I have owned quite a few stocks that have appreciated in value. One example is a pipeline that has increased 150 percent from the market bottom in March of 2009. Pipelines tend to be conservative, “sleepy,” investments; during bullish times these are less attractive because they are typically lower yielding. When the market is bearish, however, the public flocks to investments like these because they are dependable and relatively stable.

No one wants to sell something that is working, but I have advised clients to do just that. I hear things like, “Why are you selling that?” “Why would you sell my best performer?” “Are you crazy?” Good decisions often go against the grain of what the public thinks should happen. So, while it may seem like a good idea to hold onto a stock that has appreciated so greatly, and has not decreased in value, now is the time to sell.

The particular stock that I referred to above is getting toppy. It is reaching highs that are not sustainable, and a decrease is likely. Could it continue to rise in value? Sure, it could. But it is more likely that it will begin to correct itself and settle at a lower value. When it does it takes your profits with it. A big gain is inevitably followed by a stagnant period and usually a decline. Take your profits and move on.

If you want to invest in a country, you must get a better sense of where the country is, where it is going, what its people are doing, and the progress they are making. There is more to a country than its most recent market closing. Factors like the birth rate, infrastructure, and health care are influential. How many new millionaires are there in that country? Is the GDP growing? Are the people eating more meat? Are companies paying dividends or are they still in a stage where they are prospecting?

Knowing that credit and consumption is on the rise in Brazil; that there are now 210 televisions per 1000 people and 429 computers per 1000 people; and that a national pension system has been instituted can be helpful. Despite all of the above it is worth knowing that 90 percent of the country is jungle. It is very difficult to access. Transport is difficult along the coast, which has a very poor system of roads, and the river system does not lend itself to inter-city travel.

We tend to lump emerging markets together and Brazil, Russia, India, and China are traditionally classified in the same basket. But, if you take a moment to think about it, why would Brazil and Russia be in a basket together, any more than Canada and Australia would be? Another issue with emerging markets in general is that in your quest to diversify, you are not simply duplicating what you can get in Canada. Brazil is largely commodity based. They are strong in metals, food, and energy – all things that investors can find in Canada.

But an astute small business owner also knows that having all assets inside the firm probably isn’t a healthy practice. So they begin to invest externally. However the same thinking that was successful for the internal assets does not get applied to the external assets. These investments seem to get separated from each other and managed as if each of them was the only investment. A rental apartment here and another one there, cash at three different banks, home for this purpose and a cottage for that, stocks with Tom and bonds with Bill. Expenses are mingled and the assets are never connected into a big picture. It becomes very difficult to accurately gauge your total real net rate of return.

I would suggest that you look at your external investments as a whole, instead of separate entities. Put it all into one package in your mind. Managing your assets does not have to take over your life. Start by simply creating a spreadsheet. Many people are surprised to see what they have – or don’t have. If your home accounts for 56% of your wealth, put that on the spreadsheet. If stocks and bonds account for 6%, get it down. Put it all out there on a piece of paper so you can see it. This first step is always surprising.

1. The world is in a balance sheet depression resulting from a 40-yr period of debt accumulation. We will suffer rolling recessions for another 3-5 years.

2. There will be stock market rallies but they will not be long term like the good old days. It will still be possible to make reasonable returns in these periods but an investor must be nimble.

3. We are in a period of extreme over-indebtedness, and once there it takes a very long time to accept and then resolve the real problem. Extreme debt distorts the usual business cycle. We can’t simply look at growth and productivity numbers for the last 30 years and make similar forecasts going forward.

4. Somehow we arrived at a place where we believed that financial transactions by themselves create prosperity. They do not. Only hard work, creativity and risk taking do. High debt doesn’t encourage this.

5. Countries can’t inflate their way out of debt. We are past that point, as debt is too high. There may have to be a ‘great reset’ where defaults are accepted and everything is made whole again. This would not be a pretty picture.

6. Other than a reset the only way out of debt is austerity, which will require a lot of sacrifice. We are not used to sacrifice and will fight it. Austerity can only lead to low growth.

