Expect strong single-digit returns in possible soft landing: Franklin Templeton’s 2024 Global Investment Outlook

Investors can expect strong positive single-digit returns for the ten years between 2024 and 2034, portfolio managers for Franklin Templeton Investments told advisors on Thursday.

Ian Riach

Speaking at the 2024 Global Investment Outlook in Toronto, portfolio manager Ian Riach said Canadian equities will have expected returns in C$ of 7.2%, a tad below the 7.4% of U.S. equities and 8.6% for both EAFE and Emerging Markets and 8.1% for China. Riach is Senior Vice President and Portfolio Manager for Franklin Templeton Investment Solutions and CIO of Fiduciary Trust Canada.

Fixed-income returns are expected to be in the low single digits: 3.9% for Government of Canada bonds, 6% for investment-grade Canadian bonds and 4.8% for  hedged global bonds, again all in C$. See above chart for the Volatility of each of these asset classes, as well as the past 20-year annualized returns for each. From my read of the chart, expected returns of North American equities the next decade are slightly below past 20-year annualized returns but EAFE and Emerging Markets expected returns are slightly higher, with the exception of China.

Fixed-income investors who were dismayed by bond returns in 2022 will no doubt be relieved to see expected future returns of Canadian bonds and global bonds are higher than in the past 20 years. “Expected returns for fixed income have become more attractive; recent volatility [is] expected to subside​,” Riach said in the presentation provided to attendees.

Capital markets expectations (CME) are used to set Strategic Asset Allocation, which forms the basis of Franklin Templeton’s long-term strategic mix for portfolios and funds, the document explains: “Portfolio managers then tactically adjust.”

“This year CMEs are generally higher than last year. Primarily due to higher cash and bond yields as a starting point,” the document says.

Global equity returns are expected to revert to longer- term averages and outperform bonds​,  EAFE equities “look attractive,” and Emerging market equities are expected to outperform developed market equities​, albeit with more volatility.

These expected returns will be in an environment of 1 to 3% inflation in Canada in 2024, versus a more “hard-wired” 2% for U.S. inflation. U.S. rates are expected to stay “higher for longer” but Canadian rates will likely start to fall before U.S. rates, Riach said. Other speakers also expect the first rate cuts to happen in 2024.

Risking risks of Recession

However, Templeton expects rising risks of recession, especially in the U.S. Interest rates could stay higher for longer and Riach consequently is expecting “tepid growth” from the economy. He was particularly cautious about the Canadian economy, given that we have the highest debt levels among the G7. “Debt is a headwind to Growth.”

Riach described three major broad portfolio themes. The first is that Recession risks are moderating but “reasons for caution remain.” The second is that on interest rates, central banks have reached “Peak policy, but expect higher rates for longer.” The third is that “Among the risks, opportunities exist.” Addressing the narrow market of the top ten stocks in the S&P500 (the Magnificent 7 Big Tech stocks plus United Health, Berkshire Hathaway and ExxonMobi), market breadth should broaden to the rest of the market.

For portfolio positioning, Riach suggested selectively adding to Equities, overweighting U.S. and Emerging markets equities, underweighting Canada and Europe equities, and for Fixed Income,”trimming duration and prefer higher quality corporates.” In short, “a diversified and dynamic approach [is] the most likely path to stable returns.”

Jeff Schulze, Head of Economic and Market Strategy, ClearBridge Investments (part of Franklin Templeton) gave a presentation titled “Anatomy of a Recession.” A recession always starts as a “soft landing,” as the slide below illustrates.  “We’re not out of danger. Leading indicators point to Recession,” he said, “The base case is Recession.” While the S&P500 consensus is for earnings growth, the U.S. GDP is expected to worsen.



He described himself  not as a permabear but a permabull, at least until a year ago. If as he expects there’s a “soft landing” with stocks possibly correcting by 15 to 20% in 2024 Schulze would view that as an opportunity to add to U.S.  equities in preparation for the next secular bull market.

