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Investing in emerging markets

Emerging market investment

As Canadian investors navigate the dynamic landscape of global markets, the question of whether to include emerging markets in their portfolios looms large.

Historically, investing in emerging markets has been met with mixed results, often underwhelming compared to more established counterparts. But will this sector continue to underperform? Or is now the opportune time for it to start to shine? Here are some things to consider:

Historical performance

Emerging markets, encompassing economies in Asia, Latin America, Africa, and the Middle East, have historically exhibited high growth potential but also heightened volatility. Investors have approached these markets with caution due to concerns about political instability, currency risks, and varying levels of market maturity.

In the past, emerging markets have faced challenges ranging from economic crises to geopolitical tensions, influencing investor sentiment and performance outcomes. However, recent years have seen a shift in the global economic landscape, prompting a reassessment of the potential for emerging markets to deliver substantial returns (but not without a continued level of elevated risks).

Let’s take a look at the pros and cons of investing in this asset class and some things that you should consider before jumping in.

Current economic landscape

Several factors contribute to the changing dynamics of emerging markets, making them increasingly attractive to investors:

1. Technological advancements—Emerging markets are experiencing rapid technological advancements, fostering innovation and economic growth. As these economies embrace digital transformation, opportunities for investors in sectors such as technology, e-commerce, and fin-tech are on the rise.

2. Demographic dividends—Many emerging markets boast young and growing populations, creating a demographic dividend that can fuel economic expansion. A burgeoning middle class with rising purchasing power presents opportunities for companies tapping into consumer-oriented industries.

3. Infrastructure development—Governments in several emerging markets are prioritizing infrastructure development. Investments in transportation, energy, and communication infrastructure not only drive economic growth but also offer avenues for foreign investors to participate in these projects.

4. Globalization and diversification—The interconnectedness of global markets has increased, making it imperative for investors to diversify portfolios. As emerging markets become more integrated into the global economy, Canadian investors are exploring these markets as a means of diversification.

Risks and challenges

Despite the potential opportunities, investing in emerging markets comes with inherent risks and challenges.

1. Political and regulatory risks—Emerging markets may face political and regulatory uncertainties that can impact investor confidence. Changes in government policies, currency controls, and geopolitical tensions can create volatility in these markets.

2. Currency risk—Currency fluctuations can pose risks for investors in emerging markets. Sudden changes in exchange rates may affect the value of investments denominated in local currencies.

3. Liquidity concerns—Some emerging markets may have less developed financial markets, leading to lower liquidity. This can affect the ease of buying and selling assets and may result in higher transaction costs.

4. Corporate governance—Governance standards in emerging markets can vary, and some companies may lack transparency and adherence to international standards. Investors need to carefully assess corporate governance practices to mitigate risks associated with unethical conduct.

Is now the time to invest?

The decision to invest in emerging markets should be based on a careful assessment of individual risk tolerance, investment goals, and time horizon. While there are compelling reasons to consider allocating a portion of a portfolio to emerging markets, investors should approach this decision with a strategic mindset.

1. Diversification benefits—Including emerging markets in a well-balanced portfolio can enhance diversification. As these markets often have a low correlation with developed markets, their inclusion may contribute to risk reduction.

2. Long-term growth potential—Emerging markets, driven by demographic trends and technological advancements, hold considerable long-term growth potential. Investors with a horizon spanning several years may benefit from the compounding effects of growth in these economies.

3. Cautious pptimism—While the potential for outperformance exists, a cautious approach is advisable. Investors should conduct thorough research, stay informed about geopolitical developments, and consider a diversified approach that encompasses various emerging market regions and sectors.

The question of whether investing in emerging markets will continue to underwhelm or if it is poised to outperform is multifaceted. The evolving economic landscape, driven by technological advancements, demographic shifts, and globalization, presents new opportunities for Canadian investors. However, the risks and challenges associated with these markets require careful consideration.

Investors seeking to explore emerging markets should approach the decision with a balanced perspective, acknowledging the potential rewards while mitigating risks through thorough due diligence and strategic asset allocation.

Consulting with qualified financial planners and staying informed about global economic trends will empower investors to make well-informed decisions in the pursuit of a diversified and resilient investment portfolio.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.





Use RRSP contribution deadline time to reassess you finanical situation

RRSP deadline looms

As the RRSP deadline looms on the horizon, the usual sense of urgency and stress tends to envelop the conversation.

I have written about the advantages of RRSPs many times and likewise discussed the habits of many who wait until the deadline, instead of contributing evenly throughout the year. So instead of repeating that (very wise) rhetoric, I’ll take a different approach this year.

What if we reframed this impending deadline (Feb. 29 this year), not as a stressful countdown but rather as a golden opportunity to reassess your financial priorities and reimagine your financial future?

