January 2011 - Newsletter
It's RRSP Season Again!
Yep, it's that time of the year again. Make sure you have your T4 ready and have calculated your maximum contribution. The deadline to contribute to your RRSP is March 1, 2011.
Investment Landscape
People have been asking me what's the best place to invest right now? Are we out of the recession yet? Is the U.S. back on track?
Here's my own view and my views are not necessarily the same as what you hear or read in the media or from portfolio managers.
Let me answer the first one as that is the easiest one to answer. The best place to invest is worldwide, always. You cannot have a portfolio concentrated into one country like Canada. Canada only represents a small percentage of the world market. Adding just 20% foreign equities into your portfolio would expose you a lot of potential growth from China, Europe, India, etc. But how much to invest in foreign equities will depend on what stage you are in your life. If you are nearing retirement or you are retired, you may want to add no more than 5% in your portfolio as this type of investment tend to be very volatile.
Are we our of the recession yet? For Canada, it seems like we are, real estate prices has been steady and in some cases going up. Have you seen your property assessment lately? In cities like Richmond, property assessment has gone up 17.14% which is the highest in B.C. as reported in the Richmond News. New condos and townhouses continue to be built around the Greater Vancouver Area. So I think people feel safer buying homes now compared to 2 years ago.
How about the U.S.? If you've been following the news, you know that last November, the Republicans took over the Senate and Congress. Obama being a Democrat is now effectively a lame duck President. I doubt he will have any significant piece of legislation that will get passed in his last two years of office. And if my history is correct, only one President won re-election with both houses as majority in the history of the United States, and that's Bill Clinton who was re-elected in 1996 when both the Senate and Congress was controlled by the Republicans.
So what does this all mean? In my opinion, I think the US economy would be flat in the coming year or two. Of course there will be some companies who will shine, but overall, the US Dollar and general economy doesn't look like it's going to recover much more than it has now. The politicians will try to outspend each other as they cannot make a decision on their health care and tax cuts. While they both criticize each other for overspending, whoever is the majority, whether they are Democrats or Republicans will still outspend each other since it is easier to print money to give away to the citizens than to face the music and reduce their deficit which may create a depression.
In 2010, China has produced more than 18 million cars while India has produced 2.6 milion cars. That's 20 millions cars in 2010 and is expected to rise in the coming years. Do you know what you need to build cars? The top 5 raw materials are steel, rubber, plastic, aluminum and glass. To reduce the pollution in cars, you need a catalytic converter. Guess what's required to build a catalytic converter? Palladium, platinum, rhodium, cesium, iron, manganese and nickel. Zinc is also used to rust-proof steel in a process called galvanizing.
China is projected to import from 198,000 tons in 2011 to over 5 million tons of aluminum by 2015 according to an article from China Daily. Australia is the world's largest supplier of aluminum and Canada is the world's largest supplier of zinc and uranium.
Guess what, in the next 5 years, more cars are going to be built and more electricity is needed. We will see a surge in demand for raw materials so commodities are going to be very important in the next 5 to 10 years. If we are investing for the future, I believe that commodities is an important part in your portfolio. Foreign equities is important because it is mostly Asian, Australian and Canadian companies that is supplying the raw materials. The U.S. is a major importer and currently does not export any significant resources to China to make money. China's industry is booming even though it is reported to be slowing down. But compared to the U.S. it is still growing a whole lot more.
Just to give you some perspective, here's the calendar return of the various market indices.
Compared to Canada, the U.S. is certainly lagging and precious metals has certainly been a good performer.
Canada will be an important component in any portfolio in the near future but putting some foreign equities and commodities in your portfolio is a good way to boost your returns. There are of course, risks involved and investing in these markets will depend entirely on your tolerance for risk.
A proper review your portfolio can determine whether these investments are right for you.
Past returns of course is not indicative of future performance.
Feel free to forward this to your friends and family if you think their portfolio might be in need of a review or second opinion.
Note: these views and opinions are mine and mine alone, they do not represent the views of any of the company or companies I represent. This newsletter is not an offer or a solicitation.
