What to do about the gloomy economic outlook

Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

Stephen Poloz, governor of the Bank of Canada, has painted a gloomy picture of the Canadian economy in his first Monetary Policy Report since taking over the governorship from Mark Carney. In the Report, the Bank said the “composition of growth is now slightly less favorable for Canada.” In fact, the gloomier economic outlook and subdued inflation has caused the Bank of Canada to drop the “tightening bias” that it has followed since early 2012.

Rather than dwell upon this weak outlook, though, we think you’re better off focusing on the long term and adhering to those investment principles that will help you achieve relatively safe and profitable investment success over your entire investment career. Here are some points to keep in mind that will help you realize success.

Stress value over projections. Don’t ask how high a fund’s net asset value will rise in the next five years. Ask yourself whether a fund offers good value, considering not only its track record but the quality of its portfolio and its management. In other words, be sure to look behind a fund’s performance figures before you decide to buy.

Don’t guess the future

Know what you are doing. Make your purchases based on facts, not rumors, gossip or tips. In investing, the professional’s edge over the amateur is not in guessing the future, but appreciating risk.

To obtain facts, use the Internet, read newspapers, business periodicals, investment newsletters and a fund company’s annual reports and prospectuses. If you have questions, be sure to contact the company.

Remember, though, they will always put a positive spin on their funds’ fortunes. It’s their job. So the more facts you have before contacting them, the greater the chance you’ll have of eliciting an accurate picture of their funds’ potential.

Buy and hold. It takes time for even the best funds to perform well, so be patient and give them time. If you sell good funds when they periodically perform relatively poorly, you may be passing on the potential for greater gains in the future. The best time to sell a fund is when it doesn’t fit your investment plan anymore.

Appreciate the power of compounding. If your capital is earning 10 per cent compounded a year, it will double in seven years, at nine per cent about eight years, and so on.

Use the Rule of 72 — divide 72 by the annual rate of return. For example, a return of 10 per cent lets your money double in roughly 7.2 years.

Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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