2010 Outlook

As we ring-in 2010, many investors will be approaching this new decade with a cautious tone. The last decade had two severe bear markets leaving many investors feeling uneasy about stocks. Most investors that held on in 2008-2009 have seen most of their net worth recover. 2009 will go down in the history books as a year were many investors were able to purchase stocks at multi-year lows; 2010 will most likely be less exciting. Hopefully we have learned some valuable lessons during the past decade that will keep us more grounded going forward. We need to have a proper plan in place and we need the courage to stick with it.

My Predictions and Advice for 2010

• I am expecting a slightly positive year for 2010 with continued volatility
• Long-term, I am forecasting a sideways market where valuations will compress and investors will place more emphasis on dividends
• Income-generating securities are going to continue to be in favour
• Most dividend-paying stocks are trading at or near their all time highs therefore entry points should be cautiously chosen
• Dividend growth will be stronger in 2010 (expect to see a lot of increases)
• The U.S. dollar will continue to be on a roller coaster ride
• High quality blue chip stocks with strong global brands are relatively cheap
• Look for stocks that have good downside protection (high quality stocks that are trading at a reasonable price)
• Don’t chase yield (be content with dividends ranging anywhere from 3% to 5%)
• Avoid complicated financial products (keep it simple)
• Don’t spend too much time looking in the review mirror

Whatever type of investment strategy you decide to pursue in 2010, you need to be decisive in your actions and focus on the big picture. Keep it simple and remember the basics of sound portfolio management. Don’t over-diversify by owning too many stocks, but at the same time own enough stocks so that one mistake doesn’t ruin your entire year. Only invest in companies that you understand and hold core positions in stocks that you would feel comfortable holding for the next decade. Lower your resource exposure to a reasonable amount. Keep some cash on hand as volatility will present new investment opportunities. Only add foreign stocks to your portfolio if you feel that you are filling a gap where you feel you need additional exposure. Remember that foreign currency will add additional volatility to your portfolio and that foreign stocks don’t qualify for the dividend tax credit.

My long-term view is that as demographics shift and the Canadian population begins to age, more people will require income from their portfolios to meet their current standards of living. As such, high quality dividend stocks will continue to be in vogue during the next decade and beyond.