Yep, it's that time of the year again. Make sure you have your T4 ready and have calculated your maximum contribution. The deadline to contribute to your RRSP is March 1, 2011.
Investment Landscape
People have been asking me what's the best place to invest right now? Are we out of the recession yet? Is the U.S. back on track?
Here's my own view and my views are not necessarily the same as what you hear or read in the media or from portfolio managers.
Let me answer the first one as that is the easiest one to answer. The best place to invest is worldwide, always. You cannot have a portfolio concentrated into one country like Canada. Canada only represents a small percentage of the world market. Adding just 20% foreign equities into your portfolio would expose you a lot of potential growth from China, Europe, India, etc. But how much to invest in foreign equities will depend on what stage you are in your life. If you are nearing retirement or you are retired, you may want to add no more than 5% in your portfolio as this type of investment tend to be very volatile.
Are we our of the recession yet? For Canada, it seems like we are, real estate prices has been steady and in some cases going up. Have you seen your property assessment lately? In cities like Richmond, property assessment has gone up 17.14% which is the highest in B.C. as reported in the Richmond News. New condos and townhouses continue to be built around the Greater Vancouver Area. So I think people feel safer buying homes now compared to 2 years ago.
How about the U.S.? If you've been following the news, you know that last November, the Republicans took over the Senate and Congress. Obama being a Democrat is now effectively a lame duck President. I doubt he will have any significant piece of legislation that will get passed in his last two years of office. And if my history is correct, only one President won re-election with both houses as majority in the history of the United States, and that's Bill Clinton who was re-elected in 1996 when both the Senate and Congress was controlled by the Republicans.
So what does this all mean? In my opinion, I think the US economy would be flat in the coming year or two. Of course there will be some companies who will shine, but overall, the US Dollar and general economy doesn't look like it's going to recover much more than it has now. The politicians will try to outspend each other as they cannot make a decision on their health care and tax cuts. While they both criticize each other for overspending, whoever is the majority, whether they are Democrats or Republicans will still outspend each other since it is easier to print money to give away to the citizens than to face the music and reduce their deficit which may create a depression.
In 2010, China has produced more than 18 million cars while India has produced 2.6 milion cars. That's 20 millions cars in 2010 and is expected to rise in the coming years. Do you know what you need to build cars? The top 5 raw materials are steel, rubber, plastic, aluminum and glass. To reduce the pollution in cars, you need a catalytic converter. Guess what's required to build a catalytic converter? Palladium, platinum, rhodium, cesium, iron, manganese and nickel. Zinc is also used to rust-proof steel in a process called galvanizing.
China is projected to import from 198,000 tons in 2011 to over 5 million tons of aluminum by 2015 according to an article from China Daily. Australia is the world's largest supplier of aluminum and Canada is the world's largest supplier of zinc and uranium.
Guess what, in the next 5 years, more cars are going to be built and more electricity is needed. We will see a surge in demand for raw materials so commodities are going to be very important in the next 5 to 10 years. If we are investing for the future, I believe that commodities is an important part in your portfolio. Foreign equities is important because it is mostly Asian, Australian and Canadian companies that is supplying the raw materials. The U.S. is a major importer and currently does not export any significant resources to China to make money. China's industry is booming even though it is reported to be slowing down. But compared to the U.S. it is still growing a whole lot more.
Just to give you some perspective, here's the calendar return of the various market indices.
Data source Mackenzie Insight newsletter.
Compared to Canada, the U.S. is certainly lagging and precious metals has certainly been a good performer.
Canada will be an important component in any portfolio in the near future but putting some foreign equities and commodities in your portfolio is a good way to boost your returns. There are of course, risks involved and investing in these markets will depend entirely on your tolerance for risk.
A proper review your portfolio can determine whether these investments are right for you.
Past returns of course is not indicative of future performance.
Feel free to forward this to your friends and family if you think their portfolio might be in need of a review or second opinion.
Note: these views and opinions are mine and mine alone, they do not represent the views of any of the company or companies I represent. This newsletter is not an offer or a solicitation.
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