Canada Continues to Lead but Eurozone Problems Highlight Stock Market Vulnerability

July 04, 2014

Across the international economic scene, Canada continues in its role as leader. Whether it’s delivering on its economic promises to underdeveloped nations or leading in terms of economic growth over its European counterparts, the country as a whole could not be in better shape financially.

And yet in spite of the innate strength within the country’s economic policies, some are still seeing little gain within their investment portfolio.

One might think that the recent problems within the Eurozone, and in Greece in particular, have been the prime suspect for the slow portfolio growth in the Canadian stock market in recent times. But a closer look at the figures shows that this one blip is actually a part of a wider and more worrying trend that goes beyond singular market events.

While the Canadian real estate sector remains strong, the TSX hit a 7-month low recently. This fall was led by financial stocks which tumbled as a result of fears that Greece will be leaving the Eurozone. But Canadian stock holders have become used to stale growth within their stock market investment for years now. Those that have been paying attention will be well aware of the losses they’ve incurred.

It takes just a mere side-by-side comparison of the performance of the Canadian stock market and the Canadian real estate market in the last 5 years to illustrate the differences:

From March 2007 – March 2012, the average price of property in Canada rose by 24.41% according to the MLS home price index. The S&P/TSX Composite however lost value in that time-span, despite the strength of the Canadian economy overall, slipping 1.06%. While other countries have seen more dramatic dips within their stock market indices, this stagnation within the Canadian market shows why many are now turning towards real estate as a vehicle for growth within their portfolio

The Canadian market is so resource-driven that any time you have global growth uncertainty it seems to knock down commodity prices.”

Jennifer Radman, a money manager at Caldwell Investment Group in an interview with Business Week.

Banking laws in Canada were rigid enough to protect Canadians from the brunt of the financial crisis in 2008. Such stability inducing policies included anchoring investments with deposits, and conducting prudent lending practices which prevented subprime candidates from receiving loans they could ill-afford. In short, Canadians were shielded from the majority of the financial crisis force.

As many of you will know, however, the central difficulty in achieving gains with stock market investment is simple – it’s driven by intangible factors such as investor confidence and complex mathematical equations that even few traders understand. Those that have money within this intricate landscape are therefore more at risk of losing value due to circumstances beyond their control. And that’s the key underlying difference between stock market investment and real estate investment.

Now more than ever, investors are looking to avoid the lottery of the stock market and place their hard earned wealth into investments that can assure them of returns in the future. And even aside from being a tangible, growth driven asset, there are many benefits to real estate investment that are drawing the eye of proactive investors.

Consider the following benefits of real estate investment:

Investors can influence the value of their investment

Once an investment in a stock has been made, it’s then up to the market to decide where the value of that investment goes. However, those who invest in a property can increase the value of their property with strategic improvements. Investors who research the local market carefully can make an exceptional return by simply fitting their property to the needs of potential buyers.

Investors will receive regular returns on their investment

Those who purchase rental property will receive a monthly boost to their accounts in the form of rental payments from tenants. While it requires research to find property in high value areas, many new investors have found that options such as RELPs (Real Estate Limited Partnerships) are an ideal way to achieve the benefits of the real estate market without having to take on the more complex tasks involved in becoming a landlord.

Many Financing Options are Available                          

Unlike stock, which requires a significant capital investment on behalf of the investor, real estate purchases can be leveraged through a loan from a bank. This helps to minimize the risk involved in making a large investment, especially in a low interest-rate environment such as the current Canadian financial sector.

Whether you’re a new investor looking for a safe way to earn a steady income or a seasoned pro trying to solidify your portfolio for long-term growth well into retirement, the Canadian real estate sector continues to offer a stream of lucrative investment opportunities. All it takes is a little research to find those hidden local market gems.

Looking for alternative RRSP eligible investments? Begin today by contacting your local real estate investment specialist.