PLANNING FOR THE UNTHINKABLE

---

  At times, I have the impression that investors have dismissed terrorism as a meaningful threat to the value of their portfolios. Yes, markets react to high-profile attacks, but after a few days the jitters subside and attention turns back to more traditional concerns.

I hate to say it but there are times when we have to think about the unthinkable. A terrorism strike within North America continues to be a real possibility and if it should happen the impact on financial markets, and your investments, would be significant.

Last month, Dr. John Chipman, director of London’s world-famous International Institute of Strategic Studies (IISS), warned: “Al-Qaeda must be expected to keep trying to develop more promising plans for terrorist operations in North America and Europe, potentially involving weapons of mass destruction.”

Weapons of mass destruction! The prospect is so awful that no one even wants to contemplate it. But contemplate it we must, even as we hope and pray it will never come to pass. Just imagine for one moment what the impact would be of another 9/11 style attack, or a dirty bomb in the heart of a major U.S. city, or a chemical agent released in the New York City subway system. Clearly, the human toll would be terrible and leave us all shaken and grief-stricken. The blow it would deal to financial markets would be of secondary importance in that context, but it would be very real nevertheless. Even relatively small-scale attacks like a series of suicide bombers in U.S. shopping malls would rattle investors.

As individuals, there is little we can do to protect ourselves against such acts of violence beyond being vigilant. But there are some things we can do to reduce the financial fallout from such an event. It involves including the terrorism factor in our decision-making process.

Right now, for example, many people are concerned about the bond market because of expectations that interest rates will move higher. As a result, some investors are reducing the bond weightings in their portfolios. But where is the first place that people will run to in the event of a major attack? Bonds, particularly government issues. They are one of the perceived safe havens in such times. While stock markets slumped after 9/11, bond prices rose rapidly as the Fed aggressively slashed interest rates. The same thing can be expected to happen again.

That’s why selling all your bonds or bond mutual funds isn’t the smartest move. You need to prepare for all eventualities, not just the most obvious ones.

Of course, if nothing terrible happens the bond/interest rate scenario will probably unfold as most people expect with rates starting to climb as early as the end of this month. To protect yourself in that situation, stick with short-term government issues (maturities of five years or less). They are less vulnerable to price declines if rates rise and their principal is guaranteed by the Canadian or U.S. government, depending on what you buy.

Gold also tends to perform well during times of international crisis. Many people turned away from gold after the bull market that fuelled the big run-up in bullion prices in 2002-03 appeared to run out of steam shortly after New Year’s. But that situation could turn around in a hurry if terrorists succeeded in attacking the U.S. on home turf.

I’ve said it before, but it’s worth repeating – we cannot take anything for granted in these uncertain times. I know that makes managing your portfolio somewhat akin to walking a tightrope. But it’s something you must take into account.

Adapted from an article that originally appeared in the Internet Wealth Builder, a weekly e-mail newsletter that was recently selected as one of the top five investment letters in Canada by The Globe and Mail. For details on a no-risk three-month introductory trial for only $19.95 plus tax, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=356

MUTUAL FUND, RRSP GUIDES COME TO THE END OF THE ROAD

---

  It saddens me to tell you that my annual Mutual Funds and RRSP Buyer’s Guides will no longer be published. The 2004 editions of these books will be the last.

I produced my first RRSP Guide back in 1989, so it’s been a run of 15 years. The Mutual Funds Guide came a year later, and was the first of its kind in Canada (there were many imitators later but all have since disappeared). At the peak in the mid-1990s, the Mutual Funds Guide sold over 80,000 copies a year while the RRSP Guide sales were more than 50,000.

However, times have changed since the Guides first came out. The Internet has made current financial data available to everyone at the click of a mouse. The media has become much more attuned to the information needs of individual investors. The number of mutual funds offered for sale has multiplied more than ten-fold, resulting in much larger, more expensive books.

The final nail was driven in by the bear market. Over the years, I have noted that sales of the Guides ebbed and flowed with stock market movements. But I have never before seen anything as bad as the impact of the bear market, which drove many people away from mutual funds. By Canadian standards, the books are still best-sellers but they are no longer economically viable from the point of view of the time and research required to do a first-rate job.

I thank all of my readers for their interest and support over the years. And we are able to offer one last opportunity to add the 2004 editions to your bookshelf at a bargain rate. The publisher, Penguin Canada, has authorized us to offer remaining stocks to our readers at 70% off the suggested retail price. That means you pay only $8.95 plus shipping and taxes for the 2004 Buyer’s Guide to RRSPs (regular $30) and $9.65 plus shipping and taxes for the 2004 Buyer’s Guide to Mutual Funds (regular $32).