One of the catalysts will be A.I., not just for the Magnificent 7 but also for the S&P500 laggards. As the chart below illustrates, economic growth often holds up well leading into a recession, with a rapid decline coming only just before the onset of a recession.  Continue Reading…

 Timeless Financial Tip #10: Making Legacy Planning more Meaningful


By Steve Lowrie, CFA

Special to Financial Independence Hub

Let’s face it: When families list their favorite financial planning projects, legacy planning rarely makes the cut. It may feel as if you’re putting the emphasis exclusively on death and taxes, rather than your lifetime pursuits such as building a career, pursuing your personal interests, stewarding your kids into adulthood, and retiring in style.

Then again, I believe the term “legacy planning” is misleading to begin with. It sounds so dry and formal — as if it’s only for uber-rich, multigenerational dynasties, or the tail end of your lifespan.

No wonder most people put off planning for it.

In reality, legacy planning can be worthwhile for almost anyone. And it’s not just for later in life; key aspects of it can help you enjoy a more enriched life today. In today’s Timeless Tip, we’ll cover the possibilities.

What is Legacy Planning?

Instead of treating legacy planning as a tedious, end-of-life chore, I like to think of it as being more like a bonus round of lifestyle planning across four core quests:

  1. Family Ties: Legacy planning helps you keep more of your wealth in the family. Importantly, it lets you define who your family is, in a world where multiple marriages and blended families may more often be the norm than an exception to the rule.
  2. You or your Heirs: Legacy planning can also be defined by what it is not. If your top priority is having enough to enjoy your retirement in style, your legacy planning will differ from someone who dreams of leaving the largest possible inheritance to their heirs.
  3. Charitable Giving: Legacy planning also helps you chart out how and when you’d like to support your causes and charities of interest. Hint: You don’t have to wait until you’re gone to leave a legacy.
  4. Tax Reduction: Even if you’re fine with letting inheritance laws guide how your estate will be distributed, most of us would prefer a tax-efficient transfer. Legacy planning strategies abound here.

How do you define “Family”?

First, let’s address the piece most of us associate with legacy planning: Who gets what stuff after you’re gone? If your estate seems perfectly straightforward, you may be tempted to just let your heirs sort it out. Unfortunately, this can leave you and your loved ones uneasy — not just moving forward, but right now.

Unintended Consequences: Check your provincial inheritance laws, and you may be surprised by what will happen to your assets if you die intestate (without a will). Your preferences may differ dramatically from the government’s.

Unresolved Heirlooms: Resolving which loved ones are to receive which treasured heirlooms and other portions of your wealth, can bring you and your family more peace — today, and moving forward.

The Angst of Uncertainty: Most of us also feel better knowing we’ve done what we can to spare our heirs the pain of having to untangle an unplanned estate at the same time they are grieving a profound loss.

The logistics of estate planning need not be extensive. They can range from essential to more advanced:

Wills: A basic will might suffice if you simply want to ensure particular people directly inherit particular pieces or portions of your estate, as permitted by law — especially when your preferences differ from provincial law.

Trusts and Foundations: You may want to up the ante with targeted trusts to cover additional nuances in your life. For example, trusts can provide for underage heirs, an heir with special needs, or other complexities, such as if your family owns a business in which some, but not all family members are involved. Private foundations come into play if you are interested in increasing the scope of your multigenerational charitable giving.

Insurance: Life insurance is also an often-overlooked tool for providing gap funding to cover taxable wealth transfers, especially when family businesses are involved.

Bottom line, making plans today for your wealth transfer to happen with minimal muss, fuss, costs, and complications can free you to better enjoy your assets throughout your life.

Spending or Preserving?

As we covered in “Retiring Reliably, Leaving a Legacy or Balancing Both?, ” another key question is: Do you want to earmark excess wealth for your optimal retirement, an optimal legacy, or a balance of both? Different lifestyles call for different legacy plans.

You may not think of investment management as part of traditional legacy planning. But you’ll be better at both if you combine forces. For example, if you want to emphasize leaving a legacy, your investment portfolio’s average expected return should exceed your withdrawal rate, so inflation doesn’t eat away at the balance. This usually means keeping more of your investments working in the markets, while also arranging for a way to take out cash on a regular, tax-efficient basis. Continue Reading…

In the pursuit of financial security for all, we can’t overlook older widowed women

Image by Pexels: Andrea Piacquadio

By Christine Van Cauwenberghe

Special to Financial Independence Hub

Canada has a bold vision – to build a more accessible, inclusive and effective financial literacy ecosystem for all. The five-year plan, laid out in the National Financial Literacy Strategy 2021-2026, is an important step forward to achieving sweeping financial literacy. But one cohort is noticeably absent from this ambitious strategy – older widowed women.

