Malik’s Corner: What’s on my clients minds in 2013? Gold, Interest rates, US markets, real estate and more

June 4, 2013 in Uncategorized

 

Good afternoon,

Since the last time I wrote, gold has dropped like a stone while the US stock market and the US dollar have gained nicely. The Canadian stock exchange is under pressure as it is commodity strong and the Canadian dollar is down to around 96 cents. Most Canadian money managers are allowed to hold a percentage in global stocks and they have enjoyed the uptick. As an advisor, it makes more sense for us to have fund managers with global experience and with the leeway to add global stocks to the portfolio. This is one of the major advantages of mutual funds…..you get diversification.

 

Here are some of the more frequently asked questions of me from clients over the past few months:  

 Gold: is it a good time to buy some as the price had dropped from a high of $1800 to $1400?

 There is instability in the world markets and for that reason, holding some gold in either bullion or stock form makes good diversification sense. However, with the US economy showing very good signs of turning around, money is leaving gold for the US dollar and the US stock market. It may be sometime before gold picks up steam. Not more than 3 to 5% in gold, if you are keen to hold it.

 

  1. Real Estate

 

Real estate in Canada is cooling….prices have tapered off but not come down as much. The experts are calling for a flat market for the time being. If you are buying real estate for investment, you may want to hold off.  Buy a real estate investment trust for real estate exposure or a REIT ETF.

 

  1. US market is up 16% in 2013…what next?

 Two schools of thought where one believes that the market is going to correct downwards and the other it is going up to a 20% plus return. Let us not get greedy here. Good diversification in the portfolio is important. My portfolios are approx 40% US, balance in Canada and global markets. I like the US going forward. Some of the major blue chips are reinventing themselves and increasing global exposure to their goods. They are closing plants in developed markets and opening them in the BRIC nations. This will help them access some of the fastest growing consumer society in recent history. Ford recently announced closing plants in Australia to open one in China. Other companies are following suit. Investing in these companies gives you indirect exposure to emerging markets and the growth will be seen in the US stock markets.

 

  1. Interest rates.

 

Quite clear that the Bank of Canada wants to keep the interest rates low and this has been in the press recently. The question is how long can they keep the interest rates at such low rates? They will climb and it is a good idea to be paying off debt in such low interest environment. It will not stay low forever and can be quite painful at rates higher than where they are. Here is an interesting way to play the low interest rates. Use non-RSP equity holdings to pay off mortgage and non-deductible debt. Buy back the same holdings by borrowing the funds at these low interest rates. You have just converted bad debt to good debt, and have a nice tax deduction for the interest charged. The moment interest rates start to rise, sell and pay off the loan.  This is a good strategy for executives of public traded companies.  Call me to discuss.

 

  1. Where should I invest first…..RESP, RSP or TFSA or all three?

 

 RESP should be first because of the 20% from the government, RSP because of the tax deferral and then TFSA as it allows you to build a tax-free income stream. If you have low income in any one year, then carry forward the RSP room and add to your TFSA instead. In future years, you can use funds from your TFSA to contribute to your RSP. TFSA room opens up when you take money from it.

 

  1. You have toned down on emerging markets and especially India….what are your current opinions?

 

I like the emerging markets for their rising middle class and that is it. The stock markets of these countries are quite young and I am not sure about Government due diligence over their operations. The extreme volatility in these markets is too much for me and would rather play these markets through blue chip global corporations.

 

  1. How much insurance should I carry? In addition, should I be concerned about Critical Illness coverage, disability insurance?

 

Insurance is the first thing I look at when taking on clients and the question is what happens if, the key income earner is hit by the bus. Who looks after the kids, the debt etc etc. Same thing with Critical Illness and disability. CI is a personal choice. Disability for a self-employed person becomes a bit more critical and should be looked at as being quite important. Give me a call or drop an email and we can discuss if you are concerned. This is an important segment of a financial plan.

 

 

Enjoy the summer, be safe and thanks again for being clients. Thank you.

 

And lets stay in touch.

 

Cheers,

 

Prem  

 

(Please feel free to share this Malik’s Corner with friends, associates and family.)

 

Disclaimer

 

The information contained herein are obtained from sources believed to be reliable, however, its accuracy or completeness is not guaranteed and Queensbury Securities assumes no responsibility or liability. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities or commodities. These comments and opinions are not necessarily the opinions of Queensbury Securities Inc. Securities mentioned may not suit all types of investors. Before making any investment decision, contact your investment advisor to discuss your investment needs.

 

 

 

 

 

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