This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
Momentum in the market is a fascinating thing.
On Monday, I discussed this week’s importance from the standpoint of US companies reporting, and the view it will give us of the state of the global economy.
Two days in, we have had some pretty lousy results, yet the US markets have charged a head, while oil and energy prices have dragged the Canadian market down.
It appears that bad news is no surprise, and investors may be willing to start committing new money to the market.
Is it time to review your mix of assets, and look at global opportunities?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Wednesday, July 23, 2008
July 21, 2008 Daily Market Wrap
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with your daily market wrap for July 21, 2008.
North American markets went different directions today, the Dow finished off 29 points. The NASDAQ lost 3 points, and the S&P finished fairly flat, less than one point lower...The TSX gained 173 points, driven by energy, materials, and financials. Oil ended at 132.44 dollars per barrel, and the Canadian dollar crept to 99.89 cents US. Gold closed at $965 per ounce
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
North American markets went different directions today, the Dow finished off 29 points. The NASDAQ lost 3 points, and the S&P finished fairly flat, less than one point lower...The TSX gained 173 points, driven by energy, materials, and financials. Oil ended at 132.44 dollars per barrel, and the Canadian dollar crept to 99.89 cents US. Gold closed at $965 per ounce
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
Monday, July 21, 2008
July 21, 2008 Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
This week is among the busiest for US corporate earnings…about one third of S&P companies report their quarterly results.
We may get a much clearer picture of the depth of the US slowdown.
Earnings could give us a clearer picture of the impact of higher energy costs, and the credit crunch, on corporate earnings.
With all of the negative expectations in the market, and trillions of dollars on the sidelines in the US, market momentum could swing significantly on a few positive or negative results.
Are you positioned to respond to changing market conditions?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
This week is among the busiest for US corporate earnings…about one third of S&P companies report their quarterly results.
We may get a much clearer picture of the depth of the US slowdown.
Earnings could give us a clearer picture of the impact of higher energy costs, and the credit crunch, on corporate earnings.
With all of the negative expectations in the market, and trillions of dollars on the sidelines in the US, market momentum could swing significantly on a few positive or negative results.
Are you positioned to respond to changing market conditions?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
July 18, 2008 Daily Market Wrap
This is Jeff Wareham, Scotia McLeod Wealth Advisor, with your daily market wrap Toronto's TSX closed 55.71 points higher today, while The Dow closed 49.91 points higher. The NASDAQ was 30.24 points lower, and the S&P finished up 0.03 percent, or 0.36 points...oil settled at 129.49 US dollars per barrel and the Canadian dollar closed at 0.9939 This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF
Friday, July 18, 2008
July 18, 2008 Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
On Monday, I predicted an interesting week, and I was right.
What has worked all year, has not worked this week…and vice versa.
Investors who rode their Canadian equity funds the last few months have encountered turbulence…while the Dow has rallied nearly 500 points.
Financials have surged over the last three days, and energy stocks have been pummeled, as oil has fallen about 15 dollars.
Has anything changed?
Tune in tomorrow, as I review this week’s market action, and look at ideas for the balance of 2008.
On Monday, I predicted an interesting week, and I was right.
What has worked all year, has not worked this week…and vice versa.
Investors who rode their Canadian equity funds the last few months have encountered turbulence…while the Dow has rallied nearly 500 points.
Financials have surged over the last three days, and energy stocks have been pummeled, as oil has fallen about 15 dollars.
Has anything changed?
Tune in tomorrow, as I review this week’s market action, and look at ideas for the balance of 2008.
July 17, 2008 Daily Market Wrap
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with your daily market wrap for July 17, 2008.
North American markets went different directions today, the Dow finished up 207 points. The NASDAQ gained 27 points, and the S&P finished 14 points higher...The TSX lost 43 points, recovering from triple digit losses. Oil ended at 130.47 dollars per barrel, and the Canadian dollar slid to 99.36 cents US. Gold closed at $955.60 per ounce
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
North American markets went different directions today, the Dow finished up 207 points. The NASDAQ gained 27 points, and the S&P finished 14 points higher...The TSX lost 43 points, recovering from triple digit losses. Oil ended at 130.47 dollars per barrel, and the Canadian dollar slid to 99.36 cents US. Gold closed at $955.60 per ounce
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
Wednesday, July 16, 2008
July 16, 2008 Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
It has been said that it is always darkest before it is completely black…but three interesting things came to light during yesterday’s sell off.
1) The Volatility Index broke through 31, indicating a high level of fear, which has been a sign that it is time to buy, historically.
2) Money Market holdings hit an all time high, again a buying signal, as money on the sidelines usually precedes a recovery.
3) Oil, which has been hanging over the market, took a sudden, record size move downward, which hurt energy stocks, but again should help the economy.
There is no guarantee that these traditional signals mark a change in market direction, but opportunities likely exist in selected names.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
It has been said that it is always darkest before it is completely black…but three interesting things came to light during yesterday’s sell off.
1) The Volatility Index broke through 31, indicating a high level of fear, which has been a sign that it is time to buy, historically.
2) Money Market holdings hit an all time high, again a buying signal, as money on the sidelines usually precedes a recovery.
3) Oil, which has been hanging over the market, took a sudden, record size move downward, which hurt energy stocks, but again should help the economy.
There is no guarantee that these traditional signals mark a change in market direction, but opportunities likely exist in selected names.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Tuesday, July 15, 2008
Using ETFs in your Portfolio
This article outlines the value of using ETFs to diversify your portfolio globally.
the-case-for-indexing
the-case-for-indexing
Monday, July 14, 2008
July 14, 2008 Daily Market Wrap
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with your daily market wrap for July 14, 2008.
North American markets struggled for direction today, trying to digest the long term impact of US Government announcements on mortgage guarantees, and off shore drilling. the Dow finished down 45 points, after starting sharply higher, and then falling dramatically during the day. The NASDAQ lost 26 points, and the S&P finished 11 points lower...The TSX gained 32 points, after posting an early triple digit gain. Oil ended at 145.77 dollars per barrel, and the Canadian dollar approached parity with the greenback, ending at 99.45 cents US. Gold closed at $974.30 per ounce, up over 50 dollars in the last week.
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
Tune in Saturdays at 8:30 AM, for Beyond Funds Market Weekly, for further information on the markets, visit my blog on AM 980's website, or at www.beyondfunds.ca
Jeff Wareham, CFP, RHU
North American markets struggled for direction today, trying to digest the long term impact of US Government announcements on mortgage guarantees, and off shore drilling. the Dow finished down 45 points, after starting sharply higher, and then falling dramatically during the day. The NASDAQ lost 26 points, and the S&P finished 11 points lower...The TSX gained 32 points, after posting an early triple digit gain. Oil ended at 145.77 dollars per barrel, and the Canadian dollar approached parity with the greenback, ending at 99.45 cents US. Gold closed at $974.30 per ounce, up over 50 dollars in the last week.
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
Tune in Saturdays at 8:30 AM, for Beyond Funds Market Weekly, for further information on the markets, visit my blog on AM 980's website, or at www.beyondfunds.ca
Jeff Wareham, CFP, RHU
July 14, 2008 Daily Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
It could be an interesting week on the markets, after a very busy weekend…major mergers, a bail out for the two US mortgage issuers, and the second largest bank failure in US history…all while the markets were closed.