During Financial Literacy Month in November, we had an opportunity to cast a light on financial education and empowerment for this often overlooked and underserved, but statistically significant, group. In 2022, there were approximately 1.5 million widowed women compared to the roughly 472,000 widowed men, reports Statista Research Department. As our nation nears “super-aged” status, where 20 per cent of our population will be 65 years or older, these numbers will continue to climb.

Longer life expectancies for women, paired with women generally marrying or partnering with older men, leaves them more likely to spend at least some of their retirement in widowhood. As such, it’s estimated that 90 per cent of women will become the sole financial decision-maker at some point in their lifetime, representing a substantial segment of Canada’s wealth management sector.

Lower financial literacy than male counterparts

However, this same group generally reports lower levels of financial literacy than their male counterparts. While many reasons account for this disparity, traditional societal norms play a significant role – older generations of women were more likely to stay home and rear children while men typically joined the workforce, granting them greater financial exposure.

Now, we have an opportunity and a responsibility to change this. Widespread financial literacy matters, but in our effort to educate the masses we can’t leave certain groups behind. By narrowing the knowledge gap, we can empower widowed women from and after the Silent Generation with a voice – we can give them a say in their own financial future.

Women will soon control half of accumulated Wealth

By 2026, women in Canada will control roughly half of all accumulated financial wealth, estimates Strategic Insights, up from one-third a decade earlier. While this is a welcomed shift, many women’s’ lack of core financial understanding and involvement is sobering. Too often, it’s men who assume a leading role in personal wealth management, specifically retirement and estate planning. This despite the fact that women, on average, survive their husbands by roughly five years. Yet, only 17 per cent of women in Canada over the age of 65 have an up-to-date will, according to a survey from LegalWills Canada. Continue Reading…

The Thucydides Trap and the Challenges facing China’s Rise

Examining the Thucydides Trap including factors impacting China’s economic and geopolitical growth

Shanghai Lujiazui civic landscape: Deposit Photos

Thucydides, a fourth-century BC Athenian historian and general, wrote a book about the Peloponnesian War, a conflict between Athens and Sparta. He concluded that the war was inevitable due to the growth of Athenian power and the fear it caused in Sparta. This idea, the Thucydides Trap, has been generalized to suggest that when a rising power challenges a dominant power, war becomes unavoidable.

The concept of the “Thucydides Trap” re-emerged in recent years, with some authors suggesting that the U.S. and China were likely to go to war based on Thucydides’ observations. However, comparing the economic power of China and the U.S. solely based on the size and growth rate of their GDPs can be misleading. China’s larger population should be taken into account, and when considering per-capita GDP, the U.S. still surpasses China.

The export boom in Asia started in the 1960s, led by Japan, and was followed by Taiwan, South Korea, and China. Each country developed its own export capabilities. However, China, despite its late start, has faced challenges in reaching the high-end market and relies on importing high-end components. On the other hand, Japan, Korea, and Taiwan excel in high-value manufacturing goods, such as advanced computer chips.

Massive inequality and limited consumption

China’s focus on expanding its workforce and factory output, rather than raising worker incomes, has contributed to its growth but has also led to massive inequality and limited consumption. The Chinese approach contrasts with the Western emphasis on using technology to raise productivity and wages. Additionally, China’s reliance on low-cost unskilled labor and its demographic challenges, resulting from the one-child policy, pose long-term problems for the country.

Russia’s war on Ukraine is not a clear example of a rising power challenging the U.S. and NATO. Russia has been a declining power for decades and has used outdated weapons in the conflict. The beating Russia has faced in Ukraine has surprised many and may have disappointed Chinese leader Xi Jinping, who may have hoped that Russia could distract the U.S. and NATO while China pursues its own long-term plans. After all, Russia has carried out some successful invasions in the past couple of decades, even if they haven’t recovered much of the lost Soviet Empire. But China itself hasn’t been in a war of any consequence since its 1979 border clash with Vietnam.

