April 1999

Ten Strategies to Profit
in Turbulent Times, Part 2

© Talbot Stevens

This is a continuation of last month's suggestions to protect your investments and profit in these turbulent times.

5. Diversify by asset class. This means that some of your money should be invested in equities, some in bonds, and some in cash-like investments like GICs.

Balancing your investments among these three basic asset classes is one of the most important ways to protect the value of your portfolio and reduce short-term fluctuations.

6. Diversify by strategy. Recognizing that the government changes the rules on investment strategies all the time, do you want to head into a 30-year retirement with all of your voluntary savings in any single strategy?

RRSPs are a great foundation for any retirement plan, but to protect against negative future changes affecting any single approach, we should also diversify outside of RRSPs, especially for equity investments.

Unregistered capital gains compound tax deferred, are only 75% taxable, and you get your own contributions back tax-free.

Borrowing for equity investments is another way to diversify by strategy, and also produces the same tax deductions as RRSPs.

7. Diversify geographically. Including their homes, pensions, and investments, most Canadians have almost all of their wealth in one single country.

Getting some money outside of Canada automatically reduces economic, political, and currency risks.

8. Go global for higher returns. Canada is still largely a resource-based economy that represents less than 3% of the world's equity opportunities. Historically, global equity funds have averaged about 3% higher than Canadian equities per year. This increase in itself can more than double your retirement fund over a 30-year period.

9. Invest in the future. Certain sectors are identified growth industries that already have outperformed, and will continue to do so. Some of these include technology, especially computers and communications, pharmaceuticals, and financial services.

Understanding the implications of demographics also provides clues to the future.

10. Consider guaranteed segregated funds. Segregated funds are essentially mutual funds that guarantee that you won't lose money after 10 years, or upon death. They are especially attractive to older investors. Additional benefits include creditor proofing for business owners, and reduced probate fees.

What is my plan to protect and profit during these turbulent times? I will combine almost all of the strategies offered.

I will use my home equity line of credit to buy more during drops in the market, particularly the global, hi-tech, and small cap markets outside of Canada. Leveraging conservatively, I will further diversify by asset class, geographically, and by strategy while producing tax deductions. Tax refunds can be directed into RESPs.

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