|
|
Summer 2006 |
 |
|
F i n a n c i a l
Dollar may be
strong, but still need to invest abroad
|
|
|
Submitted Photo |
|
|
|
|
The reasons are the same
as when the loonie was worth only 65 cents U.S.
|
|
|
|
By Keith Butler |
|
For the past few years, our dollar has
risen steadily against its U.S. counterpart. At the same time,
Canadian stocks have done well, benefiting from high energy prices,
demand for natural resources, a strong economy, and low inflation.
Given this, does it still make sense to
invest abroad? The answer for most of us is a resounding yes. The
reasons are the same as when the loonie was worth only 65 cents U.S.
Diversification It’s impossible to
consistently predict market turns. That’s why prudent investors spread
investments across asset classes and geographic areas. When one area
declines, others may rise.
Investment selection Canada
accounts for only about three per cent of the world’s stock market, and
many top global companies are available only through foreign markets.
Currency hedge When the Canadian
dollar is weak, it costs more to purchase goods produced elsewhere.
Foreign investments can offer a cushion against this long-term currency
risk — a key concern if your retirement plans include wintering in
another country.
In today’s economic climate there are even
more reasons to consider international investments:
Booming foreign markets Canada’s
growth prospects pale in comparison with such emerging powerhouses as
China and India. While globalization has made countries more
interdependent, they still vary in economic activity and outlook.
Effect on some of your Canadian
investments While the stronger
Canadian dollar is beneficial for Canadian consumers and those
travelling to the U.S., it can be detrimental to Canadian companies that
export their finished products because it makes them more expensive to
buyers elsewhere.
The proportion of foreign investments
that’s right for your portfolio will depend on your objectives, time
horizon and investor profile. With the elimination of the 30 per cent
foreign content limit for Registered Retirement Savings Plans (RRSPs),
you have more flexibility than ever.
You should keep in mind that, as with
Canadian investments, the risk and rewards associated with foreign
investments vary widely. With professional advice, you can choose the
right foreign investments in the right amount to meet your objectives.
Keith
Butler is a senior financial consultant with MD Management’s
Newfoundland and Labrador regional office.
|
