Calendar year 2010 is coming to a quick close. Looking back over this past year, the one word that I would use to best describe the investment environment is, “volatile!” With such a tremendous up and down year now behind us, what type of investment climate can investors look forward to in 2011?
In my opinion, 2011 will be kind to investors once again. Individual returns may not be as high as they were in 2009 (a rebound year), but more in line with the kinds of returns investors experienced in 2010. High single digit, low double digit growth once again will be possible for the average conservative growth investor. I believe that as long as interest rates and inflation remain relatively low, the investment environment will remain very good for individuals to make money. There will be issues that arise throughout the year that will have to be dealt with like any year, however I believe the central governments of the largest industrialized nations will continue to do whatever it takes to keep their economies moving forward through stimulus programs or accommodative monetary policy.
There are many positives that investors can hang their hats on heading into 2011. However in my opinion, the most important is a low interest rate environment. The Federal Reserve in the U.S. is not looking to raise interest rates anytime soon as they are still trying to keep rates low to spur growth in their economy. The Bank of Canada as well has said that they will keep interest rates as they are until they see a rise in the Canadian and global economies. When interest rates are at or near all-time lows, it allows individuals to borrow money to buy big ticket items like homes and cars. It allows companies to borrow money to refinance debt and make acquisitions. These are all positive things to help stimulate growth in an economy.
Governments both here and in the United States look to start 2011 with a fairly accommodative fiscal policy. The U.S has extended the “President Bush” tax cuts for at least another two years for all Americans while also trying to create different initiatives to stimulate job growth. In Canada, we look to keep the stimulus that was pumped into the economy during the recession around for a little longer yet as we too have a stagnant economy on our hands.
There is a very positive corporate environment heading into 2011 that should help investors make money both here and in the United States. Companies both here and south of the border continue to report better and better quarterly results, which will only lead to higher share prices. In the United States, you have some of the largest companies in the world with great balance sheets flush with cash just waiting for an opportunity to put that money to use. During the second half of 2010, we started to see more mergers and acquisitions, which is always a good sign for investors of an economy’s improvement.
Lastly, another positive for investors heading into 2011 is a very strong China. If China can keep its inflationary issues under control and still maintain a growth rate of above nine per cent, this will bode well for the materials and energy markets. As we know, materials and energy play a huge part in our economy. Thus China’s thirst for metals, commodities and energy can only benefit our exports here in Canada.
Investing in quality companies that pay consistent dividends and are inexpensive (by historical standards) is the best way not only to protect your money but also to grow it in the coming year. Investors should stick with the sectors of the market that do well during expansionary times like financials, technology and energy. Individuals should be selective and patient as 2011 is shaping up to be a stock pickers market as it was in 2010. Overall, investors should be excited about the upcoming year as the positives I have mentioned above for now, clearly outweigh any of the negatives which currently exist This is why this market is moving upward.
If you have any questions regarding the above article or are looking for an investment adviser to help you with your portfolio, please visit my website at www.investmentadvisorgta.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.
