Bearing Up in Bad Times

Fall 2001 CSANews Issue 40  |  Posted date : Apr 01, 2007.Back to list

No one could have anticipated the $5 trillion U.S+ drop in equity markets, the massive drop in interest rates and GIC returns, and the horror of the barbaric terrorist assault on all of us when the planes were hijacked in the United States. Yes, travel should be cheaper, with many vacancies and huge discounts.

But the Canadian dollar remains exceptionally weak and the cash flow from savings, GICs and savings bonds is almost zero after tax and inflation. How is a snowbird to survive when you have such volatile equity markets?

We know that good companies, even in the worst of times, have plenty of cash, pay dividends, have a low debt and trade at low earnings multiples. They perform well even in the worst of times. Consider a good dividend income fund ­ most are averaging a 6-10% return this year.

Bonds ­ government bonds (not savings bonds), Triple B-rated or better corporate bonds, and bond-based mutual funds will make money this year, especially as interest rates fall ­ look for 6-8%.

For cash flow, consider holding 5% of your assets in oil and gas royalty income trusts or the new diversified income trust mutual funds. These should be far lower in risk.

New, income-based mutual funds are producing good cash flow in the 8-10% range.

Look for high dividend-paying stocks.

There are new segregated funds which give you a diversified portfolio with a 100% guarantee of the capital of your mutual funds. Yes, the fees are not low, but in this market the guarantee of capital may just be worth it.

Annuities ­ prescribed and charitable communities are great for cash flow. Certain sectors will continue to do well ­ blue chips, pharmaceuticals, pipelines, military equipment manufacturers and discount retailers.

But with heavy government spending, record low interest rates and low taxes, the turnaround may come faster than we think. But don't resign yourself to doing nothing. Nothing is not the conservative answer to personal financial planning. We can all do better, even in bad times.