Over the past few weeks, I have been talking about playing defense in volatile markets.
The stories from the weekend are all very different, but each may be a sign of health returning to the global markets.
After a couple of years of challenging markets, it may be tough to stay committed to your long term plan…but you really should.
For ideas on playing defense in volatile times, give me a call.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
It could be an interesting week on the markets, after a very busy weekend…major mergers, a bail out for the two US mortgage issuers, and the second largest bank failure in US history…all while the markets were closed.
Over the past few weeks, I have been talking about playing defense in volatile markets.
The stories from the weekend are all very different, but each may be a sign of health returning to the global markets.
After a couple of years of challenging markets, it may be tough to stay committed to your long term plan…but you really should.
For ideas on playing defense in volatile times, give me a call.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Friday, July 11, 2008
July 11, 2008
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
Summer vacation season is in full swing, but your money should still be working for you.
Over the summer, markets may be even more volatile, as the volume of stock sold falls…when there are fewer buyers and sellers, the price swings may be accelerated. The first two weeks of July have already exhibited this type of behaviour.
This is a real opportunity for investors who wish to look for particular stocks to improve their portfolio, or who want to move from mutual funds, to individual equities.
Tune in tomorrow at 8:30 AM, as I discuss investing in the summer months.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Summer vacation season is in full swing, but your money should still be working for you.
Over the summer, markets may be even more volatile, as the volume of stock sold falls…when there are fewer buyers and sellers, the price swings may be accelerated. The first two weeks of July have already exhibited this type of behaviour.
This is a real opportunity for investors who wish to look for particular stocks to improve their portfolio, or who want to move from mutual funds, to individual equities.
Tune in tomorrow at 8:30 AM, as I discuss investing in the summer months.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
July 12 Weekly Summary
Not a great week for investors, as Correction 2008 continues on North American markets...the TSX lost its title as the only major market in positive territory, riding Friday's volatile selloff to a level about 1% below the beginning of the year.
US markets fared little better, with the Dow dropping below 11000 for the first time in 2 years.
Global numbers are pretty startling...for 2008, the TSX is off 0.90%, finishing at 13709, but compare that to the Dow, finishing Friday at 11000, down over 16%, the Nasdaq, down to 2239, of 15.5%, the S&P, at 1239, off 15.5%...the TSX is still a star.
The rest of the global story is worse...of the major European markets, only the FTSE is less than 20% in the hole year to date...and it ended the week off 18% year to date. The Dax is off 23%, the CAC 40 is off 27%, and the Euro Stoxx is off 27% as well.
Looking to the Far East, China is off nearly 50%, the Nikkei is down 14%, the Australian ASX and Hang Seng are both off about 21%
The global equity sell off really has been a worldwide phenomenon...even Brazil and Mexico have faded, down 5 and 6% respectively.
The flight to safety really has been a flight to cash, as bonds have not rallied significantly...although higher yielding commercial paper, especially in the US, has rallied from its almost illiquid state earlier in the year.
Late week, investors were truly troubled by the possibility that the two major US Government Sponsored entities, Fannie Mae and Freddie Mac, might collapse
I thought this article by MarketWatch captured the state of the market well.
"Is that glass half-full or half-empty?
Those with a half-empty point of view will point out that this week, because of rumor, innuendo and a few worrying facts, shares of Fannie Mae and Freddie Mac tumbled to unthinkable lows. Unthinkable because the two companies were supposed to be the housing market's Rock of Gibraltar. After all, they provide the billions of dollars the financial system needs to keep the dream of homeownership within reach for millions of Americans. Owning a home, we all know, is a key to economic success in this country, and e! conomic success is what we're all about.
These companies, which for decades were unflappable institutions beloved by borrowers, lenders and the political class, were this week beset by worries that the trillions of dollars of mortgage debt they own or are responsible for might be worth a lot less than previously believed. There was talk the government might have to take them over, or that taxpayers might have to bail them out. Letting Fannie and Freddie fail, it was universally agreed, was not an option.
Even if complete failure was not on the cards, equity investors didn't like the look of things, particularly since, under at least one scenario floated in the press, they would see the value of their holdings re! duced to zero. By the end of Friday, Fannie shares were showing a monthly decline of 48%, while Freddie was off 53%."
Although a great deal of shareholder equity disappeared, just on Friday, investors are hoping Fannie and Freddie's funding needs for the immediate future could be put to rest if Federal Reserve chairman Ben Bernanke allows both companies to borrow directly from the so-called discount window, like commercial banks do. That would mean they wouldn't need to go to the public debt markets to raise money to keep operating.
It may be very important to see what happens to Freddy and Fannie over the next few days.
On the commodities side, this week saw yet another new record for oil, reaching over $147 US per barrel, although it saw a midweek drop into the low 130s before spiking again on geopolitical tensions.
Gold jumped over 20 dollars just on Friday, as traders fled the greenback, once again.
Canadian homeowners got a bit of a surprise when the CMHC rules for maximum mortgage terms were reduced, and the minimum downpayment was increased back to 5 percent. in an upcoming show, i will host one of Scotiabank's Mortgage managers, to get his take on the impact this may have on home affordability, and eventually house prices.
If you have been tuning in over the last few weeks, I have been discussing the value of playing defense with your money in these volatile markets...and i still believe that protecting capital should be a part of the investment program of all but the most aggressive investors...and this does not mean being out of the market, or fleeing entirely to GICs. Over recent shows, i have covered a number of ways to conserve capital...and I believe the time will soon come where many of the downtrodden segments of the market will present great opportunity. An investor with a long time horizon may be comfortable wading into the current market, recognizing that many great companies will be far more valuable 15 or twenty years from now.
The current selloff has presented some really remarkable opportunities...Canadian financials, both their common and preferred shares, are paying phenomenal dividend yields. Energy companies, especially Canadian oil and gas companies, are down significantly, even though oil is at a record high. Real estate income trusts are paying fabulous yields, although these yield payers could all be hurt if central banks change decide to increase rates to curb inflation. I believe the impact of energy prices will be similar to a tax increase...and will slow economic growth without the need for significant interest rate intervention.
What if you are not able to be patient? Some investors, especially those nearing or entering retirement, may need some guarantees to sleep at night. I have a video that I recommend highly to investors in their last five years of working, or their first five years of retirement...it is produced by Manulife investments, and it does a great job of summarizing the risks to retirees, in what they refer to as the Retirement Red Zone...they key to the whole presentation is this...during your accumulation years, the sequence of returns from year to year really does not matter...all that matters is the rate of return you average...but if you use their sequence of returns calculator (and listeners can find this by coming to my blog on AM 980's web site, you can find the link in today's show content, which should be posted on Monday...the calculator is fantastic, as it shows the dramatic impact of lousy returns in the first or second year of retirement withdrawal. In the example on the video, a bad first year shortens a retirees income payments by about 7 years...pretty dramatic.
If you would like a copy of Manulife's video on the subject, let me know, and i will send one to you personally...i can be reached at , or via phone at (519) 660-3260
Although it is not the only solution, using a segregated fund is certainly a novel and relatively simple way to protect and ensure income for life. i really think that they make sense for retirement allowances and RRIFs, especially if an investor wants the security of an annuity or pension, while retaining control of their capital.
