Money and Happiness | Economy: six reasons to smile

In the newsletter money and happiness, sent by email on Tuesday, our journalist Nicolas Bérubé offers thoughts on enrichment. His texts are reproduced here on Sundays.

Because they are tied to our ability to house ourselves, feed our families and pay our bills, economic news is often stressful.

Still, I’d like to believe that a Martian new to Earth would be most impressed with what’s going well, rather than what’s going wrong.

As summer begins, here are six reasons to smile.

Greece is back

Do you remember the Greek economic crisis that took place in the early 2010s and which made headlines all over the globe every day? At the time, the country’s government was hiding the extent of its debt and when the crisis hit, Greek interest rates soared and public services were cut. Athens was experiencing violent clashes between demonstrators and police, and many analysts predicted the bankruptcy of Greece and the end of the euro. A decade later, the euro is still in circulation and Greece has managed, with great difficulty, to overcome its problems, as reported recently The Press¹. The country reimburses in advance the billions of euros received from European countries during the crisis, the unemployment rate has halved and the Greek stock market is one of the best performing in Europe.

Rising markets

Do you feel like you’ve gotten richer this year? Almost half of 2023 is behind us (and over a third of the decade) and financial markets are doing very well, thank you. The NASDAQ index, which brings together the largest American technology companies, is up 31% since the start of the year. The S&P 500 index, which represents the 500 largest companies in the United States, is up 15% since the 1^er January. There was a gain of 11% for the French Stock Exchange, 15% for the German Stock Exchange and 28% for the Japanese Stock Exchange. The S&P/TSX index, which tracks the 250 largest companies on the Toronto Stock Exchange, is up 2%. In short, if you are the owner of a diversified stock portfolio, you have become richer by almost 8% so far in 2023, while a portfolio of 60% stocks and 40% bonds is 5% increase, not including dividends. Much less dramatic than on the same date in 2022.

Hell is other people

A Leger poll last month found that 58% of Canadians and 61% of Americans believe economic conditions in their country are poor. But when pollsters asked people to rate their own economic situation, 59% of Canadians and 63% of Americans said their household finances were good.

Inflation is below average

If I told you that inflation in recent years has been below average, would you call me crazy? Let’s see: from 1960 to 2020, inflation in Canada averaged 3.8% per year. And, since 2020, inflation in the country has been… 3.6% per year on average. You still don’t believe me? Get out your calculator: inflation was 0.72% in 2020, 3.4% in 2021 and 6.8% in 2022, for an average of 3.6%. As for 2023, of course, we don’t know how the year will end. But if the inflation experienced last month (4.4%) were to represent the average for the current year, we would be at an average of 3.8% for 2020 at the end of this year. In short, nothing to write to his mother (but still write to your mother if she is still with us, life is like inflation, unpredictable).

India and electricity

Without consulting Google: what percentage of Indian households have access to electricity? Is it 20%? Or 30%? The answer: 99%, according to the World Bank. This means that the citizens of the country of 1.4 billion inhabitants, newly the most populous in the world ahead of China, have massively reached this milestone essential to the functioning of the modern world.

The city comes alive

Closer to home, downtown Montreal, like many business centers around the world, has not yet recovered from the effects of the pandemic and the arrival of the telecommuting era. But places that struggled for years are experiencing a renaissance. This is the case of rue Saint-Denis. In 2020, 25% of commercial spaces on the artery were vacant, a rate that has dropped to 15% today. The average value of purchases in stores has also increased since the installation of the Réseau express vélo (REV) bike path, while the flow of car traffic in the street has dropped by 50%, according to the arrondissement. Less noise, less dust, less danger for citizens, more terraces, more greenery and more economic activity and wealth creation. Something to smile about.

Why not Buffett?

A reader asks: “After reading your book and your articles, I would like to know why it would not be recommended to buy shares of Berkshire Hathaway, the company of Warren Buffett, rather than American index funds like those of Vanguard . Warren Buffett himself recommends buying index funds, but his company is very much like an index fund. »

Very good question. To be honest, I myself have owned Berkshire Hathaway shares for a long time (the class B ones, alas). It’s anecdotal: they represent less than 3% of the size of my wallet and I keep them as a souvenir of when I lived in the United States, and also because I don’t want to pay tax on the capital gain.

On the yield side, Berkshire Hathaway has long beaten the S&P 500 index, but it hasn’t been the case for quite a while: $10,000 invested in Warren Buffett’s company 20 years ago is worth $66,000 today. today, compared to $69,000 for the same amount invested in the S&P 500.

You are right, Warren Buffett recommends small and large investors to adopt a passive indexing approach and will himself bequeath to his wife a portfolio containing a Vanguard fund following the S&P 500 rather than shares of Berkshire Hathaway.

For what ? Buffett has previously explained that in addition to offering hard-to-match return prospects, an index portfolio is less likely to play into emotions over time.

For example, in 10, 20 or 30 years, the investor who owns Berkshire Hathaway might think (wrongly or rightly) that the company’s best days are over, that if Buffett were here, he would do things differently. , that other companies are more attractive, etc. There is always this element of doubt that can arise in the head of the active investor and end up having an impact on his behavior. An index approach eliminates this doubt. What will be the biggest companies in the United States and the world in 10, 20 or 30 years? No idea, but the index investor is sure to have them in his portfolio, and that’s what matters.