7. Risk taking is not rewarded when we are in an extreme debt condition. New business starts and big projects will not materialize as easily.

8. Work ethic in the developed world (USA, Europe) has declined. We do not want to accept this either. Levels of productivity and competitive capability will continue to shift dramatically.

9. Any more deficit spending makes the economy weaker with no gain in GDP. Note that GDP measures spending, not prosperity.

10. Similar to a business valuation involving future cash flows, the real value of government debt must equal the discounted value of future surpluses. Investors have to see a viable future revenue stream to service existing debt or they lose confidence. When confidence is lost monetary policies won’t matter at that point.

11. Despite predictions by experts there is still a continued gradual process towards lower or similar interest rates. They may go up briefly, but ultimately back down.

12. The developing or emerging markets do not share the problems above to the same extent. They will be calledupon to save the world. There are great opportunities here.

So what does that really mean?

Say you have $1 that you want to maintain over the course of 10 years. You do not want to grow the money, or lose it. You just want your dollar at the end of those 10 years. If you keep it in a drawer you will not maintain that $1. Even with the misleading rate of 3%, at the end of year one you have $0.97 and it steadily decreases from there until you have about seventy cents.

We must also realize that whatever the rate is, it will not be the one that applies to us. This is because inflation is specific to individuals, not groups. If you are elderly then the cost of drugs are critical. If you are a teenager you are more concerned the pricing of communication devices and music. If you own an electrical contracting business the cost of copper is on your mind.

It is easy for busy small business owners to focus solely on dollars needed today, but we need to always factor in all deductions. Besides inflation, you have taxes and fees. When choosing an investment strategy or pursuing a business opportunity, think ‘final ROI’. Using the top tax rate and the real inflation rate, a planned $100 profit is really less than $50. Ensure to build in extra income so your money is worth what you need it to be when you are ready to use it.

There is the general perception that bonds are safe; they are a stalwart soldier of the market that will help protect money even when stocks decline. Canadian bonds are currently considered to be about the safest in the world, but your portfolio may contain many other types of international bonds with different standards. The global market for bonds is many times larger than the market for stocks. A lack of control or oversight by banks, governments and institutions is always lurking.

Bonds are only guaranteed if they are held to maturity. They are usually purchased for portfolio balance or as an income producer. Either way, people are looking for stability.  However the increase in demand for bonds since the 2008 crash has been overwhelming, and many feel the next bubble will be US bonds. This is certainly a risk factor that investors need to be aware of.

And finally it is also important to remember that inflation plays a role in the value of your bond at maturity. Say, for instance, you purchase a $100 bond that is guaranteed to mature in 20 years. But in 20 years, that $100 will be worth less than it is now because of inflation.

Someone known as a financial planner is most likely to be found working for an independent firm that is not connected to the brokerage industry. They may even work out of their home. Their focus and training has been in the basic planning functions. This would include retirement, insurance requirements, and education funding. This advice can assist with clarifying goals and establishing a plan for achieving them. On the investment side they are limited in scope to services and products they can offer. Here you can find a selection of mutual funds or GICs but more sophisticated avenues are closed off. The planner’s income is primarily derived from sales of mutual funds and insurance products.

The other main group is usually referred to as Investment Advisors. Their focus and training has been on managing more in depth investment portfolios. Licensing provides access to a full range of opportunities and services. Individual stocks, hedge funds, IPOs, and flow-through shares are now accessible.  In terms of money, the Investment Advisor is able to offer higher yielding products at a lower cost. There is a big difference, for instance, between being able to own individual bonds and buying a costly mutual fund full of bonds. The IA also has more flexibility in generating income. The traditional method of trading commissions and the newer fee-based model are the two main options.

Question:  Diversification is important in anyone’s portfolio, and my economic planning model also calls for part of that overall portfolio to be invested in real estate.  You’ve been very successful on both the business end and the personal end, having owned income-producing properties.  What real estate strategy have you used over your career to build wealth?

