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| Adrian Mastracci, president of KCM Wealth Management, says “Diversify, diversify, and diversify some more. Shift investment emphasis away from the short term gyrations. That advice delivers." |
For Immediate Release
Vancouver, BC (July 4, 2005): Investors are trying hard to make sense of which way the markets are swimming in mid-2005. Is it upstream, downstream or just plain going nowhere?
Mark Twain once said, “Let your sympathies and your compassion be always with the under dog in the fight--this is magnanimity; but bet on the other one--this is business.”
Adrian Mastracci, “fee-only” investment counsel at Vancouver based KCM Wealth Management comments, “The big hurdle is that investors are very confused as to what to bet on in the markets. Let’s examine the investment pulse of mid-2005.”
Investors are not alone in this dilemma. The investment gurus appear equally divided in three very convincing camps. That is the bull, the bear and the sideways.
No camp seems to enjoy a clear lead. The economic data can be selected to support virtually any case. Thus, adding to the problem facing today’s investors.
Phrases like ‘slow down’ and ‘soft patch’, along with the dreaded ‘recession’ word, are making a comeback. On the other hand, some believe that this is the positioning before the next market rise.
Too many investors are fixated on achieving results in the short term. But the pesky markets don’t always cooperate.
In reality, markets can swing in any and all directions in the short term. And often do so really well.
Where markets have been
A look back at where the equity markets have been is useful perspective. The selected snapshot from 2002 paints the picture.
| Market Index |
Loss in 2002 |
Gain in 2003 |
Gain in 2004 |
Results 2005* |
| S&P 500 |
- 23.4% |
+ 26.4% |
+ 9.0% |
- 1.7% |
| Dow Jones |
- 17.2% |
+ 25.3% |
+ 3.2% |
- 4.7% |
| Nasdaq |
- 30.8% |
+ 49.9% |
+ 8.6% |
- 5.5% |
| S&P/TSX Comp |
- 13.8% |
+ 24.3% |
+ 12.5% |
+ 7.1% |
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While investors are receiving mixed messages, the markets are hardly a disaster. Canada’s index, in particular, has benefited from high energy prices. Many global indices have produced similar results.
We’ve come a long way since the end of 2002. The figures show an impressive rise from the lows. A bull market has been with us. Markets can easily deliver more corrections and quick spurts.
Marked increases in hard asset values have fueled the economic recovery. Assets, such as real estate, have been mortgaged and the money spent in support of the economy. Especially in the US.
What the future holds
Some economies seem to be slowing a little. Like the markets, economic signs are a changing mix of bullish, bearish and sideways indicators. At best, economic predictions are only guesses.
In January 2005, I identified five key economic events worth watching. Well, the watch is still on oil, consumers, jobs, trade deficits and government deficits.
Oil price fluctuations continue to dominate the headlines. The 30% oil price jump since December 31, 2004 is very noteworthy. Everyone feels the affects.
The North American economies rely heavily on borrowing and consumption. Recent surveys point to improved consumer sentiment. Many are still borrowing and spending money they don’t have, albeit at low rates.
The US job prospects have improved a little. However, businesses are conserving cash and some are still reducing the workforce. Earnings should fare reasonably well in a competitive setting.
The continued record US trade deficit is a worry. It will maintain pressure the US economy for the near future.
Like many consumers, the US Government keeps on spending more than it brings in. For now, both the trade and US Government deficits are being financed by attracting foreign savings.
Hopefully, foreign investors will not reduce their appetites for US Treasury bills quickly. However, the longer this goes on, the harder it is to mend.
Interest rates continue to hover around 45 year lows with slow prospects of increases for investors who need income. Anyone who plays the currency game knows of the continuing volatility associated with commodities and exchange rates.
Adopt a defensive strategy
Nobody can predict market direction with certainty. Fine-tuning investment strategy based on guessing market direction is an exercise bound for disappointment.
Adjusting investor expectations in a low investment return world is a continuing reality. One where adopting a defensive strategy can assist.
Thus, some investor considerations for a defensive strategy:
- First, concentrate on the total portfolio, then the individual components within it.
- Be well prepared. Tolerance for risk is a fundamental part of investing. Expect some market swings.
- Make preservation of capital a high priority. Losses can wreck the nestegg all too quickly. While investors can’t avoid all losses, it’s about containing them as early as possible.
- 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.• There is no requirement to make all the investments at once. Particularly for investors who may be sitting on cash. The smart play is to allocate cash in stages.
- Acquire the investments gradually. Say on the monthly plan, or by selecting three to four points of entry over a year or two as funds are available.
- Monitor and review the portfolio periodically, at least annually. Initiate appropriate action as required, like rebalancing.
Focus on the long term
Investing is about focusing on the long term journey. Ensure that no event can inflict serious damage on the nestegg along the way.
Diversify, diversify, and diversify some more. Shift investment emphasis away from the short term gyrations. That advice delivers.
Maintaining diversification across a variety of asset classes is the cornerstone of well-designed portfolios. Diversity is the investment medicine that subdues the affects of volatile markets.
Investing for the long term within a defensive strategy makes good sense. A prudent mix of assets is essential for the nestegg during uncertain times.
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