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.

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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.

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This blog gives us the opportunity to share investment wisdom, post comments about stocks and comment on the market in general. This post may be a little different, but I wanted to touch on how your portfolio in general is a tool that is used to help build wealth in your life. Hopefully you have more than one tool in your toolbox and I wanted to touch briefly on other tools at your disposal. No one invests in a vacuum—often real world issues play out that affect our investment decisions.

In the business of life, you are the Chief Executive Officer (CEO). Here are some “real world” issues that investors should consider.

Risk vs. Return: One of the biggest investment mistakes that you can make is to have a bad ratio of risk vs. return. What I mean by this is that for every additional unit of risk that you are taking on, you should be expecting a higher return. Imagine, for example, an average married couple earning $80,000 a year as a family, with two kids, a dog and a $200,000 mortgage on their house. Their entire investing portfolio consists of $30,000 in a stock trading account the investing family decides to risk it all on one or two stocks in the biotech industry. Some of us might scream “no!” while others think it’s no big deal. Is the risk of losing 80% of your capital overnight worth it, even though you could double your money?

Debt: There is no sense in investing $100 a month into a mutual fund while carrying thousands of dollars in credit card debt, and yet thousands of people do exactly that. It’s much more fun to put a regular amount into your exciting stock portfolio than it is to pay off debt. However, credit card debt is usually set at a very high rate, like 15% or more, and there’s no way the average mutual fund is going to beat that on a regular basis (especially after taxes). There is good debt (like buying a house as it offsets the debt with an appreciable asset) and there is bad debt (not paying your credit card bill in full each month). Bad debt is like sailing a boat into the wind—don’t make it harder to accumulate wealth than necessary.

Buy Property: It may sound strange to talk about a house in a stock blog, but the real goal here is to make you wealthy as soon as possible. One of the best ways to do that is to have a diversified portfolio of stock. Another way to truly diversify yourself is to own a house. Over a thirty year period, chances are very, very good that your house will appreciate in value. If you are renting, the chances are 100 per cent that you will never make any money, but you will have a very appreciative landlord.

Frugality: Many investors pour over their portfolio and stress when their shares rise or fall by a penny. But then they ring up a $250 cell phone bill during the month chatting with their friends, or eat out at restaurants or fast food outlets and spend hundreds of dollars on conveniences. Does this sound like a contradiction? The best investors in the world have a gold rule: live within your means.

Save Regularly: If frugality is the golden rule, then saving should be the silver rule. Most people in the free world don’t save very much money—in fact, in the 1980s it was estimated that around 8% of household income was saved, and these days it stands at around 1%. Many people spend their entire lives hounded by debt. If you can contribute 5 per cent of your net pay into a savings account while having no debt, you will easily put yourself near the front of the pack in terms of accumulating wealth.

Taxes: Many wealthy people set up their lives as “home businesses” that allow them tax breaks on items in their lives. For example, if you purchase a vacation property and rent it out, you have to claim the revenue on your taxes as business income, but you can also claim your yearly family holiday expenses on your taxes as well. Your personal computer, your vehicle, a digital camera, and even part of your housing expenses can be claimed if you consult from your home-based business (depending on the business of course).

Remember, you are the CEO of your life. If you treat your life like you would a business, you may find that you can trim some expenses here and there, increase your household revenue (either by getting a promotion, finding a new job or adding on a fun part-time job or business), and can truly diversify your life to protect against risk and build real wealth.

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Are you a gambler, or an investor? Or, more importantly, do you think you are a gambler or an investor? Self-perception and actual truth may be different, as we often tend to look at ourselves differently than others see us.

Let’s take an objective look at a gambler’s portfolio and an investor’s portfolio by asking ourselves key questions:

- Is your portfolio diversified? A gambler will have one or two “heavyweights” in their portfolio, while the investor will probably have a mix of ETFs and mutual funds in addition to cash and a diversified stock portfolio. This is not always the case. The real question is why the gambler has one or two heavyweights. Are they seeing upside and downgrading the risk involved? If so, they are gamblers, as they are essentially guessing that their one or two big plays will make some serious money for them.

