Where to invest new money now

Every month the Money Reporter, the newsletter for income-oriented investors, publishes its list of 25 recommended common stocks and 16 recommended mutual equity funds.

What to do about common stocks now

Investing_New_MoneyAfter hovering around the 16,400 level for much of January, the S&P/TSX Composite Index swooned from late January to February, to settle just above 15,000 in early February. Since then, it has made a partial recovery, recently closing around 15,500.

The S&P 500, meanwhile, which sat at around 2,850 in late January, dropped to about 2,600 in early February and rebounded to over 2,730 by mid-February. Since then, however, it has fallen closer to the 2,700 level and appears to be stalled there for now.

We don’t anticipate markets will get over the recent correction all that easily. The advantage of this is that you have the opportunity to buy stocks at a lower price, perhaps for an extended period of time.

We like the bank stocks and insurance companies now, because we feel they stand to benefit from higher interest rates. Go cautiously on utilities, as their weakness could remain for a while. Continue to buy manufacturing stocks, consumer stocks and resource stocks. Cyclical stocks in these sectors should generally do well.

What to do about mutual funds now

We continue to recommend holding equity funds heavily invested in US stocks. But for new money, you may want to look elsewhere.

The bulk of your equities portfolio, of course, should be aimed at Canadian stocks. But we also think the Canadian markets will be hamstrung by low Canadian energy prices until transportation bottlenecks are relieved and the world price of oil improves further. The advantage of this is that patient investors may be handsomely rewarded between now and an improvement in the sector if they buy oil and gas stocks now, instead of waiting for better times to arrive.

A clear way to fully participate in the energy sector on the TSX is to purchase iShares S&P/TSX 60 Index ETF, which gives you a portfolio that has nearly a fifth of its assets in energy stocks. Alternatively, you could choose a managed fund from our recommended list. All of them have below-market weight exposure to energy stocks, but some, such as Fidelity True North, Franklin Bissett Canadian Equity, and even Mawer Canadian Equity, have more exposure than others.

This is an edited version of an article that was originally published for subscribers in the March 2, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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