For investors, 2011 was a somewhat “choppy” year, with numerous ups and
downs
in the financial markets. So what can you expect in 2012?
As baseball Hall of Famer Yogi Berra once said: “It’s hard to make predictions
—
especially about the future.” These words are certainly applicable for anyone
wanting
an accurate forecast of the investment climate for 2012.
Yet we do know of some factors that may affect your portfolio in the months
ahead,
such as:
Strong business fundamentals —
In the past year, the European financial situation, the size of the U.S.
deficit and the U.S. budget debates tended to overshadow some fairly good news.
Canadian and U.S. businesses’ balance sheets were primarily strong, borrowing
costs remained low, and corporate profits were good — and over the long term,
corporate profitability is a key driver of stock prices. Heading into 2012,
these fundamentals continue to look positive, which may bode well for
investors.
Europe’s debt crisis — Greece’s
economic problems made news in 2011, but they weren’t the end of the story in
Europe. Italy, Spain, Portugal and Ireland also faced major financial
difficulties. And without definite solutions, don’t be surprised to see
intermittent, if short-lived, shocks to the markets.
U.S. election-year patterns — Historically, the U.S. stock
market typically rises during the year a U.S. incumbent president faces
re-election, which is the case in 2012. Coincidence? No one can say for sure if
the pattern will continue this year. This could impact Canadian markets since
others markets tend to follow those of the U.S.
Instead of trying to predict what will happen in 2012, consider the
following tried-and-true investment strategies:
Diversify your holdings —
Spreading your money among a wide range of investments can help reduce the
effects of volatility in your portfolio. Keep in mind, diversification alone
doesn’t guarantee a profit or protect against loss.
Don’t ignore your risk tolerance — Worrying excessively about
market fluctuations might mean you have too much risk in your portfolio. If you
do this, consider making changes.
Always look at the “big picture” — Financial markets
fluctuate. But by staying focused on your long-term objectives and making
decisions accordingly, you can help avoid overreacting to short-term events.
Just like other years, 2012 will undoubtedly have periods of turbulence. But
by making the appropriate investment decisions, you can remain on track toward
reaching your long-term financial goals.
Edward Jones, Member – Canadian Investor Protection Fund