- How much cash do you have? An investor will almost always have some percentage of cash on hand, even if it’s only 5 per cent of their overall portfolio. Some have as much as 50 per cent or even more! Gamblers will often put their entire portfolio to work on a select few investments. This is risky, even in a bull market, because there is to room for error—if the stocks pull back, or if the market hits a rough patch, there is no way to average down and buy more at a lower price.

- Why are you buying in? If you are making regular contributions to a fund or an ETF that you believe has the potential to grow over time, then you are an investor. If you are purchasing in the short-term (like a month, days, or even minutes) then you are making a guess as to how the market will perform. Even with all the fancy computer models, software, charts and analysis—it’s still a guess. An investor is also taking a risk, but that risk is over a much longer time horizon (like years or even decades).

Is one type of investor better than the other? Not really—many people are very good at timing the market, taking calculated risks and weighing in large positions. There are lots of gamblers out there, and many are successful. Problems usually arise when someone thinks they are an investor but behave like a gambler. It’s all about expectations. For example, if you are a successful day-trader, no amount of “investing” advice will help you change, since you are trading quickly, using the tools that you have at your disposal and (hopefully) making money doing it. There are lots of successful gamblers out there. But make sure that you know what you are doing before you start acting like one.

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I see so many people get upset when the market invariably drops 300 points in a single day. We live in an age where people want instant gratification—we have microwave popcorn that takes only minutes, a VCR (or Tivo) so you never have to wait for a TV show, and the internet makes information like the lastest news instantly available. Waiting is for suckers!

So when the market drops, many people panic and begin to sell their shares, which only lock in your losses. However, the smart long-term investor knows that the perfect time to sell their shares is… never.

You may aks, “Why buy shares at all if you are not planning on selling them?” Unless you are going to live forever, you are correct—since you can’t take it with you, obviously you are going to want to sell some shares someday! Warren Buffet, widely regarded as the world’s most successful investor, has popularized the term “buy and hold forever”. Critics are quick to point out exceptions to the mantra. For example, the Nasdaq market took a tumble in 1972 to 1974. It fell 60%. (Okay, 60% is more than a “tumble”). Critics have pointed out that it took until 1980, almost six years later, for the Nasdaq to break out.

But that’s my point: if you had sold out of your position in 1974, at the bottom, you would never have recovered your money. If you had bought and held “forever”, you would eventually have recovered your money and went on to make some pretty significant gains over the next twenty years.

Let’s take that scenario and run with it: in theory, the “buy and hold” investor would have valued the Nasdaq as a “buy” in 1972 and bought a position. Then it tanked only weeks later. But instead of jumping off of a bridge, consider this. If you considered it a “buy” in 1972, it would have been a “screaming buy” in 1974, when it was selling at 60% off regular price. So, the “buy and hold” investor would have bought more (and not sold any). By 1980, the “buy and hold” investor would be considerably up as the difference between 1974 and 1980 would be positive 60%. The 1970s guy would have averaged his way to wealth.

Remember that investing is more than just buying a chunk of stock and locking it away in your attic for thirty years. It’s continually adding to your portfolio through disciplined investing, reevaluating and monitoring. “Buy and hold” doesn’t mean “under any circumstances”, it just means a disciplined and patient approach to investing over the long run.

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As I sit in my igloo eating my reindeer pie and watching the hockey game, I often reflect on how great it is to be Canadian. We have electricity, running water, and my town even has access to a computer, thus enabling me to write this blog post. Actually, the picture I paint is more of a humorous stereotype than actual reality. (Although I do watch a lot of hockey). Canada is kind of like the United States in some respects (like free market, democracy, and consumers who like to spend money) and very different in other ways (more government-regulated industries, higher taxes, and universal health care).

If you are looking to diversify your portfolio, one of the best ways to do it is to pick stocks that are geographically diversified. Canada offers one of the best industries to invest in, and it could be very attractively priced considering the sub-prime mortgage meltdown that has plagued the U.S. recently.