The biggest reason i like the idea of using a segregated fund or deferred annuity program, like Manulife's GIF, is that it eliminates one of the five key risks to retirement, identified in the landmark research done by Fidelity Investments, and that is asset allocation. I believe Fidelity's research on the five risks to retirement security will some day be recognized for it's brilliance. One of the key themes of the research was that investors frequently panic, and seek absolute guarantees of return in retirement...but the reality of the eight, ten, or twelve percent returns of Canada savings Bonds or GICs in the eighties is likely history. The more current, four percent or so, average return of GICs, comes nowhere close to covering the rate of inflation, especially in this world of spiralling energy costs. Many investors might hear that the risk of asset allocation means they should immediately move to entirely secure investments, but unless a person living on an average income accumulates millions, they are unlikely to generate sufficient, inflation protected income using only GICs. The real risk is in becoming too conservative...a balanced portfolio will almost always outperform a secure portfolio...and therefore, the secure portfolio is likely to run out first. An investor using a deferred annuity still invests in the market, but is less likely to bail out in risky or volatile times...because they have a guaranteed income stream. This is not an all or nothing solution. In fact, i frequently use this type of product for a significant part of the equity in an investor nearing retirement's portfolio...while still buying individual stocks or bonds...for example, they might put their RRIF money in a deferred annuity, while buying individual stocks and bonds with their non registered investments.
I made reference to the five key risks to retirement planning...in this segment, I am going to review those five key risks, and offer ideas of how to construct your portfolio, considering the risks.
The source of the research is Fidelity Investments Canada Limited...and it should change the way you think when you’re making your financial plans
Longevity is the first risk. Canadians are living longer and longer, and this presents a significant risk when investing for retirement. Many retirees shoot for freedom at 55...but this could require 40 or more years of need for retirement income. In fact, a couple retiring at 65 has about a one in two chance of one member living to 90, and one in four of them reaching 94. Pensions were a creation of kaiser Wilhelm back in the 19th century, and 65 was chosen as the time to put old bureaucrats off on pension...with the assumption that they could no longer work effectively, and would not live much longer, anyways. Both assumptions are completely wrong today, with life expectancies growing rapidly. On a percentage basis, the age group of population growing the fastest is those over age 100, and the second category is over 85. many of these aging canadians are dynamic and active, able to golf, garden, walk, and even parachute, into their 90s and beyond.
Many public pensions are in serious trouble due longevity, and fewer and fewer employers choose defined benefit pensions, as they are costly to provide, given the combination of longevity and low interest rates.
This makes it very attractive for investors to consider deferred annuities, like I discussed before the break...or even annuities, which offer guaranteed income, and great tax efficiency for the right investors. Neither strategy should be taken lightly, or done without the guiding hand of an advisor.
Longevity leads right to the second risk...health care. We are living longer, but are we living better? Sometimes I wonder. About 45% of 65 year olds will require nursing home care before they die...with an average duration exceeding two years. The impact on a household where the other spouse is still alive is dramatic...essentially, you end up running two homes. This risk is rarely covered in plans I see...yet imagine the impact of having to run two homes for five years...the costs may be huge. I believe the solution to this exists...but is rarely used. Insurance companies have built exceptionally well priced programs of long term care insurance, which provide cash for care, either in the home, or in long term care facilities. I believe this strategy will gain popularity as people see the impact on their parents' savings.
Inflation is the third risk, and one of the great offenders in the inflation category is health care cost...but there are many other culprits...rising fuel, insurance, heat, and food costs directly impact the aging population. The retiree facing thirty years of retirement had better account for the fact that a mere three percent inflation rate may increase her food costs by 250% or so. Sadly, many pensions are only partially indexed, or tied to the rather artificial CPI calculation...which nets out many of the most inflationary categories...who, exactly can live "net of food and energy?" This lead right back to my contention that investors need to stay in equities, to grow their assets against the risk of inflation. Two solutions are the deferred annuities discussed prior, and a simple basket of consistent, dividend growing stocks...a well designed portfolio of suck historical dividend growers as banks, utilities, and energy companies, along with a Reit or two, give you a pretty good hedge against inflation, if you stay the course.
Withdrawal, especially early withdrawal, is a huge risk. Taking out too much, too soon, is a sure fire route to poverty in later stages...but it happens. it could be argued that your needs are greater for disposable income early in retirement...but in later years, investors cutting it close may want to consider the guarantee of an annuity.
As i discussed earlier, asset allocation is the final, great risk to retirement security. the first, obvious issue, is being too concentrated in any asset class, even the value of your principal residence. More importantly, bailing out in volatile markets may just be the worst possible risk, as selling low is the one way to lock in investment losses. Yet again, the deferred annuity is very attractive, since the guarantee may keep you in your portfolio in choppy markets.
Regardless of which risk may challenge you in retirement, there are strategies to cope, and the key is to work with an advisor to select the best defense.
If you have any questions, please feel free to contact me, ScotiaMcLeod Wealth Advisor jeff wareham, at (519) 660 3260, or at www.jeffwareham.ca.
US markets fared little better, with the Dow dropping below 11000 for the first time in 2 years.
Global numbers are pretty startling...for 2008, the TSX is off 0.90%, finishing at 13709, but compare that to the Dow, finishing Friday at 11000, down over 16%, the Nasdaq, down to 2239, of 15.5%, the S&P, at 1239, off 15.5%...the TSX is still a star.
The rest of the global story is worse...of the major European markets, only the FTSE is less than 20% in the hole year to date...and it ended the week off 18% year to date. The Dax is off 23%, the CAC 40 is off 27%, and the Euro Stoxx is off 27% as well.
Looking to the Far East, China is off nearly 50%, the Nikkei is down 14%, the Australian ASX and Hang Seng are both off about 21%
The global equity sell off really has been a worldwide phenomenon...even Brazil and Mexico have faded, down 5 and 6% respectively.
The flight to safety really has been a flight to cash, as bonds have not rallied significantly...although higher yielding commercial paper, especially in the US, has rallied from its almost illiquid state earlier in the year.
Late week, investors were truly troubled by the possibility that the two major US Government Sponsored entities, Fannie Mae and Freddie Mac, might collapse
I thought this article by MarketWatch captured the state of the market well.
"Is that glass half-full or half-empty?
Those with a half-empty point of view will point out that this week, because of rumor, innuendo and a few worrying facts, shares of Fannie Mae and Freddie Mac tumbled to unthinkable lows. Unthinkable because the two companies were supposed to be the housing market's Rock of Gibraltar. After all, they provide the billions of dollars the financial system needs to keep the dream of homeownership within reach for millions of Americans. Owning a home, we all know, is a key to economic success in this country, and e! conomic success is what we're all about.
These companies, which for decades were unflappable institutions beloved by borrowers, lenders and the political class, were this week beset by worries that the trillions of dollars of mortgage debt they own or are responsible for might be worth a lot less than previously believed. There was talk the government might have to take them over, or that taxpayers might have to bail them out. Letting Fannie and Freddie fail, it was universally agreed, was not an option.
Even if complete failure was not on the cards, equity investors didn't like the look of things, particularly since, under at least one scenario floated in the press, they would see the value of their holdings re! duced to zero. By the end of Friday, Fannie shares were showing a monthly decline of 48%, while Freddie was off 53%."
