2006 WILL BE AN INTERESTING YEAR

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  It looks like the coming year will be an especially interesting one for investors. Consider the following:

Income trusts. Just before the government fell, the Finance Minister abandoned his threat to rein in the income trusts bandwagon. Now it is full steam ahead for the sector and no one knows where this will end. Prices have already rebounded sharply and seem poised to go higher. But there is a dark side to all this. More new offerings will be coming to market and some of them will be pure junk. We just witnessed an incredible meltdown in the case of FMF Capital Group which fell off a cliff within months of going public. The shares now trade for less than $1. There will be more such disasters so you will need to be extremely careful in your selections.

Dividend stocks. Dividend taxes will be cut no matter who wins the election. If the Liberals are returned, they will proceed to implement the plan laid out by Ralph Goodale last month. If the Conservatives win, they are already on record as favouring a dividend tax cut. So it will happen, one way or the other. That’s great news for dividend-paying stocks. Watch for many of these companies to increase pay-outs next year, thereby driving the share prices higher. Start loading up now!

Interest rates. They are going to continue to go up, so be ready for it. This is a good news/bad news story, depending on your perspective. By this time next year, the banks may be charging a prime rate of 6% or even more. Yields on five-year-GICs at the big banks should move up to the 3.5% to 4% range. Mortgages will cost more to carry. Bond yields will rise but bond prices will fall. It’s a tricky situation so be sure you understand all the ramifications.

The dollar. Will it never end? Our loonie keeps soaring! It’s great if you’re traveling to the States or the Caribbean for a winter holiday. It’s not so great if you own U.S.-dollar mutual funds. Look for more of the same in 2006.

As I said, an interesting year ahead. You’ll need to pay close attention!

HOW GOOD IS THE IWB?

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  People often ask me if the Internet Wealth Builder newsletter is as good as they have heard. I think it’s even better, but as editor and publisher I admit to a certain bias. So I prefer to let the facts speak for themselves.

In the latest issue, contributing editor Tom Slee updated his recommendations on insurance company stocks. Tom knows this sector inside-out as he managed pension fund money in the insurance industry for many years.

Tom has three active insurance recommendations right now. The first is Manulife Financial (TSX, NYSE: MFC) which he picked in August 2000 at $28.40. The stock closed on Dec. 9 at $67.65, so our readers have a capital gain of 138% to this point. The current annual dividend is $1.20 a share which means that original investors are enjoying a yield of 4.2%. That’s a terrific performance but Tom thinks there is more to come. He still rates the stock as a buy.

His second selection, in October 2000, was Sun Life (TSX, NYSE: SLF). It was trading at $29.85 at the time and closed on Dec. 9 at $46.16. So investors have a capital gain of 55% to this point and a yield of 3.4% based on the original price. The stock is still a buy.

Last October, Tom went back to the insurance well and chose Great West Life (TSX: GWO), trading at $28.40. It has since moved up to $30.17 and Tom thinks there is a good chance of a substantial dividend increase next year that could drive the share price higher. It’s still a buy.

Three insurance picks. Three winners! That’s how the Internet Wealth Builder performs, year after year.

Until the end of December, we’re offering you an opportunity to try the IWB for three months for a special price of $29.95 plus tax. We publish weekly, so you’ll be able to read a number of issues and see for yourself how good we are. And here’s a bonus. Your subscription will begin with the first issue of January but if you act right now we will send you our final issue of 2005 – a big double edition that is packed with valuable information.

Order right now by going to:

http://gordonpape.com/bookstore/productdetail.cfm?product_id=562

MUTUAL FUNDS TAX TRAP

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  Did you know that if you buy mutual fund units for an unregistered account in December you could find yourself on the hook for hundreds of dollars in unnecessary taxes? Many people make this expensive mistake every year. Don’t be one of them. Find out how to avoid the December tax trap by reading the article at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2406

ORDER NOW AND BEAT THE PRICE INCREASE

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  For many years, thousands of Canadians relied on my annual Buyer’s Guide to Mutual Funds for help in choosing the right funds for their personal needs. The book ceased publication after the 2004 edition, but we now offer an electronic edition that is regularly updated – Gordon Pape’s On-Line Buyer’s Guide to Mutual Funds. It contains reviews and ratings for more than 1,300 funds, with more added all the time.

Subscribers receive unlimited 24/7 access to the Guide and there’s more. We now publish several Special Reports each year that are sent free to On-Line Buyer’s Guide subscribers. These are sold separately for as much as $24.95. The next one will be ready early next year and is titled Best Funds for 2006. It will offer our top picks for the funds we believe will deliver the best combination of risk and return in the coming year.

Effective Jan. 1, we are raising the price of the On-Line Buyer’s Guide to $49.95 a year. But if you act right now, you can save $10 and beat the price increase. For more information and to place an order, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=72

Don’t wait. The offer expires at the stroke of midnight on Dec. 31.

DECEMBER'S SPECIAL BONUSES

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  During December, all new and renewal orders for our products will receive two special bonuses.

