Monday, October 10th, 2011
If you’re still standing on the sidelines in cash at the moment, here are three good reasons that you should be invested in stocks right now.
- An investor’s choice of asset allocation is the single largest factor that will influence the probability of long-term success. Historical evidence suggests that cash investments return the least amount over the long run.
- There is significant upside potential in equities for long-term investors right now. Stock valuations are well below their highs and have a long way to go to be back in line with what we consider to be fair value.
- Sustained low interest rates and dramatic increases in money supply combined with increased deficits have many fearful of the inflationary impact once a true economic recovery takes hold.
Money market investments, non-market linked CD’s and high interest savings accounts offer little protection against the wealth eroding effect of inflation.
That is not to say that there is no downside. In fact, there is an inherent risk when investing in equities and there may, in fact, be another leg down.
However, I believe the risk vs. reward payoff favors the astute dividend growth stock investor at this time.
Posted in Investment News | 8 Comments »
Friday, May 27th, 2011
In a recently published report authored by the McKinsey Global Institute (MGI), a consulting firm that provides research and advisory services to large businesses, governments and institutions, we see the ever increasing urbanization of growth around the globe. The report focuses on identifying where the world’s growth opportunities currently lie and where they appear to be in the near future. The paper has an even more extensive focus on the identification of urban markets that are likely to contribute the most to global growth.
Increasing Importance of Global Diversification
The importance of global diversification and how most future growth is expected to come from U.S. and international markets, in particular Emerging Markets is not a new idea. MGI’s report however, outlines some additional new insights into the world’s major cities’ current contributions to global growth and where it’s likely to come from in the future.
Below are some key pieces of data form the report that are most relevant:
- Contrary to common perception, MGI found that the world’s largest cities have not been driving global growth for the past 15 years, and many have not grown faster than their host economies. Its estimated that today’s 23 largest urban areas will contribute just over 10% of global growth to 2025, below their current 14% share of global gross domestic product (GDP) today.
- Middleweight cities in emerging markets are poised to delivery nearly 40% of global growth by 2025, more than the entire developed world and emerging market megacities combined
(middleweight is defined as metropolitan areas with between 150 thousand to 10 million inhabitants and megacities have 10 million or more).
- Currently, 1.5 billion people live in the top 600 urban centers of the world and account for $30 trillion or more than half of the world’s GDP. It’s expected that by 2025 the population in these cities will reach 2 billion and will account for $64 trillion or more than 60% of the world’s GDP.
Again, the importance of global diversification of investments is not new. However, this report gives some merit to paying additional attention to the growth of centres outside of the major metropolitan areas in the emerging economies.
What does this mean for you as an investor?
Posted in Investment News | No Comments »
Saturday, November 13th, 2010
The topic of paying down one’s mortgage vs. investing seems to be a never ending debate with everyone having their own opinion on which method is better.
The argument for either side of the equation usually heats up over the topic of investment return. While some argue that investing can yield a higher after tax return based on historical figures, others posit that those historical figures are likely not going to be accurate going forward and that finding a ‘guaranteed’ rate of return in the current environment as high as your mortgage rate is improbable.
While both can make good arguments, I am not going to approach the mathematical side of this subject with this article.
The truth of the matter is that everyone’s situation is different and everyone has their own personal views on risk and debt. Truth be told, I firmly believe that we can’t reasonably compare an investment portfolio with one’s personal residence. Therefore, I view this argument as much more emotional than mathematical. It is for that reason that I want to bring to light some of the emotional trigger points that evoke the polar responses often associated with the pay down debt vs. investing debates.
Let’s start with a few basic questions that may help you decide whether it is better for you to invest or to pay down your mortgage.
1.) How many years are remaining on the current amortization of your mortgage?
If you have fewer than 10 years remaining on your mortgage amortization and your rate is fixed until maturity, you may be better off taking the guaranteed return associated with retiring your mortgage early. The reasoning behind this is that, while investments in the stock market may yield a higher return on average, ten years is a relatively short period of time to invest in the stock market. This is especially true when we consider the necessity to achieve after-tax returns greater than your mortgage interest rate.
