of each line are the two-year annualized return for each… meh.
This is how markets work; sometimes returns are abundant, sometimes not so much. Wen should also point out one other way in which 2022 was rather unique. It was unique as bond yields were resetting or, dare we say, normalizing. This made bonds and equities move together. As you can see, whether conservatively allocated or more growth allocated, the 2022 path was rather similar. The good news is in 2023, markets behaved more normally. Growth did better than balanced, which did better than conservative, with greater volatility for growth vs conservative. Asset allocation works, it may have taken a break in 2022, but it is back.
When the global neutral balanced fund/ETF category returns 9.8% (prelim), it’s a good year. The good surprises, such as inflation coming down, central banks pausing and a resilient economy were bigger than the negative surprises. Maybe 9.8% will be enough to lure some of that cash hoard sitting in money market funds into risk assets? Hope not as the performance track record of investor flows is more of contrarian indicator.
2024 will likely be another challenging year. Past rate hikes are still making their way through the economy, sentiment has turned overly bullish and valuations are elevated. This does leave the lingering question, did the rally to finish 2023 rob returns from 2024? We will see.
 — Craig Basinger is the Chief Market Strategist at Purpose Investments
Final Thoughts
When the global neutral balanced fund/ETF category returns 9.8% (prelim), it’s a good year. The good surprises, such as inflation coming down, central banks pausing and a resilient economy were bigger than the negative surprises. Maybe 9.8% will be enough to lure some of that cash hoard sitting in money market funds into risk assets? Hope not as the performance track record of investor flows is more of contrarian indicator.
2024 will likely be another challenging year. Past rate hikes are still making their way through the economy, sentiment has turned overly bullish and valuations are elevated. This does leave the lingering question, did the rally to finish 2023 rob returns from 2024? We will see.
 — Craig Basinger is the Chief Market Strategist at Purpose Investments
Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.
The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.
This report is is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.
Disclaimers
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.
Purpose Investments Inc.
Purpose Investments Inc. is a registered securities entity. Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
Forward Looking Statements
Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. Neither Purpose Investments nor Echelon Partners warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. These estimates and expectations involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional
advice.
The particulars contained herein were obtained from sources which we believe are reliable, but are not guaranteed by us and may be incomplete. This is not an official publication or research report of either Echelon Partners or Purpose Investments, and this is not to be used as a solicitation in any jurisdiction.
This document is not for public distribution, is for informational purposes only, and is not being delivered to you in the context of an offering of any securities, nor is it a recommendation or solicitation to buy, hold or sell any security.
Share this post
VANCOUVER, BC, and TORONTO, ON, June 24, 2024 – Ventum Financial Corp. (“Ventum” – formerly PI Financial Corp.) is pleased to announce the successful completion of its amalgamation with Echelon Wealth Partners Inc. (“Echelon”), marking a significant milestone that solidifies its position as a leading independent investment advisory, wealth management, and capital markets firm in Canada. David Cusson, former CEO of Echelon, has assumed the role of CEO of Ventum. Jean-Paul Bachellerie, former CEO of Ventum, has assumed the role of President and COO of Ventum. This strategic alignment of leadership combines the expertise and vision of both firms to enhance client service and operational efficiency. “With offices across Canada, and strong anchors in the east and west, we are well positioned to deliver comprehensive financial solutions tailored to meet the diverse needs of our clients,” said David Cusson, CEO of Ventum. “This amalgamation represents a significant step forward in our commitment to excellence and towards becoming the leading independent investment dealer in Canada.” “Our combined Private Client Services and Capital Markets teams provide us with the scale needed for future success, enabling continuous investment in our platform and the provision of leading-edge tools and technology for our advisory teams,” said Jean-Paul Bachellerie, President & COO of Ventum. For more information about Ventum, please visit our website at ventumfinancial.com. About Ventum Financial Corp. Ventum Financial Corp. is headquartered in Toronto, ON with key operational functions in Vancouver, BC, and is a leading independent investment advisory and capital markets firm with fifteen offices across Canada. With a steadfast commitment to integrity and client service, Ventum provides a wide array of financial services to individual, institutional, and corporate clients through our team of experienced professionals. Media Contact: David Cusson CEO Ventum Financial Corp. Email: media@ventumfinancial.com Phone: (416) 572-5523
It seems like just yesterday that you could buy a pint of Stella for $7 or so. Now, more often than not, it is closer to $10. Yep, inflation. It is kind of like a tax on doing things, as just about everything has cost more over the past few years. Hop on a flight, eat at a nice restaurant, refinance your mortgage, the list goes on. With the benefit of hindsight, the current higher inflationary environment can be blamed on a few pretty big factors. Changes in behaviour during and coming out of the pandemic blew up supply changes, as capacity was unable to keep pace with demand. Then, of course, unprecedented money printing magnified the situation, as it made everyone wealthier and more willing to pay $10 for a pint. Of course, the textbook solution is to raise interest rates, which is clearly occurring around the world. These monetary policy shifts are effective but do work with variable lags. Making those lags longer, or even temporally offsetting them, was fiscal policy. It doesn’t take an economist to understand if the monetary policy is trying to slow the economy to tame inflation; materially elevated fiscal spending in an economy that is still growing at a decent pace is counterproductive for the inflation fight.