Although a great deal of shareholder equity disappeared, just on Friday, investors are hoping Fannie and Freddie's funding needs for the immediate future could be put to rest if Federal Reserve chairman Ben Bernanke allows both companies to borrow directly from the so-called discount window, like commercial banks do. That would mean they wouldn't need to go to the public debt markets to raise money to keep operating.
It may be very important to see what happens to Freddy and Fannie over the next few days.
On the commodities side, this week saw yet another new record for oil, reaching over $147 US per barrel, although it saw a midweek drop into the low 130s before spiking again on geopolitical tensions.
Gold jumped over 20 dollars just on Friday, as traders fled the greenback, once again.
Canadian homeowners got a bit of a surprise when the CMHC rules for maximum mortgage terms were reduced, and the minimum downpayment was increased back to 5 percent. in an upcoming show, i will host one of Scotiabank's Mortgage managers, to get his take on the impact this may have on home affordability, and eventually house prices.
If you have been tuning in over the last few weeks, I have been discussing the value of playing defense with your money in these volatile markets...and i still believe that protecting capital should be a part of the investment program of all but the most aggressive investors...and this does not mean being out of the market, or fleeing entirely to GICs. Over recent shows, i have covered a number of ways to conserve capital...and I believe the time will soon come where many of the downtrodden segments of the market will present great opportunity. An investor with a long time horizon may be comfortable wading into the current market, recognizing that many great companies will be far more valuable 15 or twenty years from now.
The current selloff has presented some really remarkable opportunities...Canadian financials, both their common and preferred shares, are paying phenomenal dividend yields. Energy companies, especially Canadian oil and gas companies, are down significantly, even though oil is at a record high. Real estate income trusts are paying fabulous yields, although these yield payers could all be hurt if central banks change decide to increase rates to curb inflation. I believe the impact of energy prices will be similar to a tax increase...and will slow economic growth without the need for significant interest rate intervention.
What if you are not able to be patient? Some investors, especially those nearing or entering retirement, may need some guarantees to sleep at night. I have a video that I recommend highly to investors in their last five years of working, or their first five years of retirement...it is produced by Manulife investments, and it does a great job of summarizing the risks to retirees, in what they refer to as the Retirement Red Zone...they key to the whole presentation is this...during your accumulation years, the sequence of returns from year to year really does not matter...all that matters is the rate of return you average...but if you use their sequence of returns calculator (and listeners can find this by coming to my blog on AM 980's web site, you can find the link in today's show content, which should be posted on Monday...the calculator is fantastic, as it shows the dramatic impact of lousy returns in the first or second year of retirement withdrawal. In the example on the video, a bad first year shortens a retirees income payments by about 7 years...pretty dramatic.
If you would like a copy of Manulife's video on the subject, let me know, and i will send one to you personally...i can be reached at , or via phone at (519) 660-3260
Although it is not the only solution, using a segregated fund is certainly a novel and relatively simple way to protect and ensure income for life. i really think that they make sense for retirement allowances and RRIFs, especially if an investor wants the security of an annuity or pension, while retaining control of their capital.
The biggest reason i like the idea of using a segregated fund or deferred annuity program, like Manulife's GIF, is that it eliminates one of the five key risks to retirement, identified in the landmark research done by Fidelity Investments, and that is asset allocation. I believe Fidelity's research on the five risks to retirement security will some day be recognized for it's brilliance. One of the key themes of the research was that investors frequently panic, and seek absolute guarantees of return in retirement...but the reality of the eight, ten, or twelve percent returns of Canada savings Bonds or GICs in the eighties is likely history. The more current, four percent or so, average return of GICs, comes nowhere close to covering the rate of inflation, especially in this world of spiralling energy costs. Many investors might hear that the risk of asset allocation means they should immediately move to entirely secure investments, but unless a person living on an average income accumulates millions, they are unlikely to generate sufficient, inflation protected income using only GICs. The real risk is in becoming too conservative...a balanced portfolio will almost always outperform a secure portfolio...and therefore, the secure portfolio is likely to run out first. An investor using a deferred annuity still invests in the market, but is less likely to bail out in risky or volatile times...because they have a guaranteed income stream. This is not an all or nothing solution. In fact, i frequently use this type of product for a significant part of the equity in an investor nearing retirement's portfolio...while still buying individual stocks or bonds...for example, they might put their RRIF money in a deferred annuity, while buying individual stocks and bonds with their non registered investments.
I made reference to the five key risks to retirement planning...in this segment, I am going to review those five key risks, and offer ideas of how to construct your portfolio, considering the risks.
The source of the research is Fidelity Investments Canada Limited...and it should change the way you think when you’re making your financial plans
Longevity is the first risk. Canadians are living longer and longer, and this presents a significant risk when investing for retirement. Many retirees shoot for freedom at 55...but this could require 40 or more years of need for retirement income. In fact, a couple retiring at 65 has about a one in two chance of one member living to 90, and one in four of them reaching 94. Pensions were a creation of kaiser Wilhelm back in the 19th century, and 65 was chosen as the time to put old bureaucrats off on pension...with the assumption that they could no longer work effectively, and would not live much longer, anyways. Both assumptions are completely wrong today, with life expectancies growing rapidly. On a percentage basis, the age group of population growing the fastest is those over age 100, and the second category is over 85. many of these aging canadians are dynamic and active, able to golf, garden, walk, and even parachute, into their 90s and beyond.
Many public pensions are in serious trouble due longevity, and fewer and fewer employers choose defined benefit pensions, as they are costly to provide, given the combination of longevity and low interest rates.
This makes it very attractive for investors to consider deferred annuities, like I discussed before the break...or even annuities, which offer guaranteed income, and great tax efficiency for the right investors. Neither strategy should be taken lightly, or done without the guiding hand of an advisor.
Longevity leads right to the second risk...health care. We are living longer, but are we living better? Sometimes I wonder. About 45% of 65 year olds will require nursing home care before they die...with an average duration exceeding two years. The impact on a household where the other spouse is still alive is dramatic...essentially, you end up running two homes. This risk is rarely covered in plans I see...yet imagine the impact of having to run two homes for five years...the costs may be huge. I believe the solution to this exists...but is rarely used. Insurance companies have built exceptionally well priced programs of long term care insurance, which provide cash for care, either in the home, or in long term care facilities. I believe this strategy will gain popularity as people see the impact on their parents' savings.
Inflation is the third risk, and one of the great offenders in the inflation category is health care cost...but there are many other culprits...rising fuel, insurance, heat, and food costs directly impact the aging population. The retiree facing thirty years of retirement had better account for the fact that a mere three percent inflation rate may increase her food costs by 250% or so. Sadly, many pensions are only partially indexed, or tied to the rather artificial CPI calculation...which nets out many of the most inflationary categories...who, exactly can live "net of food and energy?" This lead right back to my contention that investors need to stay in equities, to grow their assets against the risk of inflation. Two solutions are the deferred annuities discussed prior, and a simple basket of consistent, dividend growing stocks...a well designed portfolio of suck historical dividend growers as banks, utilities, and energy companies, along with a Reit or two, give you a pretty good hedge against inflation, if you stay the course.