2.) Do you have the financial discipline to invest 100% of the amount of your mortgage payment once it is paid off?
If you choose to pay off your mortgage prior to retirement, you will have some catching up to do with respect to your investing goals for retirement. While there is peace of mind involved in being ‘mortgage free’, diverting that former mortgage payment to an investing/savings account is the perfect way to beef up your retirement portfolio. the opponents to the pay off the mortgage early plan often cite the tempation for the new found cashflow to lure you in to a lifestyle that you won’t be able to afford once your working days are through.
3.) How confident are you in your investing abilities?
While I like to think that by investing in dividend growth stocks and dividend paying ETFs, I don’t always make the perfect investment. Yes, I even lose money sometimes 
According to the statistics, most of us do not have the ability to consistently out perform the stock market indexes. What’s more, none of us have the ability to move the market which puts us at a further disadvantage. So, I must agree with Five Cent Nickel on one benefit of paying off the mortgage early:
Another advantage of paying off your mortgage early is that doing so protects you from yourself. While paying the minimum on your mortgage and investing the difference might sound like a great idea, there are no guarantees that you’ll actually follow through on the second part of the equation.
4.) What is your current state of job security and liquidity?
This is where we have to take a long, hard look at our personal situations and assess those things that could derail even our best laid plans. If you are confident in your job security and are comfortable with lower liquidity as you aggressively reduce your mortgage, then mortgage reduction may be the decision that is best for you. However, if job security is a question or if you are the sole breadwinner in the household, you may be more inclined to carry a higher level of liquidity (ie. larger emergency fund).
So, what am I doing?
I took a similar approach to this question that The Financial Highway suggests. Look at both the mathematical and emotional aspects of the equation and answer honestly to the above four questions.
Well, I am somewhat confident in my investing abilities, but the emotional side of me would like to eliminate my mortgage. However, the real benefit for me in eliminating the mortgage is in the increased cashflow provided from the complete elimination of the debt.
You see, my mortgage rate is variable and currently at 2.25% 2.50%, so the idea of paying extra payments instead of investing has little merit in reducing the overall interest paid on my mortgage.
Comparatively, saving/investing until I can eliminate the debt entirely will have the effect of keeping my funds liquid as a hedge against job loss or another financial tragedy until such time as I can mitigate the risk of job loss etc. by removing the entire mortgage payment from my liabilities.
What are your thoughts on the invest vs. pay down mortgage debate?
Resources:
Mortgage Pay Down vs. Investing Calculator
Posted in Debt | 6 Comments »
Tuesday, April 6th, 2010
The importance of global diversification is often discussed as important as an investor in today’s global economy, and with the MSCI World Index and EAFE (Europe, Australasia and Far East) Index both up about 27% in U.S. dollar terms in 2009, that message remains important. However, over the past few years, we’ve been reminded of the great investment opportunities in Canada.
More Than Just Resources
Canada has not gone unnoticed by investors abroad. A report last week indicated that Canada has benefited from record net inflows of foreign investment in Canadian securities.
By extension, demand for the loonie has also increased, and this is one of the reasons why the Canadian dollar currently sits near parity with its U.S. counterpart.
Foreign investors purchased $109 billion worth of Canadian securities in 2009, and another $11.8 billion in the first month of 2010. They were particularly keen on Canadian corporate bonds in 2009, purchasing nearly 80% of net new corporate issues. Meanwhile, Canadian investors were noticeably more conservative – nearly all bonds issued or backed by the Government of Canada stayed in Canada.
Why Canada?
There are good reasons for this renewed interest in Canadian investments. Canada has a highly educated workforce, a rock-solid financial system, and one of the strongest economies in the developed world. What’s more, the Canadian stock market has delivered some of the best returns in the world over the past 10 years. (Could this be a warning sign though?)
All of these points underscore the importance of having Canadian exposure as a core holding in a well diversified portfolio.
Posted in Investor Education | 1 Comment »
