2012 was another stressful year for investors in Canada, as the uncertain global situation continued to make headlines.
This was a year where you had to work hard to earn a decent rate of return due to continued volatility and negative news. There are a few guidelines that my team uses when managing portfolios in this environment that I thought would be beneficial to share so that 2013 may yield a better return with more peace of mind.
? Make decisions based on facts, not on headlines. An example would be the fiscal cliff and how the media has focused on it for the past three weeks, yet the stock market has been moving higher. Many investors can get bogged down by negative headlines while the stock market just shrugs it off. You or your financial advisor need to be able to decipher what is actually important news and make investment decisions based on reality rather than getting caught up in all the hype.
? Don't fall in love with any stock or sector. Just because you bought an investment doesn't mean it is going to go up! Many times an investment goes in the wrong direction despite all the research and this is part of investing, but it is what you do about this stock that can really affect your portfolio. You or your advisor should sell it if it isn't performing or use stop losses so that you have a disciplined approach to investing.
? Don't favour bonds over stocks because you are worried about the markets. I am not suggesting you should not own any bonds, but as an asset class, this area has had a significant run since 2009 and the returns are now historically low. In my opinion, giving a higher weighting to stocks, even dividend paying ones, is a better strategy for 2013 and beyond.
? Don't just own a stock because it pays a dividend. There are many stocks that pay dividends, but some are overvalued and some are too risky. It is important not to just chase a dividend because if you own a stock that pays a five per cent dividend but has negative news and it drops 15 per cent, then it still won't be a good investment. Stock performance is number one and dividends are number two.
? Cash can be a good investment if markets are heading south. We are active managers which means that if there is significant negative change in the markets then it is important to move to cash. This allows the portfolios to be in a better position should markets correct further so you would be able to pick up good stocks for better prices. But it is important not to hold cash indefinitely because you are worried about the markets. As I always say, holding GICs right now, you are actually losing money annually after inflation.
? Have a good relationship with your portfolio management team. Going it alone in these times can be difficult, so I definitely encourage investors to use a professional. But, it is important to recognize that not only should they be knowledgeable and have a good team to service you and your portfolio, it is just as important that you are a good fit and that you understand and respect one another.
2013 will most likely be another volatile year but, by incorporating some of these guidelines in the New Year, you will likely position your portfolio to earn a better return and also allow you to sleep at night regardless of what is going on in the markets.
Lori Pinkowski is a portfolio manager and senior vice president, Private Client Group, at Raymond James Ltd., a member Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. She can answer any questions at 604-915-LORI or lori. pinkowski@raymondjames. ca. You can also listen to her every Friday on CKNW at 5: 35 p.m.
