Are We There Yet?

Anyone who has driven on a long road trip with children will be familiar with the cry of “Are We There Yet”. After 13 months of the credit crisis we are also hearing the same cry from investors wondering if we have arrived in Bull Market territory once again.

The children usually start this refrain when they have become bored and tired, regardless of the distance still to be covered to reach the destination. Investors also become bored and tired by bear markets and are impatient to see their portfolio’s resume growth once again. Unfortunately for investors the answer will depend more on where you have put your money rather than the distance you have covered.

Many market commentators have talked about how world markets seem to be operating in tandem with no real decoupling evident. This is true if you are watching falls in the US markets rippling through Asia and Europe the next day. But if you step back and look at things over a larger time frame you can see that the markets are acting more like dominoes rather than operating in tandem.

The credit crisis has its roots in the falling values of US property. Due to financial engineering and credit derivatives most of this risk had been sliced and diced and scattered in various toxic packages around the globe. As the mechanism that allowed this financial engineering seized up, so did other mortgage markets that had used the same models. The best example of this is the UK which had also adopted most of the same irresponsible lending practices.

First the US property market fell and this quickly caused the market for CDO’s to dry up. Without this way of offloading risk the UK banks had to curtail their imprudent lending practices. With no one able to lend to prop up the rotten edifice, the UK property market also began to fall. Banks around the Globe stopped lending to each other because they all knew that their bookkeeping was suspect, with many being slow to mark to market the toxic CDO’s that where now, at least in the short term, worthless. This caused them to go running into the arms of sovereign wealth funds to shore up their capital.

All this financial turmoil has significantly impacted Global growth to the extent that it was even able to slow the Emerging Market juggernauts of China and India and throw a spanner into the Commodities Supercycle.

Which brings us to where we are now with US government ostensibly nationalizing the two GSE’s that back the US housing market.

You can reasonably expect that since things fell like domino’s that the recovery will be quite similar. The US property market has shown signs that its decline is slowing. Commodity prices and the inflation that they stoked have stalled, which will allow the central banks to change focus from inflation to pump priming.

Expect that the US markets will recover first followed by Europe then Asia and the emerging markets. This will allow the Commodity Supercycle to gain traction again.

So in answer to the question, “Are we there yet “. The answer will very much depend on how you have positioned your portfolio. If you have over weighted the US market you should already be starting to see your portfolio recover. If you still have most of your assets in Europe it will be a long winter. If the bulk of your assets are invested in China, well, see you next year.

Surviving Volatility

Markets in the past month have been whipsawing back and forth, this volatility has caused a lot of investors to retreat to cash until the markets show some direction. While this may be a prudent play if you are a day trader, it is not if you are a long term investor. Here are 5 things you should know to understand how to survive a volatile market.

1. Watching From The Sidelines May Cost You.

When markets become volatile, a lot of people try to guess when stocks will bottom out. In the meantime, they often park their investments in cash. But just as many investors are slow to recognize a retreating stock market, many also fail to see an upward trend in the market until after they have missed opportunities for gains. Missing out on these opportunities can take a big bite out of your returns. Consider that in the 12 months following the end of a bear market, a fully invested stock portfolio had an average total return of 36.8%. However, if an investor missed the first six months of the recovery by holding cash, their return would have been only 7.6%.

2. Dollar Cost Averaging Will Help You.

Most people are quick to agree that volatile markets present buying opportunities for investors with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult. You can’t help wondering, “Is this really the right time to buy?” Dollar-cost averaging can help reduce anxiety about the investment process. Simply put, dollar-cost averaging is committing a fixed amount of money at regular intervals to an investment. You buy more shares when prices are low and fewer shares when prices are high, and over time, your average cost per share may be less than the average price per share. Dollar-cost averaging involves a continuous, disciplined investment in fund shares, regardless of fluctuating price levels.

3. This Is a Great Time For a Portfolio Checkup.

Is your portfolio as diversified as you think it is? Meet with us to find out. Your portfolio’s weightings in different asset classes may shift over time as one investment performs better or worse than another. Together with your advisor, you can re-examine your portfolio to see if you are properly diversified. You can also determine whether your current portfolio mix is still a suitable match with your goals and risk tolerance.

