**If You Pause, You Forfeit…**
The year 2022 posed significant challenges for investors in the stock market. Canadian equities fell by 6%, U.S. stocks decreased by 18%, and the Nasdaq faced a staggering drop of 32%. With interest rates escalating swiftly, many investment portfolios were affected—including mine, which encountered dividend reductions from Sylogist at the year’s end and Algonquin in early 2023.
In light of these developments, a great number of investors flocked to the safety of short-term cash and high-yield GICs, believing it wise to “wait for the tempest to subside.”
As 2023 commenced, anxiety ruled the investment scene as inflation stubbornly persisted. Yet by midyear, the stock market made a full recovery, entering a “growth phase,” contradicting the pessimism that hung over from 2022.
Nevertheless, not every strategic approach yielded positive results. Investors who concentrated on high-dividend, debt-laden firms encountered obstacles, while those who owned low-yield, high-dividend growth stocks were smiling. By the year’s conclusion, both Canadian and U.S. markets had risen considerably—up 12% and 26%, respectively—but much of this was merely reclaiming the previous year’s losses. GICs and cash appeared sensible for some, especially amid elevated interest rates and concerns about a potential economic downturn as consumer spending tightened. Adding to the uncertainty were the upcoming 2024 U.S. elections.
“Let’s just bide our time,” many contemplated.
Zoom ahead to 2024, and the markets surged over 20%, demonstrating once more the steep cost of remaining on the sidelines. Surprisingly, anyone who kept their investments steady—even a hypothetical monkey with a basic portfolio—reaped benefits. Those reluctant to re-enter? Likely experiencing regret.
Paradoxically, this moment might actually be the right time to brace for volatility. Consumers are not flush with cash, Canada’s economy is struggling, the U.S. remains robust but faces rising tariff tensions, and signs of a potential downturn are emerging. Yet, the fundamental lesson remains: if you hesitate or attempt to perfectly time the market, the likelihood is that you will miss out.
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### **The Essential Lesson: Maintain Quality Investments**
After two decades of being fully invested in equities, one key insight has surfaced: with a portfolio composed of quality companies, you will always be well-positioned—regardless of market turmoil.
The market in 2024 proved to be much stronger than I had expected. Let’s delve into what transpired.
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### **Tech Isn’t Leading Anymore?**
What stood out as the biggest surprise for 2024? The U.S. technology sector, often considered the market’s jewel, found itself lagging behind in performance. Instead, Communication Services (thanks to major contributions by Meta and Alphabet) and financial sectors led the charge in boosting the U.S. market.
Interestingly, the drive for increased energy-efficient solutions (considering the soaring energy demands of artificial intelligence) lifted utilities across the board.
#### **The Incredible 7**
When examining the “Incredible 7” tech powerhouses, NVIDIA captured attention with an impressive performance, while Meta made a remarkable comeback. Other members of this exclusive group performed decently but didn’t necessarily sparkle. Apple (+17.50%) and Microsoft (+13.68%) achieved respectable double-digit gains, but they were seen as “disappointing” in a marketplace brimming with enthusiasm—a gentle reminder of the high expectations surrounding these giants.
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### **Why Now Is the Time to Prepare and Avoid Excess**
The optimistic sentiment permeating the market in 2024 introduces a layer of risk. When everything seems to be on the rise, it’s easy to overlook potential dangers. As the saying goes, “When the tide rises, no one knows who is swimming naked.”
The wise choice at this point is to take stock (pun intended) of your portfolio. Make sure it is composed of companies with strong financials and solid fundamentals. Being prepared for the next market upheaval pays off.
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### **Investment Strategy for 2024 and Beyond**
This isn’t about drastically changing your strategy or chasing trends. It’s more about refining your approach to navigate any storms ahead. Both fully invested and cash-rich investors can take actionable steps to enhance outcomes.
#### **For Fully Invested Investors (That’s Me!)**
1. **Diversify** your portfolio to cover multiple sectors.
2. **Assess** weaker holdings and determine if they warrant retention.
3. **Reduce** excessive positions—stocks like Apple and Couche-Tard might require rebalancing in my portfolio.
4. **Enhance** by substituting weaker stocks with higher-quality options.
5. **Set aside** a cash reserve if you rely on your portfolio for income (especially retirees).
Personally, as someone still focused on “growth mode,” I won’t be establishing a cash reserve just yet.
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#### **For Cash-