Friday, August 12, 2011

Turbulence in the markets? Here's a strategy for sleeping better at night.

You have heard it all before - "What goes up must come down". This applies so very well to the stock markets and can cause untold grief to those who are not well prepared for the roller coaster ride. There are several strategies you can use to help you breathe easier when the next wave comes along:

1) DIVERSIFY: follow the old adage about not putting all your eggs in one basket. Have a mixture of fixed income and stocks and cash.
2) UNDERSTAND WHAT YOU ARE BUYING: do not buy shares in companies you do not understand.  Buy companies you deal with or indirectly use on a regular basis.
3) GO BASIC: some of the safest stocks to buy include Canadian banks (the Big Five, TD, BMO, RBC, ScotiaBank, CIBC) utilities (Enbridge), pharmacies and related companies (Shoppers Drug Mart, Johnson & Johnson, Proctor & Gamble), low-cost restaurants ( Tim Hortons, MacDonalds), transportation (CN, CP and Westjet), energy (oil and gas equipment e.g. Mullen Group). Real estate can be a good investment as Real Estate Investment Trusts (REITs e.g. RioCan, Chartwell or an ETF Reit) See More on REITs.
4) RIDE OUT THE VOLATILITY:  do not jump in and sell your investment when dips in the market happen. Follow the trends and take opportunities to use your cash to buy good companies at cheap prices.
5) INVEST IN HIGH QUALITY SEGREGATED FUNDS:  your investment will be covered with guarantees to protect you against major losses.
6) KEEP SOME CASH for buying opportunities. Remember, when everyone is selling that is the best time to buy and when most are buying, it is a good time to sell.
7) EDUCATE YOURSELF ON FINANCE:  read Jeremy Siegel's "Stocks for the Long Run" and the update on an old classic-  Benjamin Graham "The Intelligent Investor" See The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

For more information on segregated funds and more ways of protecting your investment: Contact us at Celesta Financial

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