Every year there seems to be one or two “hot stocks” that grace the cover of investing magazines. Uranium, biotech and dot-com were buzz words that were synonymous with quick wealth and skyrocketing returns. Like any investing sector, some stocks in these areas were true winners and others were duds. One of the more recent acronyms floating around is the concept of BRIC investing. BRIC is simply a catchy way of talking about 4 emerging-market countries: Brazil, Russia, India and China.

“What’s the big deal with these countries?” some investors may ask. To put it simply, there is a major shift underway in the manufacturing and labor markets in the world, and the BRIC countries are the major players.

All four of these countries are rapidly growing in both economic power and individual wealth per person. China, for example, has a billion people, which is about four times the size of the United States. However, the average annual income in China (about $1,500-$2,500 US per year) is much lower than an American’s average annual income (about $50,000 US). China is seeing an increase in their “middle class” and as a result, luxury items (such as cell phones, high-end clothing, plasma television sets and even automobiles) are starting to become more commonplace. Disposable income is on the rise.

Similar situations exist (although to different extents) in Brazil, India and China. Two of the countries—Brazil and Russia—have huge natural resource deposits. The other two countries—India and China—have huge populations with increasing disposable income, rising education and a growing appetite to provide services and an ever-increasing skilled workforce into a global economy. It’s been estimated that these four countries’ economies could outpace the U.S. and become the world leaders by 2050.

Investor’s can play the BRIC countries in a number of different ways.

BRIC ETFs: The easiest way to play BRIC is to buy an ETF. There are a few of them available—make sure to check the prospectus to see which companies and what weighting for countries is included. Examples of such ETFs are the Claymore BRIC ETF (on the TSX) and also iShares MSCI BRIC ETF.

Individual ETFs: If you are unhappy with the weighting of BRIC ETFs, consider buying the individual ETFs for each country. Some investors actually think that mutual funds might be better in this situation, since there are many companies that may be less than stellar in these emerging, riskier markets, while others feel that the diversification and lower fees make ETFs a better choice. These individual markets are somewhat riskier than going the BRIC route (because any one country is riskier than all four put together—less diversification).

A word of caution: The China market has exploded over the past two years and many investors have voiced concerns that the Chinese government is keeping the market artificially high because of the Beijing Olympics next summer. The conspiracy theory is that there will be no bear market in China until just after the Olympics, and when the eyes of the world turn away after the closing ceremonies, the market there will nosedive. Others have commented that this is a “chicken little, sky is falling” attitude and that the incredible growth in these countries is just really starting.

The time horizon for a BRIC investment is very long term and these are quite volatile markets. One strategy is to put 10% of your portfolio into BRIC and not touch it for 20 years. If some strategists are correct, this could be all you need to retire—if the growth of BRIC countries continues to explode.

If you enjoyed this post, make sure to Subscribe to the feed. (You can also subscribe with Updates via email).

Filed Under Stock Talk | 3 comments!
----------------------------------------

People who are in their 50s should have a different mix of assets in their portfolio compared to investors in their 20s or 30s. This much we know. Obviously, the closer you are to retirement (and the age when you will start to draw money from your portfolio), the more conservative you would want to be. The last thing you want to happen is a nasty surprise during your first year or two of retirement. Can you imagine working for thirty or more years, and finally relaxing on the beach with a cold beer… only to open the newspaper and read about the market plunging 500 points?

But what exactly should a portfolio look like for people who are in their 50s or early 60s and are getting ready to draw out money? There are a few options to consider when approaching the golden years.

Don’t Be Too Conservative: There’s an old joke where a broke elderly gentleman goes to the doctor and gets some bad news: “Sorry Mr. Johnson, but you are completely healthy and will live a long time.” (It’s funnier if you are a financial planner I guess). It’s no joke, however, if you outlive your money. In the year 1900, the average life span was 47 years. Currently in North America, it’s up in the 70s, and many people will live to see 90 and beyond. This means that you should have at least 25% (and up to 50%) of your portfolio in the stock market in some form at age 65. This could be ETFs or mutual funds. Take this route to ensure exposure to the market while avoiding the risk of individual stocks. At this stage, a “home run” stock isn’t necessary—a solid, steady return should be the goal.

Look At Annuities: This is an often overlooked part of financial planning. An annuity is like a life insurance plan that you purchase, but instead of paying out when you die, it pays out while you are alive. Basically, you pay an insurance company an up-front sum of money (like $250,000) and in turn, the company pays you a monthly amount every month for as long as you live. It’s guaranteed money, but there’s a catch: if you pay the money and then die a few weeks later, the insurance company keeps all the money. Alternatively, if you were to live to be 135 years old, the annuity would continue to pay out during that time (and you would reap much more than the original sum that you paid in). It’s “guaranteed” money that you cannot outlive. If you have no dependants (for example, your children are all grown up and do not depend on you financially), then this can be a great option for stress-free money during your retirement. You can’t take it with you, especially if it’s an annuity.

Guaranteed Cash: 50% of your portfolio should be stocks, but what about the other half? It’s a great idea to have something that doesn’t rely on the stock market in general to create wealth. Bonds and REITs are the two big instruments in this regard. A bond is a promissory note and can be issued from a government (federal, state / provincial, or even municipal) or a company. A REIT is a “Real Estate Investment Trust”. A REIT is like a holding company that invests in real estate properties, takes in rental income, and then distributes it out to unit holders (investors). There are private REITs that do not trade on the stock market, and of course there are many that do. Values fluctuate do to market conditions and also the price of real estate in the market where the properties are located. Usually REITs will pay a monthly or quarterly distribution (similar to a dividend).

Make sure to stay diversified and use all the different wealth-building tools at your disposal as you approach retirement. You just might be surprised at how soon it shows up.

If you enjoyed this post, make sure to Subscribe to the feed. (You can also subscribe with Updates via email).

Filed Under Stock Market News | 4 comments!
----------------------------------------