Withdrawal, especially early withdrawal, is a huge risk. Taking out too much, too soon, is a sure fire route to poverty in later stages...but it happens. it could be argued that your needs are greater for disposable income early in retirement...but in later years, investors cutting it close may want to consider the guarantee of an annuity.
As i discussed earlier, asset allocation is the final, great risk to retirement security. the first, obvious issue, is being too concentrated in any asset class, even the value of your principal residence. More importantly, bailing out in volatile markets may just be the worst possible risk, as selling low is the one way to lock in investment losses. Yet again, the deferred annuity is very attractive, since the guarantee may keep you in your portfolio in choppy markets.
Regardless of which risk may challenge you in retirement, there are strategies to cope, and the key is to work with an advisor to select the best defense.
If you have any questions, please feel free to contact me, ScotiaMcLeod Wealth Advisor jeff wareham, at (519) 660 3260, or at www.jeffwareham.ca.
No time off for your money
Summer vacation season is in full swing, but your money should still be working for you.
Over the summer, markets may be even more volatile, as the volume of stock sold falls…when there are fewer buyers and sellers, the price swings may be accelerated. The first two weeks of July have already exhibited this type of behaviour.
This is a real opportunity for investors who wish to look for particular stocks to improve their portfolio, or who want to move from mutual funds, to individual equities.
Tune in tomorrow at 8:30 AM, as I discuss investing in the summer months.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF
Over the summer, markets may be even more volatile, as the volume of stock sold falls…when there are fewer buyers and sellers, the price swings may be accelerated. The first two weeks of July have already exhibited this type of behaviour.
This is a real opportunity for investors who wish to look for particular stocks to improve their portfolio, or who want to move from mutual funds, to individual equities.
Tune in tomorrow at 8:30 AM, as I discuss investing in the summer months.
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF
Wednesday, July 9, 2008
July 9, 2008 Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
Playing defense has been a recurring theme over the last few weeks.
Trying to time the market is often a lost cause, but rebalancing during volatile times is a necessity if you want to protect your money in down markets, and be prepared for the eventual recovery when it happens.
Weak markets may offer great opportunity, but the key is to have a strategy, and to work with your advisor to implement that strategy.
Many investors don’t have an integrated plan, just a collection of stocks or mutual funds.
Is it time to revisit your strategy?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Playing defense has been a recurring theme over the last few weeks.
Trying to time the market is often a lost cause, but rebalancing during volatile times is a necessity if you want to protect your money in down markets, and be prepared for the eventual recovery when it happens.
Weak markets may offer great opportunity, but the key is to have a strategy, and to work with your advisor to implement that strategy.
Many investors don’t have an integrated plan, just a collection of stocks or mutual funds.
Is it time to revisit your strategy?
Have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Monday, July 7, 2008
July 7, 2008 Daily Market Wrap
Toronto fell on weakness in oil today, off 297.59 points , while US markets returned from the holiday with a volatility the Dow finished down 56.58 points, the Nasdaq up 10.58 points, and the S&P finished 10.59 points lower...oil ended at 141.83 dollars per barrel, and the Canadian dollar stayed fairly steady at 98.28 cents US. Gold closed at $927 per ounce.
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
July 7, 2008
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
On Saturday, I discussed ideas for mutual fund investors who are looking to protect their portfolios from further losses, after years of challenging markets.
One of the key issues for most investors is the high cost of Canadian mutual funds.
Funds management fees in Canada remain the highest in the developed world, and this always matters, but in down markets, the impact is magnified. Funds may be selling assets at low prices just to fund their high management costs, and this essentially means an investor is selling when the market is down, even if they do not want to.
You know that you should buy low and sell high, but your fund management fees may be working against you.
Ask yourself, have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
On Saturday, I discussed ideas for mutual fund investors who are looking to protect their portfolios from further losses, after years of challenging markets.
One of the key issues for most investors is the high cost of Canadian mutual funds.
Funds management fees in Canada remain the highest in the developed world, and this always matters, but in down markets, the impact is magnified. Funds may be selling assets at low prices just to fund their high management costs, and this essentially means an investor is selling when the market is down, even if they do not want to.
You know that you should buy low and sell high, but your fund management fees may be working against you.
Ask yourself, have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Friday, July 4, 2008
Beyond Funds Market Weekly July 5 Radio Show
Good Morning, and welcome to Beyond Funds Market weekly, for the week of July 5, 2008...I am your host, ScotiaMcLeod Wealth Advisor Jeff Wareham.
It was the first week of quarter 3, 2008, and little change was evident from the first two quarters of 2008. Oil saw another remarkable new high, while all three American markets prepared for the long weekend by straying into bear market territory. Profit taking hit the Toronto market as well, leaving toronto only barely above water for the year...yet Toronto remains the only major global market in positive territory for the year...and the villains this time were the stocks that have added much of the gains in the market year to date.
Over the last few weeks, I have been expressing my concern that a popping of the apparent bubble in commodity prices could lead to a dramatic downturn, and although the commodity prices have remained persistently high, many of the major energy, material, and technology stocks surrendered major pieces of their gains in trading this week.
If oil, or gold, ever lose momentum...look out below...we could easily see Toronto join most of the world's markets in bear territory.
Continuing with the global theme, inflation and unemployment were major themes this week. The European Central Bank raised rates, in response to fears that oil and commodity prices will drive consumer prices higher. Investor's found some solace in the accompanying statement by the ECB, which indicated no bias toward further rate increases. The US jobs and ADP numbers were awful, and it seems clear that the slowdown in the States will continue to hurt their employment picture.
Friday saw broad based downgrades of European financials, and most global banks were sold in response.
Canada saw the approval of the BCE buyout, and it would appear that, for the moment, it will represent the largest leveraged buyout ever...just for disclosure purposes, I hold BCE personally, and it is held in many of my client accounts.
Looking at the numbers, Toronto closed out the week at 14010...over a thousand points from the lofty heights reached two weeks ago, and not that far from correction territory.
New York was closed Friday, but the Dow closed down at 11,288.54, despite a 73 point gain on Thursday. The Nasdaq ended at 2,245, including a 6 point loss on thursday, and the S&P 500 ended at 1,263, with a fairly flat day Thursday. Oil reached 144.18 at the close, surpassing 145 on Thursday, and gold moved well into the 900s, ending at 935.70 ounce. Oil may be interesting to watch, as the exchanges increased margin requirements again this week, with the possible intent of reducing speculation. OPEC leaders added to the story by blaming speculators for oil's rise...and Iran and israel ratchetted up their hostile rhetoric, which led to fears of major supply disruption.
Global markets were uglier, with Europe and Asia marching significantly lower through the week. Particularly noteworthy is Shanghai...closing in on a 60% correction from its peak last year...now that is a bear market.
After the break, i will discuss some of the alternatives that you, as an investor with a growing portfolio, might consider, to protect yourself in such volatile and negative markets.
Just a quick highlight of some upcoming shows...I will continue my series on planned giving, featuring other members of London's charitable community...if you have a charitable cause you would like featured on the show, contact me, ScotiaMcLeod Wealth Advisor Jeff Wareham...and speaking of charity, i mentioned visiting St John's, Newfoundland, and seeing the beginning of the Tour of Hope for the Terry Fox Foundation...ScotiaMcLeod fixed Terry Fox' original camper van, and is taking it across Canada...it is in London July 17...with events at the St Thomas City Hall, The Covent Garden Market, Victoria Park, and the site of the old Wonderland Gardens...for details, email me, or call (519) 660-3260...I will tell you that it was a great emotional experience to see it...and a great history lesson for my kids.
