Friday, March 4, 2011

Everything goes well in the world of investing


Well, not necessarily perfect. There are always issues looming at the investment horizon but as far as possible in this world things have been going pretty smoothly. The U.S. economy is clearly picking up; the panics about marginal EU economies have been pushed aside by the Middle East turmoil. This will provide authorities time to find remedies away from the spotlight.

Since last September we have enjoyed a big rally, but now we enter a somewhat slower moving part of the year culminating in May - "When in May go away" is the saying. So for the next six months things may slow down, i.e. a flatter stock market.

In the meantime, spring is good for real estate and that combined with an ever improving Alberta economy bodes well for the real estate markets and rental property markets of Edmonton and Calgary. Eastern Canada enjoyed excellent real estate appreciation last year, but now with higher oil prices and a Loonie above par as well as with the potential of rising interest rates in the second half of this year, this may change. Expect a more subdued Eastern Canadian economy and a cooler real estate market, especially after the spring.

 Don't get caught up by the herd and start buying stocks with them - all or nearly all five traffic lights are on green and a lot of cash is moving back into the stock market. After having experienced the buying opportunity of a lifetime (or at least a decade), finding well priced stocks in today's market may become more difficult. Also, with rising interest rates avoid buying long term fixed income. Unfortunately, inflation adjustable interest bearing bonds and preferred shares are 'priced for perfection'. Safest is to put your short term cash in variable rate short term GICs and money market funds that will not lose too much in capital value when yields go up with interest rates.

 Unless you really know your stocks, do not buy "hot stocks", or extremely low priced stocks. Hot stocks tend to underperform and you usually pay too much. Extremely low priced stocks have likely hidden problems. In this market, if you do want to buy a bit more in stocks, stick to our perennial favourite: XIUs or better ETFs for the U.S. stock market indexes (S&P500 and Dow). Canadian markets are at least 'fairly' valued while the U.S. economy and markets are in 'catch up mode' especially with the Loonie so high this is a place where you could make money.

 Finally, always invest for the long term; leave day trading and special opportunities to the experts and the gamblers.

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