4. Tune Out The Noise.

Numerous television stations and websites are dedicated to reporting investment news 24 hours a day, seven days a week. What’s more, there are almost too many financial publications and websites to count. While the media provide a valuable service, they typically offer a very short-term outlook. To put your own investment plan in a longer-term perspective and bolster your confidence, you may want to look at how different types of Asset Allocation models have performed over time. As you will see, while equities may be more volatile, they’ve still outperformed bonds and cash over longer time periods.

5. Believe Your Beliefs And Doubt Your Doubts.

There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to these fundamental beliefs is sometimes easier said than done. When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long-term goals. To keep from falling into this trap, give us a call before making any changes to your portfolio.

International Insurance

Some companies seem to feel that it is not cost effective to provide a decent benefits package for more junior expatriates, preferring to compensate them instead with higher wages and expenses, but they might do better to consider that for an expat, the knowledge that they can turn to their employers for help in times of crisis might sometimes be a more valuable benefit than a slightly inflated pay packet.

There are in fact still many companies that do recognize the importance of insuring all of their travelling employees. Companies that do so will usually look at an international package as opposed to taking out policies for their expatriate employees with local organizations, as the latter can be problematic. Local insurance regulatory regimes can be overly restrictive or exclusive, there may be foreign currency restrictions which prevent expats from receiving benefits in stable currencies such as US dollars, and membership of a local scheme may not be possible for some employees due to the proposed length of their stay.

International Health Insurance

Private medical insurance is designed to ensure that you can obtain the treatment you need, whenever, and wherever you need it, and as an expat, this flexibility will be invaluable to you. Your first decision needs to be whether you are interested in a basic scheme, which will usually cover emergencies, in-patient treatment, nursing at home and repatriation, or a comprehensive scheme which will usually cover you for all of the above, as well as out-patient care, specialist treatment, and routine dental and complementary care.

You also need to be careful about any possible geographical restrictions on the policy that you take out. US and Canadian citizens who are planning to expatriate need to be especially aware, as certain types of policy impose restrictions on the amount of time that they can spend revisiting their home country, whether for medical or non-medical reasons.

Accident and illness can occur at any time, and in any country, and most of the circumstances covered by international policies are similar to those covered by domestic insurers; the policies just have the advantage of being 'mobile' in a way that domestic policies are not. However, there are some issues which are of particular importance to expatriates, and it would be wise to make sure that your international health insurance covers them.

International Life Insurance

There are many different reasons why taking out a life insurance policy should be considered a priority for those with dependants and responsibilities. Whether you are an expat or a professional looking to buy a domestic life insurance policy, your concerns will undoubtedly be the same - the welfare of your family in the event of something unexpected happening. However, as an expat, you are probably in a position to take advantage of the greater benefits available through international life insurance, in a way that a stay-at-home policyholder would not usually be able to.

Policies sold within the jurisdiction of a specific government are often in a strait-jacket of taxes and regulations which defines the types of investment the insurance companies can hold their assets in, the types of investment they are allowed to offer their customers, what reserves they have to retain on their policies, the mortality assumptions they have to make, and the commissions they have to pay to those who market their products. This amount of regulation serves to make their returns unattractive when compared with international policies in the vast majority of cases. International policies also have the advantage over domestic policies for expatriate professionals in that they are payable in US dollars or other stable currencies, medical examinations can be conducted wherever you are, and it is possible to pay premiums in a greater variety of ways, for example by cheque, wire transfer, or in some cases by credit card.

Insurance is one of those things that everyone hopes they'll never need, and as a result, a frightening number choose to bury their heads in the sand, hoping that their luck will hold. However, by far the most sensible solution for those not willing to trust to fate, is to take out some form of insurance, to protect themselves and their dependants should the worst happen. There are many ways to make insurance more affordable by limiting the coverage or by increasing the deductable amount. To find out what Insurance would best meet your needs as an individual or as an organization please feel free to give us a call.