The US market is up a little over 10% this year, Canada +6%, Europe +10%, and Japan +15%, while bonds are down about -1%. Huh, that sure does look like asset allocation is working well again after the car crash of 2022. Even better news is that the market is moving higher thanks to good fundamental news, not simply because central bankers are jamming more money into the financial system. Recession risk has continued to fade, as evidenced by the survey of economists. For the UK, Canada, US, Eurozone, China & Japan, the average probability of a recession hit a high in late 2022 at about 60% and has fallen down to a mere 25% of late. The UK, which was as high as 90% and suffered two negative quarters of GDP growth, is now down to 30%, winning the most improved ribbon. Even Canada, which is clearly struggling with higher rates, has improved from over 60% to 30%. Most are clustered around the 30% zone.
Should it be any surprise how calm markets have become? Global equities are up 9.2% year to date. Apart from a 2% decline in January and a 5% drop in April, the trend has been steadily up to the right on the chart. We can easily slap a financial narrative on this, such as improving economic growth globally, a decent Q1 earnings season, or maybe it's just the AI frenzy. More than a third of the advances in global equities are attributed to Nvidia, Microsoft, Amazon, Meta, and Alphabet. Whatever the cause, equity volatility has been very calm so far in 2024. But it is more than this, as it isn’t just equities.  The volatility in the bond market has gone super low (2nd panel in chart). The MOVE index measures volatility in U.S. Treasury Bonds [actually at-the-money options on interest rate swaps, but let’s not go down that rabbit hole]. Even though bond yields moved higher this year, the 10-year started at 4%, gradually up to 4.75%, then back down to 4.5%; these moves pale in comparison to the last couple of years. In case you forgot, the same bond in 2022 went from 1.5% to 4.0% and in 2023, yields oscillated between 3.5 to 5.0%. Looking beyond Treasuries, credit spreads are back down to or close to historical lows. Investment Grade spreads in the U.S. are 50bps. Lows in past mini-credit cycles have been 40-60bps.
I think we might be in that very unique market mood when bad news is good news. The equity market weakness in April can probably be attributed to bond yields moving higher, so any economic data on the weaker growth side is welcome news at the moment. The S&P started to recover on May 3rd, rising 1.3% when the ever-important non-farm payroll labour report came in softer than expected, helping 10-year yields fall back down to 4.5%. Then, over the past few weeks, we have seen generally weaker economic data for the ever-important U.S. economy; bond yields have continued to come down, and equity prices have moved up. Of course, all eyes were on the U.S. inflation print for April, which was marginally softer than expected (soft CPI is truly good news), helping bond yields fall and pushing the S&P 500 to a new all-time high. But really, 0.3% vs. expectations of 0.4% is not huge, especially given that the core reading was in line at 0.3%. This still has the annualized 3-month change running a hot 4.5%. To be fair, there was some good news beneath the surface on the CPI print. But on that day, helping, and less talked about, was a really weak Empire manufacturing survey and weak retail sales.
The normal narrative for encouraging investors to look at emerging markets typically goes like this: The valuations are cheap, the demographics/rising incomes are supportive of growth, and they offer diversification. Perhaps this is more the marketing narrative. Kind of how, like for infrastructure strategies, they always talk about how many bridges need repairing. We are not refuting any of the above reasons, as they have been rather perennial for many, many years. And yet, for those who know us, we have been rather negative or at least cool on emerging markets for a long time. How long? Well, this negative view persisted for well over a decade. This is us giving ourselves a pat on the back since Emerging Markets (EM) have done roughly nothing for the past 12 years as Developed Markets (DM) have charged higher (chart).
Take your pick. There is no shortage of both good and bad news floating about the financial markets. To be fair, this is always the case. The hard part is understanding which side is stronger today and which side will be stronger tomorrow. With markets up low to mid-single digits following a very strong Q4 finish to 2023, most would agree the optimists are carrying the day at the moment. It is not just rose-coloured glasses; there is good news out there. Economic growth signs or momentum appear to be improving year-to-date. Dial back a few quarters, and the U.S. economy remained resilient while other economies softened or were rather lacklustre, including Canada, Europe, Japan, and China, to highlight some of the biggies. Today, while Canada is struggling, momentum in the U.S. has moved even higher, and there are signs of improvement in most jurisdictions.