Bonus #1 - How to Invest in Income Trusts. Income trusts have taken off since Mr. Goodale’s decision to abandon the idea of taxing them. In recent days, the S&P/TSX Capped Income Trusts Index has reached all-time highs. Find out how you can benefit. This report contains all the information you need to choose income trusts that offer the best combination of low risk and reasonable returns. It’s a must-read for anyone who invests in this sector.

Bonus #2 - How to Choose Mutual Funds. If you own any funds that are not performing up to your expectations, this report could be worth a lot of money to you. It provides all the basic information you need to distinguish between good funds and bad ones and will greatly improve your chances of picking winners.

For a list of all our products and specials, visit http://www.buildingwealth.ca/Bookstore/index.cfm

SOME GOOD CANADIAN FUNDS

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  It’s time to start planning for 2006. That means reviewing your portfolio, seeing how well your mutual funds are performing, and making appropriate changes. To help you in the process, I’ve been doing research to find the funds I believe will do best in the year ahead. Here are three of my top Canadian equity recommendations. All are rated $$$$ in my On-Line Buyer’s Guide to Mutual Funds.

AIC Canadian Focused Fund. There’s not much to cheer about at AIC these days. The company has experienced heavy redemptions due to the poor performance of many of its funds, but this one is an exception. Manager James Cole has guided it to a fine one-year gain of 27.1% (to Nov. 30) through some judicious stock picking. The three-year average annual compound rate of return is 17.9%. The manager keeps the portfolio small, with only 10-15 positions. This requires a high level of due diligence in stock selection but Cole clearly has the smarts to pick winners. Risk is better than average for the category. This is one of AIC's best choices right now.

CI Canadian Investment Fund. This is one of the best Canadian equity funds around. Period! If you are a conservative investor who is seeking a fund that offers a classic low-risk/high-return combination, your search is over. This one fits the bill perfectly. It became part of the CI organization in July 2002 as part of the deal with Sun Life that saw all the Spectrum and Clarica funds moved into the CI camp. Wisely, CI retained Kim Shannon as manager and she continues to do a first-rate job and was recently honoured as Fund Manager of the Year by her peers. Her investment style is a conservative buy-and-hold value approach, with a focus on blue-chip stocks. Over the three years to Nov. 30, the fund posted an average annual compound rate of return of 18.2%, more than three percentage points better than the category average. In the latest 12-month period, the advance was 21.6%. The risk rating is much better than average. This fund is a good choice for a conservative investor who prefers a low-risk approach and it is especially well suited for an RRSP or RRIF.

IA Canadian Conservative Equity Fund. This has always been a solid, low-risk performer and its value style is especially well suited to the current investment climate. The portfolio is very blue-chip oriented, with an emphasis on Old Economy stocks, such as BCE, Fortis, Manitoba Tel, and banks. The management team targets companies with good earnings, book values, and steady dividends—all key factors in selecting value stocks. The fund held up very well in the bear market with the only losing year being 2001 when the value declined 2%. Since then it's been nothing but profits. One-year gain to Nov. 30 was 20.4%, well above average, and the three-year average annual compound rate of return was 16.9%. In fact, all performance figures going back two decades are above average. Not many people know about this fund, but it’s a worthwhile entry for conservative investors. The safety record is very good. This used to be a no-load fund but it is now sold on an optional front- or back-end load basis through investment advisors.

You can read more information about top-quality funds every month in Mutual Funds Update. For information go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=80

DIVIDEND TAX CUT WELCOME NEWS BUT…

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  Just before the good ship Liberal sank under the Opposition bombardment in the House of Commons, Finance Minister Ralph Goodale announced a cut in the tax rate on dividends from Canadian companies.

Even though we’re in an election campaign with no certainty that the Liberals will be returned on Jan. 23, the Canada Revenue Agency will implement the Goodale plan starting on Jan. 1. That’s good news for some investors, but others may find that this generosity comes with a price tag attached. To find out why, read the article at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2405

QUIZMAS TIME AGAIN

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  ‘Tis the season to be jolly and make merry. To add some extra fun to the occasion this year, get a copy of my little book Quizmas: Christmas Trivia Family Fun. It contains more than 700 head-scratching questions about the holiday season for both kids and grown-ups. It’s great for family games or to liven up cocktail parties.

Quizmas is available at all bookstores. We have also made arrangements with Amazon.ca to offer it on-line at a reduced price; to order go to http://www.quizmas.net/index.cfm?type=shop and click on the Amazon button under the book cover illustration.

While you are visiting the Quizmas site, try some of the questions yourself and see how you score. Our interactive quiz is at http://www.quizmas.net/index.cfm?type=quiz

Also be sure to visit our Christmas Memories page. Many readers have sent in their own personal reminiscences about Christmas and some are very touching. You’ll find them at http://www.quizmas.net/index.cfm?type=memory – read them and then send along your own.

With that, I’ll end this issue of Investing Today with my warmest wishes for a happy and healthy holiday season. See you in 2006