I am referring to Canadian bank stocks. “Financial services?!” you may cry in disbelief. However, I ask that you consider the following:

• Many Canadians have never heard of “sub-prime” mortgages before now. Many of us didn’t even know such a product existed—all Canadian mortgages are either 10% down or are backed by mortgage insurance to protect the banks. This means that the Canadian banks have very little exposure to the sub-prime crisis in the U.S, and very little chance that defaulted mortgages will financially impact Canadian banks.
• The Canadian banking industry is regulated. There are only six big banks in the entire country: TD Canada Trust, Royal Bank, CIBC, Bank of Montreal, Scotiabank, and National Bank of Canada. This industry has high barriers to entry.
• The banks are all profitable. Bank of Montreal and Royal Bank announced earnings over the past year that were so high, they have become a source of embarrassment for the company. There has been some public pressure for the banks to reduce their user fees because the bank’s earnings have been almost ridiculously high.
• Canadian banks pay a regular dividend. The earnings for the big banks are steady and somewhat predictable, and this has resulted in ever-increasing dividends over the years. Royal Bank, for example, pays a 3-4% dividend—and it’s more than doubled in the past 5 years.When a quality company’s stock is dragged down by the overall market or unrelated factors, it could be a great bargain. For many Canadians, the bank stocks form a core holding in almost every major portfolio because of their cash-generating attributes and relatively low risk. With the sub-prime mess in the U.S., Canadian big banks could be just the thing for that conservative section of your portfolio.

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The spot price of uranium had a spectacular run over the last few years, heading from a price of around $20 per pound in 2005 to a peak of almost $140 per pound only two years later. Many uranium companies stock prices mirrored this trend, exploding up in price over the past 24 months before sharply selling off in the summer of 2007.

What does this mean for the average investor? Should uranium be considered as part of your portfolio? When I say “uranium”, just what do I mean?

The demand for the actual uranium mineral is expected to rise considerably in the next 20 years. This is due to increasing global demand, primarily from nuclear reactors. With environmentalists continually pushing for a cleaner source of energy, uranium has become seriously considered by many countries as a viable “zero emission” energy source. (The nuclear waste is another issue altogether, but nuclear energy does not create greenhouse gasses like other energy sources). China has recently announced that they plan to build about 30 new nuclear reactors over the next 15 years. What’s so attractive to uranium investors is that once the billions of dollars have been spent on the plant, the input cost of the actual uranium is a very small factor in the overall cost of the energy produced. The nuclear power plant can’t use an alternate source of fuel. It must buy uranium. And China could be on track to become biggest energy consumer in the world over the next 20 to 50 years.

There are some different ways to play uranium, but all of them have one thing in common: a very long-term focus. If you are an investor in your fifties and looking to retire in the next 2 years, look to safer and more conventional securities. However, if you have a 10-year time horizon (or longer) then you should think about jumping on board one of these plays.

1) Uranium Focused Energy Fund - This mutual fund is listed on the Toronto Stock Exchange and holds securities related to the uranium and general energy sector. It was initially offered in March 2007—right before the Uranium spot price took a huge tumble. It’s NAV (net asset value) price hovered under $10 before plunging to $6.21 in August, but it’s back to almost $8 as of November 15^th.

2) Uranium One, Inc. (TSX: UUU) - This company has mines in South Africa, Australia, Canada and the U.S. It was trading at around $26 in the summer before the spot price collapsed; it now sits at around $9.

3) Paladin Energy Ltd. (TSX: PDN) - This company operates mines in Nambia, South Africa and also Australia. The stock is very volatile, having fluxed from $5 to almost $10 over the past 12 months.

4) Uranium Participation Corporation (TSX: U) - If buying the actual uranium is more your thing, then consider UPC. This investment fund basically holds physical uranium. It’s NAV (net asset value) fluxes as it’s value increases (or decreases) in the open market.

Many of these stocks fluctuate with the actual spot price of uranium. The website www.uxc.com gives weekly updates to the market price of uranium, which could in turn affect the price of uranium companies.

In all likelihood, uranium is NOT ready to explode any time in the next 12 months. However, if you are kicking yourself for missing the last incredible run that uranium had, keep an eye on one or two of these plays as they may run again when they fall back in investor’s favor. Typically, investors will not buy stocks that have been beaten down… and then after they rise again, people shout, “if only I had bought earlier!” Remember to think long term.

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