Investors being burnt by the traumatic events of the stock market collapse and global recession are understandably making preservation of capital their first priority. They are investing in guaranteed interest-bearing products that are providing paltry returns and offer little chance of growth. The trend to safety is typical in a bear market and with this the worst in recent memory, people are content to hang on to what they have. But while the move to safer investments is normal, it can be short-sighted.

Investors went through a major shock and this coupled with interest rates which have fallen to historical lows are leaving them uncertain and gun shy. Money market funds are not making a return after fund management fees, even though many funds have reduced their fees. Though GIC’s are attracting money, few investors are willing to lock in for the long-term. The higher interest savings accounts that deposit taking institutions are offering are appealing because they offer a guarantee and the easy liquidity, but are paying in many cases less then 2%. The problem is that interest-paying securities at today’s low rates after taxes and inflation are barely making a return and could actually be losing ground. They provide capital preservation but will not likely be enough to meet the investor’s long term goals.

Though the Canadian stock market has rebounded 40% from the lows in March 2009 investors are still scared. One of the strategies is to look more at investment products that provide exposure to equities that come with guarantees like segregated funds offered by insurance companies. To receive a principal guarantee an investor must hold these products for a predetermined period of time, typically at least 10-15 years. These funds also come with higher fees than regular mutual funds, which some investors are happy to pay in return for the protection.

This is where the advantage of having a strong specialist-client relationship is important. Our approach to the shock of the economic downturn is that we focus on the basics with our clients, remind them why they are invested in the first place, and advise them to stick to their long term goals. The market downturn is all about emotions and is all about managing those emotions so any decisions can be made rationally and logically. We meet with our clients and when they “wanted out” we went back to the basics to help them understand market volatility so they could make an informed decision.

Investing in the markets isn’t for everybody and certainly there is a myriad of different investment products to choose from, but a having a financial specialist can help you wade through the uncertainty.

Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

October 14, 2009