Mexico has been getting a lot of unwanted publicity because of crimes done to Canadian tourists. Several were killed in a hotel explosion, apparently caused by an illegally installed gas line. A couple was allegedly assaulted by the Mexican police: one claims she was raped by the police. Another was killed in the cross fire of a drug war. Based on these and other news stories, Mexico seems to be more dangerous for Canadian tourists that it was a few years ago.
Americans seem more attuned to this danger than Canadians. The drug war in Mexico has been an important media event in the American press for many months. Americans are avoiding Mexico in droves: tourism statistics reflect the danger that Americans perceive regarding Mexico’s organized crime problems. But Canadian tourists continue to flock to Mexican sunshine in spite of the higher incidence of Canadian vacationers’ problems.
Canadian Mutual Funds Investment Forays
The Canadian mutual funds business has been spared unwanted publicity regarding the long term rates of return on equity mutual funds. The Toronto stock market is up less than 1% per year on average, over the past 10 years. And we are the lucky ones: the US stock market is up even less for the same 10 year period. Both Canadian and US stock markets dropped about 45% in 2001/2002 and again in 2008/2009. It’s hard for equity mutual funds to achieve a good long term rate of return when they lost almost half their value twice in one 10-year period. Based on these statistics, it’s a wonder that anyone still buys mutual funds. Most equity mutual funds managers under perform the averages. For completion, both stocks and equity mutual funds often pay dividends, which would add to the low performance mentioned above. And mutual funds do charge management fees, which detract from long term performance. I wonder if Canadian RRSP savers will continue to buy mutual funds. Will they be like Canadian tourists, visiting Mexico’s sunny shores even though the risk has increased? Right now Canada is in the midst of RRSP season, where people make that decision: where will I invest my money?
For guidance in this area, I recommend that small investors observe what large investors are doing. Large pension funds are in an embarrassing position: they own too much of the lowest performing investments and not enough of the better performing investments. A recent study by the investment firm, Gluskin Sheff, revealed that the worse performing asset class in the USA for the past ten years was the stock market. The best two asset classes were gold and long term bonds. Since pension funds are obliged to be managed in a prudent manner, we can be sure pension fund managers will be quietly selling their excess inventories of stocks and accumulating long term government bonds and precious metals.
What should Canadian investors do about the stock market: own a lot to the investments that are going up most strongly and avoid the weaker ones? What should Canadians vacationers do about Mexico? Just how much risk is there? Trusting the Mexican department of tourism seems as unwise as trusting your mutual funds salesman. After all, they both want your money. Both have something for sale and both put their interest ahead of their customers’ interest. And both of their marketing departments use pictures of Canadians drinking cocktails under a palm tree.
Palm tree mentality
Maybe that’s the problem: investors are thinking like intoxicated tourists lounging in the tropical sun when they should be thinking like those Americans who are staying away from Mexico because they perceive it to be unsafe. Or those pension funds managers who realize that having so much exposure to the stock market is not really as prudent since the year 2000 as it was in the 1990s.
In my investment book, Beyond the Bull, I advise investors to refine their investment techniques by borrowing ideas from other investors. In this case, we should look at the actions of the pension funds managers. That’s what I advise ordinary Canadian RRSP investors to do: reduce risk. Sell off some of your stock portfolio and replace it with government bonds and precious metals.
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Contact Ken directly at firstname.lastname@example.org.