There are three things you should rarely ever bet against: the Leaf’s opposing team in the playoffs, the American consumer’s ability to spend, and corporate profits. As we are now about halfway through U.S. earnings season, once again, positive surprises remain the norm; 81% have beaten. It's a bit better than the 20-year average of 75%. The fact is that companies are good at managing analysts’ expectations. At least enough to beat them when the numbers hit the tape. The size of the positive surprises have been encouraging as well, at just under 10%. The highest surprise magnitude in some time.  One of our reservations on the sustainability of this market rally over the past couple of quarters has been the flat earnings revisions. In other words, global markets are up over 20% but earnings estimates have remained flat or tilted down slightly. More often than not, markets trend in the same direction as earnings revisions. Earnings get revised up when companies raise guidance and/or analysts become more encouraged about growth prospects. That is a good thing for markets. Obviously, downward revisions are bad. Yet estimates have remained very flat as markets marched higher, a challenging combination.
The oil market has been interesting lately and, to the surprise of many, has been the biggest silent outperformer this year. There is no shortage of geopolitical events to choose from that’s leading to a higher risk premium in oil with Brent breaking $90, whether it’s the Houthis missile attacks in the Red Sea leading to a massive re-route of trade, Ukraine’s drone strikes on Russian refineries, and the latest escalation between Israel and Iran leading to some news outlets using WWIII as click bait-y headlines. Given the run-up in oil prices, Canadian oil equities have clearly benefitted from the much higher torque. But there is a layer of even better news: The Transmountain Expansion (TMX) continues to look to be in operation by May, which would lead to much better pricing on the Western Canadian Select (WCS). With the current setup for the oil markets, some key questions that we often get from investors are: How sustainable is the rally in Canadian energy names? To determine if the oil equities are overstretched, we can look at the debt-adjusted cash flow (DACF) multiples of the major integrated oil names and see how the valuation has shifted in light of the recent oil move. From Exhibit 1, the DACF multiples for the Canadian integrated have been fairly range-bound over the last year, also in line with WTI, which has been in the $70 - $85 range. As a starting point, we can infer that the valuations of the companies have been commensurate with the movements in the underlying oil price deck and in line with where the equities should trade in the cycle historically over the last couple of years. Typically, in the commodities cycle, higher prices are usually coupled with lower multiples as market participants will usually price in lower normalized prices and vice versa, so a cause of concern would be if valuation starts trending towards the 6.5x – 7.0x+ area if oil prices continue to stay in the upper bounds of the $70 - $90 range or higher.
As part of your wealth planning, have you considered your wealth’s longevity? Many of us have heard of the “shirtsleeves curse”: Family wealth is often built up and lost within three generations. You may not be surprised to learn that recipients often make “big” purchases within the first few weeks of receiving their inheritance. This is because many heirs are not focused on the longevity of new-found wealth. What are high-net-worth families doing to help prevent this loss? There has been an increasing focus on intergenerational wealth planning, with the objective of supporting wealth longevity. This involves getting existing generations to meet about their finances and form shared financial goals and values to help encourage lasting wealth. Here are some steps that can be taken as part of this planning process: Start with a plan and document it Start by thinking about your vision for your wealth for the generations to come. The plan should set out goals and provisions for how you wish funds to be used, accessed and replenished. For instance, you may wish for family members to invest in themselves to gain the experience needed to create and grow wealth, using funds for higher education or a business start-up or expansion. Others may wish to leave endowments to a charity. Once you determine your goals and provisions, it is important to formally record them as this document will be passed along to future generations. Communicate your plan Once the plan has been documented, it should be communicated to family members. Often, parents keep their finances and related values to themselves, missing the opportunity to pass along their ideals to children. While specific financial details need not be disclosed, sharing your vision is intended to be a catalyst for meaningful discussions. Some families use this plan to form a family constitution to help future generations carry forward their intentions. Engage in regular meetings Regular family meetings are intended to help cultivate family values based on your vision for your wealth. If wealth has been carefully built up through the generations, it may involve exploring family history. Or, you may use this time to educate children about finances and managing money or introduce high-level strategies to carry out the intergenerational plan relating to running a family business or a family giving strategy. Consider protection tools You may determine through family meetings that beneficiaries will need support. Certain tools can support beneficiaries to meet your goals, or protect future wealth in situations in which beneficiaries may not be capable. For example, a trust can put assets under the control of a responsible trustee, with the terms of the trust specifying the conditions, timing and amount of distributions to be made to heirs. Other tools, such as life insurance, can protect and grow assets while also providing access to cash. Setting up a support system of trusted professionals may help to ensure a successful wealth transfer, especially if heirs do not have the skills to manage funds independently. Monitor the plan’s success By having an ongoing dialogue with family members, you will be able to identify and address any gaps or concerns as they arise. You can also continue to define and refine family roles to ensure that your plan has a greater chance of success. Here to Provide Support While intergenerational wealth planning may not be for everyone, consider that creating a lasting legacy can be one of the greatest gifts you leave behind. If you need assistance with family discussions or educational tools to support children, please contact your Echelon Advisor.