You’ll have to hurry, however. This offer expires at midnight on June 16 and will never be repeated. Also, supplies are limited, especially of the Mutual Funds Guide, so get your order in quickly to ensure you receive a copy.

To order the 2004 Buyer’s Guide to Mutual Funds, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=436

For the 2004 Buyer’s Guide to RRSPs, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=438

To buy the two books in combination for $18.60, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=439

If you prefer, you may call our toll-free number at 1-888-287-8229.

Note: All orders placed on-line are eligible to receive our free premium, 7 Mutual Funds You Should Own Now.

TIME TO SHIFT GEARS

---

  We are moving into a new phase of the investing cycle. Unless something dramatic happens to change the course of events, the next couple of years should feature strong GDP growth, rising interest rates, and higher inflation than we’ve seen recently. That means you need to revisit your investment portfolio and perhaps make some changes to prepare for what lies ahead.

For my views on what is likely to happen and what it all means, read the full story at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=1896

BASIC RULES FOR BEGINNING INVESTORS

---

  If you’re just starting to invest and feel that you don’t know enough about the subject, you’re not alone. I recently received a question from a couple in their twenties who asked: “Where do we begin?” You can read my advice to them at http://www.buildingwealth.ca/qa.cfm

Other questions answered this week deal with health care mutual funds, home equity loans, and RRIFs. And then there’s the one from the man who doesn’t have anything – except money!

FIDELITY’S FINEST

---

  The June issue of Mutual Funds Update features the start of a new series on the best products currently on offer from the most popular mutual fund companies. First up is Fidelity, the Boston-based giant that has become the eighth-largest group in Canada. We have selected seven funds from their list that are suitable for conservative, balanced, and aggressive investors. Here are our comments on two of them. All performance numbers are to April 30.

Fidelity Canadian Disciplined Equity Fund. This fund, which is on the Mutual Funds Update Recommended List, is indexed to the sector weights of the S&P/TSX Composite Index. This means that veteran manager Robert Haber does not need to concern himself about which sectors of the S&P/TSX Composite Index are likely to outperform and which are likely to be laggards. All he has to worry about is stock selection and his performance is evaluated on the basis of his picks. So far, the results have been very good. The fund shows a five-year average annual compound rate of return of 10.7%, almost twice the category average. The most recent one-year advance was 26.6%, slightly above average. The portfolio is heavily weighted to blue-chip stocks with lots of banks and corporate giants like BCE and EnCana. This is a good choice for investors who want to include equities in their portfolio but don’t want a lot of risk. For balanced investors.

Fidelity Canadian Opportunities Fund. This relatively new fund (launched in mid-2000) is off to a strong start. It’s an aggressively-managed Canadian stock fund that is run by one of Fidelity’s few home-grown managers, Maxime Lemieux of Montreal. The portfolio overlaps that of the companion Canadian Growth Company Fund to some extent although the latter is a small-cap fund while this has a broader base. Gain for the latest year was 36.6% and the three-year average annual compound rate of return is a very impressive 10.1%. Risk is right on the average for the category. We’re impressed by what we’ve seen from this one so far. For aggressive investors.

Mutual Funds Update is a monthly newsletter that provides advice on fund selection and strategies. For information on our three-month trial for only $9.95 plus tax and to read a free sample copy go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=357

INCOME INVESTOR – THREE MONTHS FOR $9.95

---

  INCOME INVESTOR – THREE MONTHS FOR $9.95

Since we launched The Income Investor last year, it has become an indispensable guide to income securities for many Canadians. Here are some of the comments we have received from readers:

• “We find The Income Investor very informative. We renewed our subscription on-line today.” – D.R. • “Clear, concise, and, for the amateur, very easy to follow.” – A.W. • “I find it to be the best of its kind, for my investment style.” – D.M. • “I love the way you keep it simple and interesting. I am also very impressed with your response to e-mails. WOW! – F.C. • “I’m very pleased with this publication and glad I am a subscriber.” – S.G.

If you would like to find out what all the praise is about, check out our no-risk introductory offer, which is now available for a limited time. You pay only $9.95 plus tax for three months of The Income Investor. Plus, you’ll get two free bonuses just for trying us.

Bonus #1 - We’ll send you the latest edition free, so you actually get four issues for the price of three.

Bonus #2 – We will e-mail a special premium titled 7 Mutual Funds You Should Own Now. It provides up-to-the-minute guidance on funds that are best suited for the changing economic climate.

For more details and to order, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=444

That wraps it up for June. Don’t forget that you are welcome to send a copy of this newsletter to anyone you think might be interested in it. New subscribers can sign up at http://www.buildingwealth.ca/InvestingToday/Newsletter.cfm. There is no cost or obligation of any kind.