I will also be introducing some regular features, including tax planning ideas, risk management, and financial planning issues for professionals and business owners.
Before the break, I was reviewing another pretty lousy week on the global amrkets...you could certainly be forgiven for wanting to play defense at this point. I have had several investors tell me they want to lose no further money...many recognize that the market will not fall forever, but simply can't or won't accept the risk of losing their principal. This is very reasonable...after all, if you take a 50% loss one year, you need a 100% profit to break even the next. The fact that many investors are considering selling out may be a true sign of a bottom in the stock market, but if you can't bear any further risk to principal, let me share several techniques to protect your principal.
I will start by saying that no true mutual fund solution exists to completely protect your capital...even a money market fund can, in theory, lose money in very low interest rate environments, or if it holds a piece of commercial paper in its portfolio that defaults...many of the top name money market funds in Canada have significant exposure to Asset Backed Commercial Paper...and it is not impossible that we could see negative returns in any of these funds over the next few months...if you are concerned, call me, and we can discuss the holdings of your money market fund.
The first technique is time tested, buying guaranteed investment certificates, or GICS. They are safe, and also a pretty sure fire way to avoid ever earning money beyond the rate of inflation. Further, their complete safety only extends to the level of CDIC insurance, if they are eligible. However, if you truly feel the sky is falling, buy GICs.
Slightly up the risk curve are bonds, and I will lump them in with GICs, as there are many high quality government or near government bonds that offer you the safety of GICs, often with higher yields than a GIC...although this has been untrue at some points during the credit crisis...security concious investors bought canadian and US treasuries with virtually no yield to protect capital, while GICs offered at least some returns.
Moving to all bonds, or all GICS, really is surrendering to achieving no return over the rate of inflation...and ultimatley increases the risk you will not accumulate enough to meet your needs, if, in fact, you are still saving to meet your future goals.
An interesting second alternative is using a strip bond, and some equity, to guarantee your principal....and one version of this strategy is the myriad assortment of structured products that have been created by major fund companies and investment dealers over the last few years. These products generally offer a guaranteed maturity value, and frequently an income coupon, over a period of years...for example, you might invest $100,000, receive a 5% coupon for several years, and be entitled to your principal back down the road. That sounds like a GIC...but it isn't...many have very complicated formulae behind their income calculation, and their maturity value may fluctuate wildly depending on the circumstances of the market...and your early access to the value of the note is generally at the whim of the issuer of the note...at a price they determine. I generally do not use a lot of these products, if only because they are very confusing, and may not be ideal for a truly security oriented client, but, they may offer exposure to the market, without some of the risk...in general, your risk is limited to the opportunity cost of the money you invested, if you hold it to maturity, and everything works against you.
I mentioned that structured products were generally a hybrid of a strip bond and equity...this is the way they are constructed...a portion of your money is put into a strip bond, maturing at the end of the note...the rest is put into a derivative based on whatever the note tracks. these sound complicated and confusing...that is because they are complicated and confusing! Hardly the characteristic you would want if you were seeking a safe place to hide from negative markets...but the fact is that some have merit, if you as the client, and the advisor, understand them and match them to the your need.
The idea of using a strip bond to protect principal actually is a good one...although a quick review of strip bonds may make sense. Strip bonds are literally bonds with the interest coupons stripped from them. You pay less than their face amount, since you do not receive the semi annual interest payment you would get from a bond...but on maturity, you get the face amount. This can allow you to invest in the market, without risk to your principal...let me explain how. You might have 100,000 to invest for several years, but absolutely need that 100000 to be there. You could pay 70,000 for a strip bond that matures for 100,000 at your target date. that leaves 30,000 to invest. if you diversify the 30,000, there is little risk you will lose it all, but even if you do, you are guaranteed to get your principal back on maturity. I really like this strategy...even a few Exchange Traded Funds bought with the difference can give you a very secure, and relatively simple, portfolio that is guaranteed to provide a positive return, unless all the ETFs go to zero value...which is theoretically possible, but almost inconceivable, and even then you get your money back.
The idea of protecting your current portfolio by buying a strip bond with some portion, maturing when you need it, and putting the rest in some form of equity nearly guarantees a positive outcome on your target date. I suggest using ETFs because they track underlying indices, or segments, of the market. The reason I say that you are essentially guaranteed a positive return is this...your bond gets you back to zero. If you have one dollar left in the ETF, that is profit, albeit limited profit. If you bought a bond, and one stock, it is quite conceivable you might get no return...as stocks may go to zero. If you bought the bond and ten stocks...it is much less likely that you would get no return, as all ten stocks would have to go to zero...and that would be surprising. Many ETFs track 100 stocks or more, and to only break even, you would need every single stock tracked by that ETF to go bankrupt. Finally, if you follow the thesis i discussed last week, and buy dividend paying, defensive stocks, you are absolutely guaranteed a positive return the day you receive your first cash dividend...which would generally be in the first quarter after you implemented your strategy. Several ETF issuers are now offering funds that offer double the return of many major indices...these may also fit in well, especially if you do not believe the market is broken forever...as the market recovers, you get double the return of the underlying index on the equity part of your investment...although the portfolio may be a little more volatile than the previous alternatives.
The next strategy I suggest for conserving capital is combining a strip bond with convertible debentures...this also sounds complicated, but if you are an investor with a serious aversion to today's market, this may be a way to protect your down side, and stay exposed to the market. Many Canadian companies offer debentures, which ar simply a private loan between the investor and the company. Convertible debentures offer a right to convert from the debenture to a certain number of shares or units of the company, at a defined price...what a great idea, if you are unsure of market direction, you may buy a debenture in a company you like...if the shares go down, your debenture still pays interest, and you get your principal back at maturity, but if the shares go up, your debenture will rise in value because they may be converted to shares at a fixed price. Once again, if you buy the strip bond, maturing for your initial principal, you may buy debentures with your remaining capital, and collect both interest and potential capital gains...and you get your debenture proceeds back when it matures. Like the dividend paying strategy I mentioned early, your first interest payment guarantees a positive return.
The final strategy i want to revisit if you have no desire to put your principal at risk is the use of segregated funds. I have mentioned these in previous shows...they are essentially mutual funds issued by insurance companies...they feature an insurance benefit, which guarantees both your value at death, and offer a variety of maturity benefits. Manulife has launched a series that offer a guarantee you will get your principal back, and an increasing benefit for every year you do not touch the principal...and if you hold them until you are 65, they actually guarantee a minimum lifetime income from them, as well. the best feature of thes is that the guarantees really allow you, as an investor, to stay in the market if things look rough...in fact, it makes sense to maintain a fairly heavy equity weighting, as equity generally outperforms in the long run, and the guarantees frequently reset to match the market value of the fund...and equity is more likely to get a higher guarantee, only because it grows, and fluctuates, more.
My biggest complaint with these is that they have mutual fund type management fees...but the positives outweigh the negatives to me, especially if they keep an investor in the market when they might otherwise bail out.
Before acting on any of these ideas, consult your advisor.
