Weathering the storms of a turbulent market

Stormy weather – in the elements, in the global economy, and now in those highly volatile but sensitive barometers, the world stock markets.

After 40 years in the business, I never cease to marvel at how investor sentiment can turn on a dime. All of a sudden the autumn of 1998 finds the market wrestling with a fresh assortment of worries – a moribund Japanese economy, an ongoing Asian crisis, a bankrupted Russian economy on life support, et al.

In turn, sagging resource prices and waning Asian demand are taking their toll on related currencies like the Canadian and Australian dollars, and on particularly vulnerable economies such as British Columbia. Corporate profits are also being squeezed more than expected. Add unabated political uncertainties in Japan, crucial elections in Germany and the U.S., and adultery in the White House, and small wonder stock markets everywhere are acting very nervously – those in North America and Europe plummeting from the euphoric heights reached earlier this year.

If I have learned one thing in my long career, it is to stand back from the “noise” of the crowd in times and markets like these. Do this and feel reassured that key long-term ends remain very much intact. First and foremost, the awe-inspiring U.S. economy has the strength and momentum to continue growing, albeit at a slower pace than many would wish.

Equally, while more trade-sensitive and fragile than the U.S., a Canada that has its fiscal situation under admirable control, and is in its best fundamental shape ever, is not going down the tubes either. Remember, too, that our swooning dollar only suffers by comparison with its “almighty” U.S. counterpart, and that it has held its own against most other world currencies.

How, then, should we retirees, seniors, snowbirds and international vacationers ride out a period of continuing low – and probably further declining – interest rates, protracted Canadian dollar weakness (or should it be “cheapness”), and fierce storms blowing through stock markets seeking new valuation levels?

Above all, we should remain focused on positioning our portfolios properly in relation to our longer-term goals. Yes, we should keep thinking longer-term even at our stage of life, and if ever there were a time to have a well thought out strategy, be appropriately balanced between fixed income and equities, and be properly diversified, that time is now.

Never forget, as well, that equities are the proven best way to build the investment wealth necessary to tide us through our lengthening life spans and to ultimately endow our children, grandchildren and favourite charities. Isn’t it ironic that when Eaton’s and The Bay hold sales we rush in to buy; yet when the stock markets put on a sale we run for the hills?

What’s more, the range of choice in top-quality Canadian equities couldn’t be wider: attractive dividend yields enhanced by the tax credit (e.g. TransAlta and TransCanada PipeLines); the currency protection of heavy U.S. content (e.g. Nortel and Thomson Corporation); superior growth and total return prospects (e.g. Canadian Pacific, BCE, EdperBrascan, Power Corporation of Canada, Suncor and a bank of your choice, my favourite being Royal Bank of Canada). Equity mutual funds also have an important diversification role (e.g. from within the Fidelity and Atlas families). In carefully-prepared selected lists such as these will lie bargains with which to position and augment superior, longer-term investment wealth.

As the markets contend with gale-force autumn storms, I urge you to keep focused and challenge your financial advisor to construct an overall portfolio – and its all-important wealth building equity component – that’s just right for you.