After what happened to stock markets in the first three weeks of January, I doubt
that anyone need to be told that ‘caution’ should be the watchword for mutual
fund investors for 2008. This is not a time to be reckless with your money. Conservative
investors should overweight their portfolios in bond funds, low-risk balanced
funds, and high-yield savings accounts. Good choices include:
Manulife Bank Advantage Account. This little known bank offers
very high rates on its accounts, especially when compared to the Big Five banks.
Manulife Bank is a CDIC member so your account is protected by deposit insurance
up to $100,000. That’s about as safe as it gets these days. Many brokerage
firms offer this service on a no-fee basis.
Phillips, Hager & North Bond Fund. This fund hasn’t
been in the red over a calendar year in this century. I don’t expect that
2008 will be any different. The new B units allow you to take a position for
$5,000 (the previous minimum was an account of $25,000).
Mackenzie Sentinel Income Fund (B units). This fund won’t
make you rich but it will provide a decent return over time (average annual
five-year gain of 7.1 per cent) and it will protect your assets when things
get tough. The worst 12-month loss ever suffered by these units was 0.08 per
BMO Monthly Income Fund. This is the most conservative of
the three monthly income funds on my Mutual Funds Update Recommended List, with
a current weighting of 49 per cent stocks, 43 per cent bonds, and 8 per cent
cash. It’s not immune to losses but the worst 12-month performance since
it was started a decade ago was a drop of 3.9 per cent for the year ending in
March 2003. Weigh that against a five-year average annual gain of 8.7 per cent
and you have an excellent risk/reward profile.
Check with a financial advisor to see if any of these funds are suitable for
The bottom line: The coming year is shaping up as a difficult
one for investors. Capital preservation should be your main objective, particularly
in the first half of the year.
Adapted from an article that originally appeared in Mutual Funds Update,
a monthly newsletter that provides advice on fund selection and strategies.
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