Managed Money Reporter Newsletter — Issue 152, October 1999

Editors: Carl Spiess & Allan McGlade

Featured Articles

Managing Risks

Most investors recognize the need for diversification in order to manage the risk associated with investing. The old cliché of not putting all your eggs in one basket still rings true. One only has to look at the Asian crisis to realize that a portfolio composed of assets located entirely in Asia would have had an extremely damaging effect on the bottom line. However, a well diversified portfolio that had some Far East exposure, European and North American exposure would, in the same time frame, have enjoyed the tremendous growth in the North American markets and good growth in certain European countries. This would have balanced the down markets, giving you overall an excellent, stable, portfolio.

Below, we have a chart representing the performance of AIC Advantage Fund. As you can see, the fund is volatile with periods of low performance followed by bursts of high performance. In September of 1994 we were in a similar position that we are in today. Despite the volatility, AIC Advantage Fund has averaged approximately a 24% return over the last five years and over that period is one of our top performing funds. Their buy and hold strategy is based on long-term goals and objectives. Tying in with our views on diversification, we recommend that funds of high volatility such as these be only a small percentage of a portfolio.

AIC Advantage Fund

At times it may seem tempting to move your assets into the market/sector that is performing well, or at least get out of a down market. The key to successful investing however is to keep a long-term focus and stay committed to your plan. Remember that the overall volatility or risk of a diversified portfolio is less than any single investment or market sector. A good example of this is technology-based stocks and mutual funds. Many say that they are greatly overvalued when looking at their actual revenues or actual value and what the shares of the company are selling for. The prices on many of these internet and other tech stocks seem inflated. The harsh reality is they may not deliver in the long-term the returns that we've seen recently. If this is the case, and your portfolio is heavily weighted in this sector, the results could be devastating.

It is very important to look at personal goals, timelines and risk levels when diversifying a portfolio. For people who are focusing on growing assets, and who have a good understanding of market risk, their portfolio might consist primarily of equities well-diversified in terms of market and style of money manager through the holding of various mutual funds. Someone approaching retirement years might diversify their asset allocation to include Bonds and T-Bills. Regardless of the asset mix, diversification can manage risk and provide the potential for superior returns.

In a non-registered account, a diversified portfolio can also be important in terms of tax consequences and implications. Investment income is added to your earned income in addition to any other income you might have and is taxed at your marginal rate. If you invest for dividends, you receive preferential tax treatment through the dividend tax credit.

Updating BeneficiariesMutual Funds are in themselves a great tool for achieving greater diversification. You have the market at your fingertips, professional money managers, stocks & bonds all held by the mutual fund company. They can invest in liter-ally hundreds of corporations giving the average investor a wider range of choices than could be accomplished individually by stock trading.

There are many factors to consider when putting together a well-diversified portfolio, and in fact it is possible to over-diversify. We can work together to make sure your portfolio is structured in such a way that you achieve reasonable diversification given your financial goals, resources and tolerance for risk.

Scotiabank Funds Transfer

ScotiaMcLeod clients can now transfer funds from their Scotiabank account to their non-registered ScotiaMcLeod account.

This is done by using the Scotiabank Cashstop ABMs, Scotia OnLine and TeleScotia bill payment services. The transfer needs to be set up by Scotiabank as a bill payment. This has to be done directly through Scotiabank, as we do not have access to their accounts.

Please remember this does not apply to RRSP accounts, although we can open a non-registered account and then transfer the funds on request to your registered account. You also have the same investment options in your non-registered accounts as you have in your registered accounts, including GIC's, bonds, stocks and mutual funds.

Please call or email us for more information or contact your local Scotiabank to set up a bank account and/or the bill payment service.

Addressing Y2K Concerns

Some investors have expressed concern regarding Y2K and how it will affect us. An additional ScotiaMcLeod Statement will be issued to all clients on December 15th 1999. Please visit our Y2K page for details as well as a commentary on the issue. There is also specific information on what Scotiabank has done to prepare for the year 2000 on their website. Links to other Y2K sites of interest are available.

Fund News


Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

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