Where’s the Money Being Invested in 2009?

Investors are scared and discouraged as they head into 2009. The rapid economic downturn experienced in 2008 combined with very dismal market returns has left many wishing they had saved more and had retreated from the capital markets in 2008. With the start of a new year, investors get another opportunity to re-evaluate their investment goals, their investment time frame, and their risk tolerance/return profile.

If an individual is close to retirement and needs to draw income from their investments, the lesson learned from 2008 is the need to have more fixed income and income -producing investments. An asset allocation of two-thirds fixed income and 1/3 equity will reduce portfolio volatility, will help to preserve capital, will provide an income stream, and will continue to provide some portfolio growth potential from the equity portion of the portfolio.

If an investor is young and many years away from needing to draw income from his/her retirement savings, then the current market situation should be viewed as an opportunity to buy growth-oriented investments (i.e., equities) at historic lows. Those investors who are midway to retirement should consider investing in a diversified, balanced portfolio that holds fixed income for stability and equities for growth. The balance between fixed income and equities should reflect their unique risk tolerance.

Currently the market is providing investment opportunities for all of these investors. There are attractive quality corporate bonds that are paying high yields at historically large spreads above government bonds. Additionally, there are good quality companies trading at historic lows that offer high dividend yields and the potential for improvement in their stock prices in time.

In these uncertain times, there is a tendency to avoid making an RRSP contribution. My belief is that the markets are providing a unique opportunity. Investors should speak to their advisor to determine the most appropriate strategy. If uncertain, please be in touch for a complementary “second opinion.”