Answer: I invested in my first investment property, a triplex, in 1973, re-financed and added more down payment. I bought several others in the next 5 years, including a 10-unit that I still own, and a 7-unit which I owned for 7 years. I sold it and bought a residential and commercial property, which I still own.  Over the next few years, I also bought several single family residentials, which I rented out.  I bought real estate in Dallas, Texas and in Edmonton. I realized that it was better to own properties closer to home where I could keep an eye on them.

Question: Part of your strategy has also meant helping other people build wealth.  Could you explain that?

Answer: I used to manage about 100 units for other clients.  I would sell them a property and then manage it for a number of years and those clients have all since sold their investments.

I have many clients who I have sold investment properties to that have been very successful in building their investment portfolio.  I have always put my clients’ interest ahead of mine and hence they have made some great investment.  I sometimes think,” I should have bought that for myself!”  I have been very lucky with my own investments, though, and I cannot complain.

Question: Is there an average age at which people tend to invest in real estate?

Answer:  I have had clients who in mid-age invested, and I have had clients in their twenties.  I had a client who, at age 25, bought a triplex, lived in one unit and rented out the other two.  She has done extremely well with this property.  She has since moved out, got married, bought their own home and still own the investment.

Question: What is the most important factor in real estate investment success?

Answer: My strategy has also always been and always will be – do not get over extended and only buy what you can afford.  Many people get way over extended, and if and when the interest rates change or they have some vacancy, they get into trouble.

Question:  Can you give us a few tips for managing rental properties effectively and avoiding overextension?

Answer: Always set at least 10% of your gross income aside for general maintenance and up keep.  Many years you will only spend 3% or 4% but then you need a new furnace, a new roof (major capital items) Where do you get the money?

When buying, allow at least 5% for property management.  Even though you may want to manage yourself, there may be a time when you want a manager and you have yourself so highly financed that you have no place to move.

Don’t buy something that has no chance of making a profit within the next 3 years.

Also, I have always thought one should have some diversification.  I have always had stock, mutual fund investments, and, of course, real estate.

Question: In this economy, do you still think real estate is a good investment?

Answer: I personally feel if you follow those ideas and be careful what you buy, you will be very successful investing in real estate.

As always, diversify your portfolio, research any market you are considering entering, and invest carefully.  You won’t get anywhere unless you play the game, but you have to remember your helmet.

• I have personally noticed a huge increase in the amount of local interest in Africa. Many Kingston groups have sprung up offering a wide variety of help. Local business people regularly participate in project missions. There is much more media coverage.
• There is a large scramble for resources. There are some 500 companies working within the African oil industry. No one even knows for sure how much oil there might be, but it is the number one destination for oil investment.

• Highly publicized wealth funds are now involved. China, for instance, has an investment vehicle for general public use, through which they have been dumping a ton of money into the continent. According to the Organization for Economic Development, global investment in Africa over the next two decades will exceed $1.25 trillion.
• Africa now has exchange-traded-funds (ETF) listed on stock markets, which always means that there has been an increase in investment demand. A common ETF that offers a diversified mix of companies in South Africa has an average annual return over 40% in the five years since it was launched. Another ‘frontier’ ETF that tracks companies throughout Africa and the Middle East appeared last year.

We have been hardwired to believe without question that owning a home is essential for our financial health and security. But consider this scenario. A young couple wants to buy a home for $250,000. It takes them 5 years to save the required 50k for the 20% down payment. This money must be kept safe and therefore cannot be invested over that time. Conversely another couple who continue to rent and invest that same 50k at 7% now have almost 60k. This is before the purchase even takes place.

After the purchase we tend to forget the constant repairs, improvement projects, taxes, selling commission, and most importantly of all the cost of your time. These items never get properly accounted for. When calculating returns from home ownership many years into the future, usually only the buy price, a couple of major projects, and the sell price are considered. We don’t want to know the real numbers. And don’t forget another important factor of a good investment – liquidity. You can’t just sell a home on a moment’s notice.

I’m not arguing against home ownership, per se. There are some good deals on short term fixer-uppers and longer term holds on the water. But most of us should view our home as you would view owning a pet. You love it and you want to take care of it, but don’t expect much besides love and affection in return.