Whether you are an investor or not, most of us are aware of the declines in all stock markets worldwide. We read about accounting scandals, the indictment of senior executives of large corporations and the general woes of the economy. Most of us are affected whether you own stocks directly or not.

Fortunately, there are different investment instruments available besides common stocks. Bonds, preferred stocks and income trusts offer a relatively stable income flow with less price movement than equity markets in the past several years.

Depending on ones age, income level and risk tolerance, an individual investment mix should be set up for any investor. Typically younger investors have a longer time horizon until their retirement years and can afford a higher level of risk in their Registered Retirement Savings Plans (RRSPs) as stock market returns usually outperform fixed income investments over the long term. Older investors have more immediate financial needs and should concentrate on preserving the capital value of their investments, while earning a level income from their investments.

If an investor's risk tolerance is low, they should concentrate on acquiring a balanced, defensive mix of investments. We would typically recommend good quality common stocks that offer an attractive dividend, combined with a mix of bonds, preferred shares and income trusts. This blend would provide income from the portfolio, with a price growth potential.

Income yields for government bonds (not to be confused with Canada Savings Bonds [CSBs]) range from 3.25% - to 5.5%, common stock dividend yields range from 3% - 5%, preferred shares are between 5% - 6%, while income trusts offer 7% - 10% yields. Many investors have been dissatisfied with the low rates available from CSBs and Guaranteed Investment Certificates (GICs) and are willing to accept a little price volatility in order to receive a higher income flow from bonds, preferred shares and income trusts.

Income received from common stock, preferred share and income trust investments have the advantage of preferential tax treatment for investors, relative to interest income from bonds and GICs, which are fully taxed. Conservative investment portfolios or individual investment selections have better chance of preserving an investors capital, while providing an attractive rate of income and do not have the added cost of paying management fees charged by mutual funds.

I would like to invite any questions readers might have about financial markets for future articles. Please contact me either by E-Mail or by telephone.

REIN LEE
Investment Advisor
E-Mail:
Telephone: 416-860-7758

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