Oil among linchpins of expanding stock market

Larry MacDougal/CP PHOTO


A crew performs maintenance on an oilfield pumpjack and well head site near Halkirk, Alta., last month.

Q: I am new to the investment game. I have an investment adviser that lets me know what and when to buy/sell. How do I know if my current portfolio is right for me? Should I currently keep all my investments in oil companies?

A: The North American stock markets have experienced phenomenal growth in the past several years particularly in the energy and oil sectors. Alberta is continuing to experience high economic growth although its boom has slowed. Jobs are plentiful, including high-paying fast food jobs at McDonald’s. Workers are finally getting a break today, but you have to move to Alberta to get it.

World prices per barrel of oil are more than $70 and some market experts predict it may go to $100. This is very optimistic! Not long ago, investors continued to pour money into a tech company at $120 that is now trading at approximately $4 per share. Investors should pay close attention to the creeping signs of inflation, rising interest rates and a high Canadian dollar.

Fortunately, Canadians have survived the U.S. housing market fallout, for now. Will all those condos being built in Toronto and the surrounding areas continue to give us double-digit returns? Not likely, as this is not healthy for the real-estate market.

Keep this quote in mind from Anthony M. Gallea and William Pantalon III in their book Contrarian Investing. “Investing is a strange business. It’s the only one we know of where the more expensive the product gets, the more customers want to buy them.” (More on investments at left.)

Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext.304. Any questions to Money Matters should be e-mailed to choochonghcga@yahoo.ca.

The 3 staples of investment

“Asset Allocation is the big decision you need to make, all others are small,” Daniel R. Solin, writes in his book The Smartest Investment Book You’ll Ever Read. So, where do you allocate your assets? An investment portfolio is generally made up of stocks, bonds and cash.

  • Stocks: These are shares of public companies such as the big six banks, large utility companies, conglomerates, oil and gas companies, tech firms, airlines, auto manufacturers etc. Historically they provide the highest returns but at greater risk. Individuals must have the stomach for volatility in the stock market.

  • Bonds: These, issued by many of the above companies, pay a fixed rate of interest that may provide lower returns than stocks but do not have as great a risk nor volatility.

  • Cash or short-term investments: Guaranteed investment certificates and the like offer very low returns in comparison to the other two types of investment but may let individuals sleep better at night.

Some investment advisers use factors such as your age, health, income, and risk adversity to determine the optimal asset allocation. The makeup of your investment portfolio should reflect the nature and type of investor that you are. The old adage you are what you eat, applies for investing, you are what you invest.

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