Adrian Mastracci, president of KCM Wealth Management, says “Diversify, diversify, diversify some more. That is the bottom line I subscribe to."

For Immediate Release

Vancouver, BC (January 4, 2005): The crystal ball gazing has been long and deep. Trying to make sense of what may lie ahead for the precious nestegg.

Adrian Mastracci, “fee-only” investment counsel at Vancouver based KCM Wealth Management comments, “Building on the investment results of 2003 and 2004 is desirable. So, will it be rain, shine or stormy weather?”

“Investors could face both sunny and stormy sessions along the 2005 investment highway,” adds Mastracci, “I’ve identified five key economic events worth watching. Each of which can deliver both positive and negative portfolio results.”

“I suggest that the easier money has been made in the last two years,” remarks Mastracci, “Going forward, the markets could serve up a few surprises in 2005 and beyond.”

Five key economic events

“First, some perspective on where the equity markets have been,” notes Mastracci, "Here is the three year snapshot."

“Market results were lukewarm for most of 2004. They've sprung to life since early November, delivering a positive return for 2004,” says Mastracci, “A bull market has now been around over two years.”

“Let’s anticipate the impact of market gyrations,” states Mastracci, “Here are the five key economic events on my 2005 watch list.”

1. Consumer stamina

The North American economy relies heavily on consumption and borrowing. Slippage in consumer confidence could be cause for concern.

Consumer debt of $20,000 per US household raises the question of how long consumers can shoulder the weight of loan payments. Particularly, with the heat of increased rates.

2. US jobs

The US job prospects are murky. Businesses are not spending capital while some are still reducing their workforce. This contributes to disappointing job results.

Look for signs of confidence. New job creation figures for the first four months of 2005 will set the stage. 150,000 new jobs per month just to keep pace with the US labour force growth.

3. Oil prices

While oil prices have slipped from their recent peaks, the high prices remain an important story of the day. Everyone feels another hand continually in the pocket. Just like another tax.

The reprieve may not last. Considerable price volatility may be the new reality.

4. US trade gap

Record US imports pressure the US dollar and the US trade deficit. Like the $55.5 billion trade deficit in October 2004.

Canada and the US are each other’s biggest trading partner. A declining US dollar means Canada’s exporting manufacturers will quickly feel the negative aspects.

5. Government deficits

Like many consumers, the US spends more than it brings in. Continuing deficits will reduce flexibility to control its destiny. Total deficits for October and November 2004 already exceed $100 billion.

Over 40% of US debt is held by foreign holders, like China and Japan. The markets fear foreign investors reducing their appetite for US treasury bills, or selling their current holdings.

“I don’t know how these events will unfold,” explains Mastracci, “However, be prepared for bumpy rides, including overcorrections.”

Big picture for 2005

Now for the 2005 crystal ball:

• Growth of the North American economy and corporate earnings are likely to moderate. Inflation shows signs of becoming a bigger factor, likely later in 2005.
• Upside potential for Canadian and US stocks in 2005 is estimated to be up to a modest 9%, while the potential decline is to -16%. I expect roller coaster markets.
• Increasing interest rates means that prudent investors may want to stay with bond maturities of not more than four or five years.
• Major currencies will remain volatile. US market gains may be offset by Canadian dollar gains.

“Overall, investor resolve is liable to be tested in 2005,” indicates Mastracci, “Some portfolio tweaks may be appropriate.”

What to do

Adjusting to a low investment return world is a continuing reality. Thus, every investor ought to:

• First, think of the entire portfolio, then the individual components.
• Focus on preserving capital as a high priority. Minimize losses as they wreck the nestegg all too quickly. While investors can’t avoid all losses, it’s about being right more often than wrong.
• Pay attention to things that can be controlled. Investment policies, risk tolerance, diversification, asset mix, investment quality and costs are at the head of the class.
• Examine the suitability of the mix between active and passive investments. Ensure that no one event inflicts serious damage on the accumulated nestegg.
• Monitor and review the portfolio periodically, at least once per year. Initiate appropriate action, like rebalancing, as required.

“Be well prepared,” states Mastracci, “Risk tolerance is a fundamental part of investing.”

Bottom line in 2005

“Diversify, diversify, diversify some more,” explains Mastracci, “That is the bottom line I subscribe to.”

“Maintaining diversification across a variety of asset classes is the core of a well-crafted portfolio,” suggests Mastracci, “Diversity is the investment medicine of choice to tame the affects of volatility.”

“However, a little caution,” Mastracci goes on to say, “Investing is not about making money every day, every week, every quarter or every year.”

“It is about taking the long journey view,” concludes Mastracci, “The prudent asset mix coupled with periodic reviews will carry added importance during stormy times.”

Happy investing in 2005.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.