Managed Money Reporter Newsletter — Issue 211, November 2004


Editors: Carl Spiess & Allan McGlade


Featured Articles



Market Commentary - A Steady October

While October has historically been a difficult month for investors, October 2004 will likely not be remembered as either a great or a poor month.  In fact, we are hoping that the November mini rally continues and the entire year of 2004 does not shape up as a "Seinfeld" year, e.g. an entire episode about nothing. 

While nothing may be good from a "preservation of capital" point of view, it is not so great for asset growth.  Overall, we have now seen several years of economic growth, driven by low interest rates that have kept people spending.  But the S&P 500 and Dow are actually still down from where they were 5 years ago.   Now the war in Iraq will continue to force the US to run deficits, especially with the re-election and mandate of President George Bush, which theoretically means higher interest rates and decreased stock market activity in the future.  

So we have a bit of a Goldilocks scenario right now - things aren't too hot, not to cold.  It is almost as if the markets are in a holding pattern, deciding whether to go up or down. Has the market seen it's best growth for the time being, recovering nicely from 2 years ago?  Are we just lucky that things have been quiet on the terrorism front?  Are world events temporarily limiting the market's upside?

The Threat of Terrorism

One of the most difficult tasks we face as advisors, is balancing the need for growth with the need for safety in our client's accounts.  While no one wants to live life worrying about terrorism and global conflict every day, we can't simply ignore it: that would be akin to keeping our and your heads in the sand.  There are some horrific threats that have been made against western interests, and even anti-terrorism experts suggest it is only a matter of when, not if.  It is not difficult to think of even simple scenarios where our electricity, transportation, water and energy networks are disrupted, and the resulting potential for chaos.

Such events could surely be tragedies.  Beyond the primary human toll and suffering these disasters could bring, we need to consider the secondary economic toll to our clients.  We constantly have to ask ourselves, if another 9/11 happened tomorrow, would our 65 year old clients have enough safe investments to be able to begin their retirement?  Also, would our 40 year old clients have the confidence to continue to invest through payroll deduction and continue to buy equities at discount prices; as the reality is that, in the long term, the world adapts and grows.  It is the investor behaviour (eg. selling low) that can result from these short term events that we have to be concerned about.

While some clients don't like buying bonds at current rates and want to stay in equities "until markets have rebounded and rates are higher" there is a risk to that.  After 9/11 the only investments that went up in value were bonds, because more investors moved to bonds for the security they offer and so interest rates fell.  So there are things we can do to mitigate short term risks to your portfolio, but we also don't want an entire portfolio on the "sidelines" for a lifetime.  What excellent long term growth opportunities would get missed waiting for a disaster that hopefully never comes and, even if it does, doesn't last forever?  To avoid missing out yet keeping some level of protection, setting an asset allocation that will take you through the good times and bad is key.

Setting the Right Asset Allocation

If you after reading this, you worry that if there was another 9/11 type disaster tomorrow, it would force you to sell equities from your portfolio at depressed levels to cover your short term needs, then we would recommend you review your asset allocation.  Key to both achieving your long-term goals and living stress-free financially is having the right asset mix - enough cash-like assets for emergencies, equities for growth and bonds & preferred equities for income. The right mix depends on your stage in life and your personal financial goals.

If you have recently had us review your asset allocation, and are comfortable that your mix of stocks and bonds suits your investment goals, then we are very confident that you and your portfolio will safely navigate through whatever events the next few years may bring.

More on the Markets ...

Below, we provide even more detailed analysis of current markets from ScotiaMcLeod, Scotiabank, CI and Dynamic's investment experts.

Your investment team can provide you with additional information on any of the material and strategies outlined in these publications and can formulate personalized recommendations to your situation and goals.

How is your Insurance?

We recently updated our site with information on our insurance products and services.  Please visit our Insurance page for a broad range of topics, and in particular you may want to review:

Life Changes, So Should Your Insurance

All insurance products are sold through ScotiaMcLeod Financial Services (Ontario) Inc.   Please contact Allan McGlade if you have questions about your existing policies or are looking for a review of your current needs and coverage.

Fund Codes: Which fund are you in?

Are too many codes confusing, or a result of good choices for investors 

Did you know that for most major mutual funds, there sometimes over a dozen individual fund codes.   For global funds, there are usually US$ versions of the fund.  Many international funds have an "RRSP clone" version so it can be up to 100% of an RRSP.  Some income funds now have T-SWP versions available which pay a tax advantaged regular distribution, often 6%.  There are also "tax class" versions of funds that allow investors to switch within the class funds, without triggering capital gains. 

How you pay for your fund may also be why there are multiple codes.  There are no-load, deferred sales charge, and low load sales versions (we prefer the no-load if we can make a significant initial investment in the fund).  For some funds, there are lower management fee versions for use in "fee based" programs or for very large purchases.  For clients where your deferred sales charge has expired from a purchase many years ago, we are pleased to strip the initials DSC off your fund holding, so you know that your fund no longer has a fee to sell.  In some cases, the various fund codes have the same daily prices, sometimes the prices are different (e.g. for US$ codes).

So while there may be many different codes for a specific fund, each can serve it's purpose.  We'd be pleased to review which fund you have, and comment on the particular benefits your version of your fund provides.

Mutual Fund Reporter Recommended Website of the Month

The Ontario Securities Commission has a terrific website with lots of information and tools for investors at:

http://www.investored.ca/en/

 



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T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

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