2010 is off to a good start for the broader North American stock markets, and tt seems the momentum of 2009 has spilled over to this year with the major indices in North America up fractionally over the first two weeks.
Yet, many investors are wondering what kind of year 2010 will be for them after living through 2008 and the worst recession since the Great Depression, followed by 2009 and the best post-war stock market rebound ever. My answer to their question is quite simple — if investors are looking for growth this year, do they really have any choice as to where to obtain it? Equity investments are the only investment that can provide investors with the growth they need.
Interest rates look to stay at their current record low levels in both the United States and in Canada for the foreseeable future. This means fixed income securities such as bonds and GICs will continue to pay relatively low interest rates. These securities — investment grade bonds and GICs — are considered by most to be low risk investments. However, for the sense of security you are receiving for owning these types of investments, you are earning an interest rate that is not even keeping up with the rising cost of living. For some, this may be good enough, however for those that are looking for growth in their portfolio these investments are just not acceptable. Therefore, as long as fixed income securities continue to pay such low rates, investors have little choice if they are searching for growth. Investors must look to the equity markets (stock market) in some manner to obtain it.
It is my opinion that a low interest rate environment allows companies and individuals to borrow money to run their businesses and buy big ticket items. In turn, this drives the economy forward and the stock market higher as we see more and more companies showing signs of revival from the worst recession in 75 years. Companies have had time to adjust their business models to meet the needs of today’s environment so they may thrive and become profitable again. Thus, why wouldn’t growth investors want to take advantage of this tremendous potential I see before us, especially when there seems to be very few other options for them?
The first two months of the year are quite often the time when many Canadians think about their RRSP contributions. Contributions made before the March 1 deadline can be deducted from your 2009 earned income. Last year at this time, many investors struggled with whether to make that contribution or not since we were still in the midst of the recession and many were outright afraid. In hindsight, that would have been the best time to make an RRSP contribution as the market shot up just after the March deadline. Those that invested in equities were rewarded handsomely.
We are now at the same point in the year again, and while I believe much of the easy money has already been made in 2009, I still feel that, because of the positive investment environment, those that invest in equities today (inside an RRSP or outside) will be rewarded this year as well. I do not think we will see another year of high flying gains as we saw last year, however. Instead, I believe the gains will be closer to the averages experienced over the pasr 50 years. If you are looking to grow your wealth in 2010, what are your other options?
If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you!
Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.