I.P. Theft

The U.S. announcement of broad new limits on sales of semiconductor technology to China has been viewed by some as a war-like gesture. However, China’s technological gains have often involved theft of intellectual property, according to foreign firms and individuals who have worked there and invested their own money.

They say that enforcing intellectual property rights in China is difficult for foreigners due to local judicial protectionism, difficulties in obtaining evidence, small damage awards, and a perceived bias against foreign firms.

China also forces foreign joint-venture operators to share their designs and patents with local partners, who may then go off and sell copies elsewhere in China or Asia. Many accept the demand, just to get access to the vast Chinese market.

More ambitious Chinese businesses may simply buy a copy of a competitor’s product and reverse-engineer it if that’s all it takes: just pirate the technology, in other words. In The End of the World is Just the Beginning, however, Peter Zeihan wrote,

“Or, if we’re being brutally honest, to successfully reverse-engineer the products of others: Don’t get me wrong, I don’t feel great when I see a new story about some Chinese spy successfully funneling American military technology to Beijing. But please keep it in perspective. China didn’t figure out how to make a ball-point pen without imported components till 2017. The idea that China can get a set of blueprints and suddenly be able to cobble together a stealth bomber or advanced missile system is a bit of a scream.”

Demographics is a key negative for China

China’s demographic situation is a significant long-term problem. The one-child policy and forced migration from the interior to the coast have resulted in an aging workforce and a shrinking labour pool. As retirees increase, the government will face challenges in supporting them with reduced tax revenue and a smaller labour force.

The key indicator of future population is the number of children the average woman has in her lifetime. The “replacement number” that keeps population stable is 2.1 children. The UN estimates that China’s rate dropped to 1.16 in 2021 from just under 3.0 in the early 1980s, and 2.5 as recently as 1990. After decades of government family-size control, the new legalization of larger families has not yet caught on. Continue Reading…

Most Canadians unprepared for Retirement & running out of time, Deloitte study finds

CNW Group/Deloitte Canada

A majority of  nearly retired Canadian households — 55 per cent — will have to make lifestyle changes to avoid running out of money in their old age, says a Deloitte Canada report released on Wednesday.

Worse, that percentage jumps to almost three quarters (73%) if you factor in unexpected costs like health care, long-term care costs and occasional one-off expenses. You can find the full release here from Canada Newswire.

Some 4,000 retired and near-retired Canadian households were surveyed, all between ages 55 and 64.

The resulting report is titled Running out of time: An urgent call to fortify Canada’s private retirement pillars.  It includes recommendations that can help 38 per cent of near-retirees achieve better financial security in retirement, and generate billions for the financial services industry.

Other findings include:

“By employing a host of radical and innovative solutions, Canada can help to protect those vulnerable both near and in-retirement, and set a global standard for how it tackles retirement on the world stage,” says Hwan Kim, Partner, Financial Services Innovation and Open Banking at Deloitte Canada in the press release, “Given roughly 40 per cent of retirement wealth inequality is due to a lack of financial knowledge, the financial services ecosystem must collaborate with the health care system and public sector to equip Canadians with accessible retirement advice, holistic near-retirement offerings, updated pension planning, quality health care, and new resources to retire confidently.”

The report concedes the saving for Retirement has always been “a daunting challenge for working Canadians,” things have gotten worse the last few years. The shift from employer-provided guaranteed Defined Benefit pensions to group RRSPs and Defined Contribution pensions that fluctuate with financial markets is a major hurdle. The report also cites the rising costs of retirement, a lack of high-quality, near-retirement planning resources, and unexpected expenses during late-stage retirement.

According to the report, 55 per cent of near-retiree households will need to make lifestyle changes to avoid outliving their financial savings – a number that is expected to jump to 73% when factoring in unexpected expenses such as healthcare, long-term care costs, and one-off expenditures.

A Bank of Montreal survey released early in 2023 found Canadians believe they need $1.7 million to retire. My blog on this in February asked whether this was doable or not.

Financial services silos must collaborate

The Deloitte report says the Canadian financial services “ecosystem must collaborate across banking, wealth management, insurance, and the public sector.” This ecosystem needs to focus on three main categories of commercially viable solutions: improve the quality and accessibility of near-retirement advice and products, help retirees manage rising retirement costs, and help Canadians build healthy saving habits early on. Continue Reading…