This program is for information purposes only. Views expressed are those of the author, not Scotia Capital. Fees, amangement fees, and commissions may be associated with mutual fund investing. ScotiaMcLeod is a division of Scotia Capital inc, member CIPF
It was the first week of quarter 3, 2008, and little change was evident from the first two quarters of 2008. Oil saw another remarkable new high, while all three American markets prepared for the long weekend by straying into bear market territory. Profit taking hit the Toronto market as well, leaving toronto only barely above water for the year...yet Toronto remains the only major global market in positive territory for the year...and the villains this time were the stocks that have added much of the gains in the market year to date.
Over the last few weeks, I have been expressing my concern that a popping of the apparent bubble in commodity prices could lead to a dramatic downturn, and although the commodity prices have remained persistently high, many of the major energy, material, and technology stocks surrendered major pieces of their gains in trading this week.
If oil, or gold, ever lose momentum...look out below...we could easily see Toronto join most of the world's markets in bear territory.
Continuing with the global theme, inflation and unemployment were major themes this week. The European Central Bank raised rates, in response to fears that oil and commodity prices will drive consumer prices higher. Investor's found some solace in the accompanying statement by the ECB, which indicated no bias toward further rate increases. The US jobs and ADP numbers were awful, and it seems clear that the slowdown in the States will continue to hurt their employment picture.
Friday saw broad based downgrades of European financials, and most global banks were sold in response.
Canada saw the approval of the BCE buyout, and it would appear that, for the moment, it will represent the largest leveraged buyout ever...just for disclosure purposes, I hold BCE personally, and it is held in many of my client accounts.
Looking at the numbers, Toronto closed out the week at 14010...over a thousand points from the lofty heights reached two weeks ago, and not that far from correction territory.
New York was closed Friday, but the Dow closed down at 11,288.54, despite a 73 point gain on Thursday. The Nasdaq ended at 2,245, including a 6 point loss on thursday, and the S&P 500 ended at 1,263, with a fairly flat day Thursday. Oil reached 144.18 at the close, surpassing 145 on Thursday, and gold moved well into the 900s, ending at 935.70 ounce. Oil may be interesting to watch, as the exchanges increased margin requirements again this week, with the possible intent of reducing speculation. OPEC leaders added to the story by blaming speculators for oil's rise...and Iran and israel ratchetted up their hostile rhetoric, which led to fears of major supply disruption.
Global markets were uglier, with Europe and Asia marching significantly lower through the week. Particularly noteworthy is Shanghai...closing in on a 60% correction from its peak last year...now that is a bear market.
After the break, i will discuss some of the alternatives that you, as an investor with a growing portfolio, might consider, to protect yourself in such volatile and negative markets.
Just a quick highlight of some upcoming shows...I will continue my series on planned giving, featuring other members of London's charitable community...if you have a charitable cause you would like featured on the show, contact me, ScotiaMcLeod Wealth Advisor Jeff Wareham...and speaking of charity, i mentioned visiting St John's, Newfoundland, and seeing the beginning of the Tour of Hope for the Terry Fox Foundation...ScotiaMcLeod fixed Terry Fox' original camper van, and is taking it across Canada...it is in London July 17...with events at the St Thomas City Hall, The Covent Garden Market, Victoria Park, and the site of the old Wonderland Gardens...for details, email me, or call (519) 660-3260...I will tell you that it was a great emotional experience to see it...and a great history lesson for my kids.
I will also be introducing some regular features, including tax planning ideas, risk management, and financial planning issues for professionals and business owners.
Before the break, I was reviewing another pretty lousy week on the global amrkets...you could certainly be forgiven for wanting to play defense at this point. I have had several investors tell me they want to lose no further money...many recognize that the market will not fall forever, but simply can't or won't accept the risk of losing their principal. This is very reasonable...after all, if you take a 50% loss one year, you need a 100% profit to break even the next. The fact that many investors are considering selling out may be a true sign of a bottom in the stock market, but if you can't bear any further risk to principal, let me share several techniques to protect your principal.
I will start by saying that no true mutual fund solution exists to completely protect your capital...even a money market fund can, in theory, lose money in very low interest rate environments, or if it holds a piece of commercial paper in its portfolio that defaults...many of the top name money market funds in Canada have significant exposure to Asset Backed Commercial Paper...and it is not impossible that we could see negative returns in any of these funds over the next few months...if you are concerned, call me, and we can discuss the holdings of your money market fund.
The first technique is time tested, buying guaranteed investment certificates, or GICS. They are safe, and also a pretty sure fire way to avoid ever earning money beyond the rate of inflation. Further, their complete safety only extends to the level of CDIC insurance, if they are eligible. However, if you truly feel the sky is falling, buy GICs.
Slightly up the risk curve are bonds, and I will lump them in with GICs, as there are many high quality government or near government bonds that offer you the safety of GICs, often with higher yields than a GIC...although this has been untrue at some points during the credit crisis...security concious investors bought canadian and US treasuries with virtually no yield to protect capital, while GICs offered at least some returns.
Moving to all bonds, or all GICS, really is surrendering to achieving no return over the rate of inflation...and ultimatley increases the risk you will not accumulate enough to meet your needs, if, in fact, you are still saving to meet your future goals.
An interesting second alternative is using a strip bond, and some equity, to guarantee your principal....and one version of this strategy is the myriad assortment of structured products that have been created by major fund companies and investment dealers over the last few years. These products generally offer a guaranteed maturity value, and frequently an income coupon, over a period of years...for example, you might invest $100,000, receive a 5% coupon for several years, and be entitled to your principal back down the road. That sounds like a GIC...but it isn't...many have very complicated formulae behind their income calculation, and their maturity value may fluctuate wildly depending on the circumstances of the market...and your early access to the value of the note is generally at the whim of the issuer of the note...at a price they determine. I generally do not use a lot of these products, if only because they are very confusing, and may not be ideal for a truly security oriented client, but, they may offer exposure to the market, without some of the risk...in general, your risk is limited to the opportunity cost of the money you invested, if you hold it to maturity, and everything works against you.
I mentioned that structured products were generally a hybrid of a strip bond and equity...this is the way they are constructed...a portion of your money is put into a strip bond, maturing at the end of the note...the rest is put into a derivative based on whatever the note tracks. these sound complicated and confusing...that is because they are complicated and confusing! Hardly the characteristic you would want if you were seeking a safe place to hide from negative markets...but the fact is that some have merit, if you as the client, and the advisor, understand them and match them to the your need.
The idea of using a strip bond to protect principal actually is a good one...although a quick review of strip bonds may make sense. Strip bonds are literally bonds with the interest coupons stripped from them. You pay less than their face amount, since you do not receive the semi annual interest payment you would get from a bond...but on maturity, you get the face amount. This can allow you to invest in the market, without risk to your principal...let me explain how. You might have 100,000 to invest for several years, but absolutely need that 100000 to be there. You could pay 70,000 for a strip bond that matures for 100,000 at your target date. that leaves 30,000 to invest. if you diversify the 30,000, there is little risk you will lose it all, but even if you do, you are guaranteed to get your principal back on maturity. I really like this strategy...even a few Exchange Traded Funds bought with the difference can give you a very secure, and relatively simple, portfolio that is guaranteed to provide a positive return, unless all the ETFs go to zero value...which is theoretically possible, but almost inconceivable, and even then you get your money back.
