Have you ever been on a roller coaster?
December 13, 2010
As a teenager, the best I could find was the tilt a whirl at the local fair ground. Then I graduated to La Ronde located in Montreal. I remember a great wooden coaster that vibrated enough to cause one to wonder if the car would fall off the track. Upon graduating to the big coasters it was off to Busch Gardens in Florida where I was introduced to Kumba, a 9 looper and my first inversion. I had reached the pinnacle, or so I thought, until I was introduced to Superman at six flags just outside Washington DC. I had met my match. I promised myself never again. Then it happened, all over again. Not the tilt a whirl, nor Kumba, and not even Superman.
No, something far more terrifying: the Stock Market over the last 24 months.
The only similarity, other than the wild ride, is that there is always a leveling off and finally an end.
As we near the end of the year, I look back and reflect. Historians have often said that to look to the future, one must look at the past. Well I have had enough of the past and I look to the future albeit with guarded optimism.
In previous letters, I had questioned what individuals look for in a retirement program. Is it net worth or cash flow? This issue continues to be front and center for most individuals in their retirement years as well as, individuals trying to accumulate funds. The search for yield /return is the quest. With continuously low interest rates this quest continues to be difficult. It would appear that although countries continue to keep their currencies at a low value, trying to kick start their manufacturing industries through exports, the casualty would appear to be interest rate yield.
People are still gun shy of the stock market and rightfully so. As nervous as investors are, they need to find return/growth. So where does one go for this elusive return?
As in previous letters, I have looked to the bond market, both government but more so corporate and as well, dividend paying stocks. Eric Bushell’s Signature Funds continue to be leaders in this area. The High Income fund continues to pay $.07/unit per month and at its current price its annualized yield is approximately 6.3%. The Signature Diversified Yield has a current distribution of $.05/unit per month or about 5.8%. Although these positions may look attractive it may be wise to create a balance. The risk with corporate/government bonds is that there is a maturity date. In addition, the attractive yield may have an end date and, should interest rates rise over time, bonds tend to decrease in value. Further diversifying your position would be wise, especially with the possibility that the economy will continue to improve. Investing in dividend paying stocks or funds can help a great deal. The signature dividend fund currently paying $.04/unit per month is a great addition to a portfolio.
Please see a link detailing each of the above mentioned funds:
http://pdf.globefund.com/...
http://pdf.globefund.com/...
http://pdf.globefund.com/...
However, as much as we look for yield, one should not forget about volatility. The world has certainly incurred enough of this the past couple of years.
With this volatility, we have seen countries go bankrupt. Banks, automobile and manufacturing companies throughout the world have disappeared. There continue to be concerns in Europe. Will Greece, Italy, and Spain be able to meet their debt obligations? What about the ever spiraling deficit in the USA?
The world has seen a dramatic increase in the price of gold over this same time period. Although I am by far not an expert in this area, I have found the attached article rather intriguing. I thought it might shed light on a major cause for the escalation in the price of this rare commodity.
http://goldnews.bullionvault.com/gold_central_bank_100420103
Just prior to writing this note to you, I have learned that the U.S. Government has just begun to repurchase another 600 billion of their long term bonds. This, in essence, will continue to suppress interest rates thus hoping to stimulate their economy. The risk in doing so is the possibility of a dramatic rise in interest rates due to an escalation in inflation at some time in the future.
Please see below the link to the above mentioned article:
http://finance.yahoo.com/news/Fed-will-spend-600B-in-latest-apf-3337980722.h
tml?x=0&.v=13
A good hedge to protect a portfolio would be to hold gold. Most portfolios contain a portion of gold, either in a corporate stock such as Barrack Gold or bullion it’s self. This commodity, as attractive as it is, can in the short term be very volatile. Please be cautious when investing in this and do not put all your eggs in one basket, even if you have in your possession the goose that laid gold ones.
Please see a link to BMG (Bullion Management group) for further information on investing in gold.
http://www.bmgbullion.com
To conclude, I wish you the very best and it is my hope that the next couple of months bring you strength, health and happiness
Sincerely,
Andrew Stevenson
Stevenson Financial Inc.
5950 Spring Garden Road
Halifax, NS B3H 1Y7
Tel: 902-425-8143
Fax: 902-446-3952
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