Year-End Round-Up
It's been a challenging year for investors. Sometimes, in the midst of all the information that comes our way, we lose sight of the basics. Accordingly, I want to end this year's 'Focus On Investment$" with a 'potpourri' of both classic and new investment ideas.

Dispel the fog with a financial plan

I'd bet that many Canadians' understanding of their financial future could best be described by one word: foggy. They have assets, they have debts, they have income, and they have expenses, but how it all fits together over the long haul is a mystery.

Get a financial plan. You need to know, "Are we going to make it?" You may be in better shape than you think, but regardless, it's important to at least know where your strategy is taking you. Take charge of your finances. You will feel more confident, less worried about the unexpected events that crop up from time to time, and better able to make well-informed decisions. If changes need to be made, better made now than later.

Avoid short-term thinking

Focusing on the short-term is not investing: it's speculating. Market timers focus on what the market is going to do, rather on the long-term returns of an investment. I often tell clients that I have no idea where stock prices are going short term, but a strong conviction that in the long term, we'll do well. So why monkey around? Don't jeopardize a great investment for the sake of trying to make an extra dollar here or there trading short term. Who needs an ulcer from watching every twitch of the market?

Take an art lesson from J.P Morgan

J.P. Morgan, the great financier of a century ago, at one point became an investor in art. He bought the best masterpieces he could find, from all over the world, and was roundly criticized for paying 'foolishly high' prices. Many suggested that he buy cheaper art of lesser quality, in the hope that one day they too would become masterpieces. J.P would have none of it, and went ahead and snapped up all the classic masterpieces he could find. Within a few years, the 'outlandish' prices he had paid seemed, in retrospect, a bargain, and of course those same works of art are today almost priceless. Again, the lesson is to listen to good advice, and stick to solid, long-term investments. Buy and hold.

Canada

What a difference 15 years makes! In the early 90's, Canada was in trouble, with low growth, high deficits, and a weak dollar. The debt to GDP ratio was over 70%, meaning that 40% of our taxes went for paying interest. Commodities were more of a hindrance than a help, and the Quebec separation problem seemed to never want to go away.

It's been a challenging year for investors. Sometimes, in the midst of all the information that comes our way, we lose sight of the basics. Accordingly, I want to end this year's 'Focus On Investment$" with a 'potpourri' of both classic and new investment ideas.

Dispel the fog with a financial plan

I'd bet that many Canadians' understanding of their financial future could best be described by one word: foggy. They have assets, they have debts, they have income, and they have expenses, but how it all fits together over the long haul is a mystery.

Get a financial plan. You need to know, "Are we going to make it?" You may be in better shape than you think, but regardless, it's important to at least know where your strategy is taking you. Take charge of your finances. You will feel more confident, less worried about the unexpected events that crop up from time to time, and better able to make well-informed decisions. If changes need to be made, better made now than later.

Avoid short-term thinking

Focusing on the short-term is not investing: it's speculating. Market timers focus on what the market is going to do, rather on the long-term returns of an investment. I often tell clients that I have no idea where stock prices are going short term, but a strong conviction that in the long term, we'll do well. So why monkey around? Don't jeopardize a great investment for the sake of trying to make an extra dollar here or there trading short term. Who needs an ulcer from watching every twitch of the market?

Take an art lesson from J.P Morgan

J.P. Morgan, the great financier of a century ago, at one point became an investor in art. He bought the best masterpieces he could find, from all over the world, and was roundly criticized for paying 'foolishly high' prices. Many suggested that he buy cheaper art of lesser quality, in the hope that one day they too would become masterpieces. J.P would have none of it, and went ahead and snapped up all the classic masterpieces he could find. Within a few years, the 'outlandish' prices he had paid seemed, in retrospect, a bargain, and of course those same works of art are today almost priceless. Again, the lesson is to listen to good advice, and stick to solid, long-term investments. Buy and hold.

Canada

What a difference 15 years makes! In the early 90's, Canada was in trouble, with low growth, high deficits, and a weak dollar. The debt to GDP ratio was over 70%, meaning that 40% of our taxes went for paying interest. Commodities were more of a hindrance than a help, and the Quebec separation problem seemed to never want to go away.

Now we have huge surpluses, and our debt to GDP ratio is heading towards 25%, the lowest of the G7 countries! The Canadian dollar is up to 89 cents US, commodities are strong, and the oil sands are attracting world attention. And Quebec seems stable.

What does this mean for your investment strategy? Not much, if you follow a geographically balanced investment plan. Yes, stay invested in Canada, but keep investing overseas. If commodity prices fall, or Quebec de-stabilizes, things could unravel a bit. In that case, regions that consume commodities, such as Asia, will benefit from the lower commodity prices. Diversify in many countries, industries, and types of investments to minimize risk. And always think long-term.

Emotions

Good emotions - patience, steadiness, discipline. Bad emotions - fear, greed, impulsiveness. A financial advisor can help cultivate the former, and curtail the latter.

Interest Rates and Income Portfolios.

What's better, low interest rates, or high? Most think low rates are better, but really low rates spell disaster for anyone living on GICs. And pension funds face huge challenges in a low rate environment, because they can't generate enough income to meet their requirements. And when are rates low? Usually during an economic slowdown. On the other hand, high rates can hurt the stock market, slow economic activity, and push bond prices lower. So what to do to protect against both types of environment?

Be sure to address the opportunity/problem of low or high interest rates in your income portfolio, through the use of different types of securities that do well under different environments. Long-term bonds do well as rates fall, whereas floating rate notes do better as rates rise. Real return bonds protect against inflation, while high-yield bonds can provide high levels of income in a variety of situations. Foreign bonds can provide even further diversification. Always remember, diversification applies to income, just as much as it does to equities. Are you as diversified as you can be?

A percent here and a percent there…

The difference in final value between a portfolio earning 4.5% annually and one earning 6.5% annually over a period of 12 years is 25.5%. Over 20 years: 46%. So don't think that high fees or mediocre performance don't make a big difference: over time, they do.

Our team…

… is devoted to providing you with superior advice. We aim to protect your capital, while still beating inflation and taxes. We provide high levels of service, and stay in regular contact with our clients through portfolio updates and mailings. If you would like to meet with us for a confidential, no-obligation assessment, call (905) 704 6650. It would be well worth your time to get a second opinion and hear what we can offer.

Sincerely,

Scott Swallow, HBA, MBA, CIM