The idea of protecting your current portfolio by buying a strip bond with some portion, maturing when you need it, and putting the rest in some form of equity nearly guarantees a positive outcome on your target date. I suggest using ETFs because they track underlying indices, or segments, of the market. The reason I say that you are essentially guaranteed a positive return is this...your bond gets you back to zero. If you have one dollar left in the ETF, that is profit, albeit limited profit. If you bought a bond, and one stock, it is quite conceivable you might get no return...as stocks may go to zero. If you bought the bond and ten stocks...it is much less likely that you would get no return, as all ten stocks would have to go to zero...and that would be surprising. Many ETFs track 100 stocks or more, and to only break even, you would need every single stock tracked by that ETF to go bankrupt. Finally, if you follow the thesis i discussed last week, and buy dividend paying, defensive stocks, you are absolutely guaranteed a positive return the day you receive your first cash dividend...which would generally be in the first quarter after you implemented your strategy. Several ETF issuers are now offering funds that offer double the return of many major indices...these may also fit in well, especially if you do not believe the market is broken forever...as the market recovers, you get double the return of the underlying index on the equity part of your investment...although the portfolio may be a little more volatile than the previous alternatives.
The next strategy I suggest for conserving capital is combining a strip bond with convertible debentures...this also sounds complicated, but if you are an investor with a serious aversion to today's market, this may be a way to protect your down side, and stay exposed to the market. Many Canadian companies offer debentures, which ar simply a private loan between the investor and the company. Convertible debentures offer a right to convert from the debenture to a certain number of shares or units of the company, at a defined price...what a great idea, if you are unsure of market direction, you may buy a debenture in a company you like...if the shares go down, your debenture still pays interest, and you get your principal back at maturity, but if the shares go up, your debenture will rise in value because they may be converted to shares at a fixed price. Once again, if you buy the strip bond, maturing for your initial principal, you may buy debentures with your remaining capital, and collect both interest and potential capital gains...and you get your debenture proceeds back when it matures. Like the dividend paying strategy I mentioned early, your first interest payment guarantees a positive return.
The final strategy i want to revisit if you have no desire to put your principal at risk is the use of segregated funds. I have mentioned these in previous shows...they are essentially mutual funds issued by insurance companies...they feature an insurance benefit, which guarantees both your value at death, and offer a variety of maturity benefits. Manulife has launched a series that offer a guarantee you will get your principal back, and an increasing benefit for every year you do not touch the principal...and if you hold them until you are 65, they actually guarantee a minimum lifetime income from them, as well. the best feature of thes is that the guarantees really allow you, as an investor, to stay in the market if things look rough...in fact, it makes sense to maintain a fairly heavy equity weighting, as equity generally outperforms in the long run, and the guarantees frequently reset to match the market value of the fund...and equity is more likely to get a higher guarantee, only because it grows, and fluctuates, more.
My biggest complaint with these is that they have mutual fund type management fees...but the positives outweigh the negatives to me, especially if they keep an investor in the market when they might otherwise bail out.
Before acting on any of these ideas, consult your advisor.
This program is for information purposes only. Views expressed are those of the author, not Scotia Capital. Fees, amangement fees, and commissions may be associated with mutual fund investing. ScotiaMcLeod is a division of Scotia Capital inc, member CIPF
July 4, 2008 Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
The third quarter of 2008 is starting much as the second one ended…a great deal of volatility and uncertainty.
Many analysts see the markets falling further before they recover.
How should you protect your portfolio from falling further?
Tune in tomorrow at 8:30 AM, to Beyond Funds Market Weekly, as I discuss some novel ways for you to ensure that your portfolio will avoid the downside, while still taking part in the upside of the equity markets when they eventually recover.
Learn how the best offence may be a good defense…using strategies that that may not be available to your current advisor.
Ask yourself, have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
The third quarter of 2008 is starting much as the second one ended…a great deal of volatility and uncertainty.
Many analysts see the markets falling further before they recover.
How should you protect your portfolio from falling further?
Tune in tomorrow at 8:30 AM, to Beyond Funds Market Weekly, as I discuss some novel ways for you to ensure that your portfolio will avoid the downside, while still taking part in the upside of the equity markets when they eventually recover.
Learn how the best offence may be a good defense…using strategies that that may not be available to your current advisor.
Ask yourself, have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Wednesday, July 2, 2008
July 2, 2008 Daily Market Wrap
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with your daily market wrap for July 2, 2008
Oil hit another new high today, but Toronto rode materials and energy stocks lower, ending off 432.92 points, while the Dow lost earlier gains,
ending down 166.75 points. The NASDAQ fell 46.56 points, and the S&P
finished off 23.39 points ..oil rose to $144 dollars per barrel, and the Canadian dollar crept to 98.80 cents US. Gold closed at $946 per ounce.
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
For further information on the markets, visit my blog on AM 980's website, or at www.beyondfunds.ca
Oil hit another new high today, but Toronto rode materials and energy stocks lower, ending off 432.92 points, while the Dow lost earlier gains,
ending down 166.75 points. The NASDAQ fell 46.56 points, and the S&P
finished off 23.39 points ..oil rose to $144 dollars per barrel, and the Canadian dollar crept to 98.80 cents US. Gold closed at $946 per ounce.
This is for information purposes only, Best efforts have been made to furnish accurate data...Performance data does not represent future performance. ScotiaMcLeod s a division of Scotia Capital, member CIPF.
For further information on the markets, visit my blog on AM 980's website, or at www.beyondfunds.ca
July 2, 2008 Morning Spot
This is Jeff Wareham, ScotiaMcLeod Wealth Advisor, with some thoughts for investors outgrowing their mutual funds.
On Monday, I spoke of the mid year report card for 2008. Looking globally, Canada is a shining star, with positive returns on a year to date basis. Some global markets are down by almost half.
Even the Canadian story is misleading…over 100% of the points on the TSX have come from the top 20 performing companies in the index…leaving the other 250 plus companies with negative overall returns.
With lots of volatility left to come, how should you rebuild your portfolio to avoid further impact?
I touched on some basic ideas last Saturday, but everyone’s needs are different, so you really need to work with an advisor, and consider your long term goals.
Ask yourself, have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
On Monday, I spoke of the mid year report card for 2008. Looking globally, Canada is a shining star, with positive returns on a year to date basis. Some global markets are down by almost half.
Even the Canadian story is misleading…over 100% of the points on the TSX have come from the top 20 performing companies in the index…leaving the other 250 plus companies with negative overall returns.
With lots of volatility left to come, how should you rebuild your portfolio to avoid further impact?
I touched on some basic ideas last Saturday, but everyone’s needs are different, so you really need to work with an advisor, and consider your long term goals.
Ask yourself, have you outgrown your mutual funds?
For a review your portfolio, or a complimentary copy of my CD, visit, www.beyondfunds.ca or call me, Jeff Wareham, at 519 660 3260.
This program is for information purposes only. Fees, management fees, and commissions may be associated with mutual fund investing.
Investors should consult their prospectus before investing. Views expressed are those of the author, not Scotia Capital. ScotiaMcLeod is a division of Scotia Capital Inc, member CIPF.
Subscribe to:
Posts (Atom)