There is the expectation of modest economic recovery in North America as the aggressive interest rate cuts of the U.S. Federal Reserve Board and the Bank of Canada in 2001 begin to provide a boost to North American economies during the first six months of 2002.

In addition to the lift from lower interest rates, a marked increase in government spending may be another spark to economic recovery. In the United States we look for several factors, including spending on defense, enhanced security and extended unemployment insurance benefits, and further reductions to personal income tax rates to stimulate financial activity.

This spending in the U.S. could add up to two per cent of U.S. Gross Domestic Product (GDP) in 2002. Canada may see similar expenditures on defense and security but also a reluctance to return to deficit spending. This may mean that spending in Canada will not be enough to boost our economy significantly. Still, as 85 per cent of our trade is with the U.S., Canada is poised to benefit from increased U.S. activity, providing that border management issues are resolved as expected.

Above all, the underlying fundamentals of the U.S. and Canadian economies are sound and that the recessions plaguing the third and fourth quarters of 2001 will come to an end in 2002.

Fixed Income: Still a Safe Bet and the Outlook is Good
Fixed-term investments are often overlooked when the impact of volatility is discussed in mainstream media. However, these relatively safe and secure investments are affected by large-scale economic disruption and assessing the future impact of market upheaval requires careful analysis by our portfolio management team.

Interest rate cuts of 2001 will go a long way toward stimulating global economic recovery in 2002. World central banks have coordinated efforts to lower interest rates in an attempt to counteract the global slow-down. If economic activity does pick up interest rates will likely begin to climb again.

Equities: Simply a Matter of Time
There are certain market segments that have good short term potential such as pharmaceuticals, utilities, and cable companies. Telecommunications is another sector where there could be market rebound. And the financial services industry in Canada has good prospects for long term growth.
It's not a matter of if, but when, markets will recover.

Resources: Poised for Growth
The price of oil has come under pressure in the short term. However, there is the potential for a disruption in the supply of oil, should military action spread to the Middle East. And the future looks bright for Canadian oil sand stocks. Since the U.S. must import 30 per cent of its oil, Canada's supply should command a premium price. Base metals should also do well in a recovering global economy, especially those used in construction and defense.

Portfolio Planning: Creating a Plan That's Right for You
Creating and implementing a complete portfolio strategy is one of the best ways to ensure that your investments continue to meet your objectives and provide long-term financial security. Your advisor can help you to create a portfolio that includes mutual funds that are well-diversified across industries, asset classes (equity, income and money market) and countries. Research has shown that asset allocation accounts for more than 80 per cent of a portfolio's return over the long term. In other words, the combination of equity, fixed-income and money market investments, and their relation to each other in a portfolio, is far more important than the selection or timing of individual investments.

The tried and true approach

Develop a financial plan and stick to it.
Maintain the appropriate asset allocation for maximum potential returns within your tolerance for risk.
Revisit your tolerance for risk and if it has changed, reassess the asset allocation in your portfolio.
Continue to focus on your long-term objectives – remember why you started investing in the first place.
Stay objective – volatile times call for clear thinking.
Annually review your financial plan with your advisor and rebalance your portfolio to match any changes to your objectives or tolerance for risk.
Buy and Hold: Still a Great Strategy
If you still have a number of years before retirement and you have contribution room in your RSP, today's low market valuations offer an opportunity to top up your equity investments at a good price. If you are closer to retirement, need your funds in the short term or just have questions about your investments, we also want to hear from you. Speak to your advisor for help ensuring that you are employing the right strategy to meet your short-term needs.

As always, if you have specific questions about your portfolio, call your advisor today.