Navigating Markets, Geopolitics, and Tax Strategy

Interviewer:
Joining us now with more on the markets, as well as some smart tax strategies, is Kim Inglis, senior portfolio manager at Raymond James. Well, Kim, first, there's a lot happening geopolitically right now, especially in the Middle East. How should investors be thinking about this in the near term? 

Kim Inglis:
Yeah. So I would say definitely during, uh, over the near term here, we'll certainly s- have a lot more headlines as it relates to what's going on in the Middle East. Um, and of course, with energy markets reaction- reacting to that, we'll, we'll hear a lot more about, uh, oil and the multi-year highs it's been hitting and that sort of thing. Um, over the near term here, obviously, that will impact consumer sentiment, uh, certainly. Um, but I think it's important for investors to remember that typically when geopolitical events happen, such as what we're going through right now, uh, it tends to be, from a financial market standpoint, it tends to be, uh, fairly short-lived. So typically, you see exactly what we're going through right now, a, a good chunk of volatility at the onset, but typically within three months or so, the markets end up being about flat again from where they were. And if you look out six months, 12 months from here, uh, the markets tend to perform the same as they would if there was a geopolitical event or not. Uh, and in the case with this situation, um, it's, it... from, at least from a financial market standpoint, it wouldn't be terribly dis- surprising to see the markets move on from, from this fairly, uh, quickly. There's not, uh, you know, there's not a lot of appetite out there for this to be a prolonged, uh, issue. Um, with gasoline prices rising and us going into a summer driving season, summer travel season, uh, that could put some political pressure on, on things. Um, and of course, with midterm elections as well, that might also, uh, help, uh, put an end to this sooner rather than later. Um, you know, but at the end of the day, basically what we're seeing here is, is a bout of short-term volatility, um, that I, I would expect to, uh, see the markets move on from, uh, in relatively short order here. 

Interviewer: 
Zooming out, when we look beyond the headlines, what does the broader economic picture look like over the next year or so, Kim? 

Kim Inglis:
Yeah. So generally speaking, I would say that the, you know, the underlying economic backdrop is pretty good right now. Um, as an example, the US is expected to grow about 2.4% for this year, which is pretty good for this point in the cycle. Um, despite everything going on, consumers are still out there spending. Um, tax refunds will certainly help, help with that. Businesses are still doing well. Um, in, in large part due to AI, we're seeing productivity numbers at the highest that we've seen in two decades, so that's certainly helped with that. And as a result, earnings have still been pretty decent, and earnings are expected to be roughly in the neighborhood of about 10%. Uh, so that's, that's pretty good. Um, you know, obviously, a- a- again, energy prices, uh, are, are kind of more of a going concern right now, but I think it's important for investors to remember that the current spike in energy prices has, has more so to do with the shipping disruptions, uh, than any kind of meaningful loss of supply, uh, at this point. So if it turns out that this does prove to be, uh, more short term in nature with regards to the tensions in the Middle East, then, um, you know, energy prices should stabilize, and then the, the broader, uh, economic impact would be more muted, uh, in that regard. So definitely some pockets of concern over the next little while, but, uh, generally speaking, it's expected that we will see, um, moderate growth this year. 

Interviewer:
Now, with markets having been so strong and now a bit more volatile, what should investors be doing with their portfolios right now? 

Kim Inglis:
Yeah. So, uh, I mean, nobody likes volatility, but there, there's one good thing with volatility is that it serves as a pretty good reminder to investors not to be so complacent with their portfolios. Um, and what I mean by that is that basically, over the last few years, uh, you know, we've had some pretty strong markets, and as a result, you've seen portfolios do really well. Um, but what can tend to happen with that is that equities grow, and therefore their allocations inside portfolios grow. Uh, and that can end up meaning that portfolios end up with a, a higher weighting towards risk assets than, uh, that, than might be suitable for the individual investor. So, um, this is where discipline really matters and the importance of rebalancing. Um, and the problem is, is that all too often I see investors, uh, get worried about selling their positions when things are going so well or, or even trimming them back, um, because they worry about missing the upside. But the problem is, is that when, you know, when volatility invariably shows up, as, as it does, um, then someone's portfolio can go through a lot more volatility, uh, and downside than is perhaps suitable for that person or, or even that they're able to even w- withstand. Um, you know, so I always like to say it's, you can be a buy and hold investor, that's certainly a good thing, um, but you, you should not be a buy and forget. Uh, it's definitely important to rebalance. 

Interviewer:
Excellent point. And finally, Kim, tax season is wrapping up, and many investors are seeing larger tax bills after strong market returns. Good problem to have. Um, what are some practical strategies to manage that? 

Kim Inglis:
Yeah, definitely a good problem to have. Um, you know, if we've had strong markets, as, as, as you said, um, and if you've been investing in taxable accounts, then, you know, the, the, the result of that is that you're gonna have to deal with some taxes. And of course, nobody likes taxes, but they are a reality of life. And if you've done well [speaker_0] Uh, and you're ahead of the game net after tax, then ultimately, you know, still a good thing, um, at, at the end of the day. The key obviously then is to be more, uh, proactive with your tax efficiency. So, you know, one thing that investors can do is they can look at really maximizing their registered accounts, their tax-deferred and tax-free accounts. So one thing they can do is make sure they're doing their RSP contributions and, uh, maximizing those, getting the deductions from those, and then y- you know, you can use the deductions from those to then fund your TFSA contributions up to your allowable limits. Um, if you're a family with small kids, you're saving for education, use RESPs, uh, another great way of tax efficient, uh, uh, growth. Um, young adults, they can consider, uh, first home savings accounts as an example. There's a lot of great tax-deferred or tax-free accounts in Canada that, uh, people can be taking advantage of. Um, then of course, the other thing that people can do is they can look at their asset allocation, uh, within the portfolio. So generally speaking, you wanna have your more tax inefficient assets inside your registered accounts, so things that are generating things like interest income and that sort of thing, have them in there. Um, you know, so while it's, you know, you can't, you can't avoid tax, um, you can certainly look at strategies to, to minimize it as best possible.

Interviewer:
Well, Kim, always great to have you on. Thank you. 

Kim Inglis:
Thanks for having me. 

Interviewer:
And thank you to everyone out there watching. Once again, that was Kim Inglis, senior portfolio manager at Raymond James, and I'm your host, Jenna Dagenhart with Asset TV.