The RRSP deadline, traditionally perceived as a source of stress as individuals scramble to maximize contributions, could instead be seen as a natural checkpoint for a comprehensive financial self-evaluation. Instead of fixating solely on the race to contribute before the clock runs out, Canadians can use this time to reflect on their overall financial health, goals and spending habits.

One of the primary advantages of the RRSP deadline is it compels individuals to take a closer look at their financial priorities. It prompts a pause in the hectic rhythm of life, allowing for a deliberate examination of where hard-earned money is going and where it could be more effectively directed. It's an opportunity to ask critical questions, such as are your financial goals still aligned with your life aspirations? Are you allocating your resources in a way that brings you closer to your dreams?

Reassessing financial priorities in the context of the RRSP deadline involves more than just calculating contributions and tax benefits. It's about crafting a financial roadmap that reflects your values, ambitions, and the life you envision for yourself. Use this moment to redefine what financial success means to you and reallocate your resources accordingly.

The RRSP deadline also invites a deeper examination of short-term and long-term financial goals. Beyond the immediate pressures of contributing before the deadline, consider the bigger picture. Are you saving enough for emergencies? Do you have a strategy for major life events, such as buying a home, starting a family, or launching a business? This reflection can lead to adjustments in contribution plans that better align with your evolving financial objectives.

Moreover, the psychological impact of the RRSP deadline should not be underestimated. The looming date can create a sense of financial anxiety and a fear of missing out on potential benefits. By shifting our mindset, we can turn this perceived stressor into a catalyst for positive change. View the RRSP deadline as a friendly reminder to take control of your financial narrative rather than a source of pressure.

Reimagine your relationship with money by considering how your spending habits align with your values and aspirations. Are there areas where you could cut back to redirect funds towards goals that truly matter to you? Embracing the RRSP deadline as an opportunity to reassess and realign your financial priorities allows for a more mindful and intentional approach to money management.

Furthermore, Canadians can use the RRSP deadline as a catalyst for learning and growth. Take the time to educate yourself on investment strategies, explore new financial opportunities, and seek advice from professionals. The deadline serves as a yearly reminder to continuously evolve your financial literacy and make informed decisions about your money.

As the RRSP deadline approaches, it's time to shed the stress associated with the ticking clock and embrace it as a moment of financial reflection and re-imagination. Use this opportunity to reassess your financial priorities, realign your goals, and take control of your financial narrative.

By approaching the RRSP deadline with a mindset of mindfulness and intentionality, Canadians can turn what is commonly seen as a stressful countdown into a powerful catalyst for positive financial change.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



Pros and cons of making your will online

Your will in the cloud

The advent of online Canadian wills has revolutionized the landscape, addressing many of the shortcomings of older DIY options.

These platforms provide accessible and user-friendly interfaces, allowing individuals to create legally sound and customized wills from the comfort of their homes.

But much like any other new product or service, the utilization of these new estate planning solutions is not without some risks and it is important to fully understand the pros and cons of these options:

Pros of online Canadian wills:

1. Accessibility and convenience: Online wills are highly accessible, offering the convenience of creating a will at any time and from any location with an internet connection. This accessibility is especially valuable for those with busy schedules or mobility challenges.

2. Legal guidance: Reputable online will platforms often provide step-by-step guidance, ensuring users understand the legal implications of their decisions. This guidance helps individuals navigate complexities, consider tax implications, and create a more robust estate plan.

3. Dynamic updates: Online wills typically allow for dynamic updates. Users can easily make changes to their wills in response to life events, ensuring that the document remains current and reflective of their wishes.

4. Cost-effective: Online will services are generally more cost-effective than hiring a traditional estate planning attorney. This affordability increases accessibility for individuals who may have previously found professional legal assistance financially prohibitive.

5. Accessible legal expertise: Some online platforms offer access to legal professionals who can answer questions and provide guidance. While not a substitute for personalized legal advice, this feature enhances the overall user experience and addresses concerns about the lack of professional input.

Cons of online Canadian wills:

1. Lack of personalization: While online wills offer some customization options, they may not fully accommodate unique family dynamics or complex financial situations. Individuals with intricate estates or specific requests likely still require professional legal advice to ensure their wills align with their intentions.

2. Potential for misinterpretation: The absence of face-to-face interactions with a legal professional may lead to misinterpretations or misunderstandings. Users might misapply legal concepts, leading to unintentional errors in their wills, which could lead to disastrous consequences with their estates.

3. Security concerns: While reputable online platforms prioritize security, there are concerns about the storage and protection of sensitive personal information. Users must choose platforms with robust security measures to safeguard their data.

The evolution of online Canadian wills has significantly improved the landscape of DIY estate planning, offering accessibility, guidance, and affordability. While these platforms address many of the drawbacks associated with older DIY options, it's crucial for users to approach them with a clear understanding of their limitations.

Online wills serve as a valuable tool for individuals with straightforward estates and relatively uncomplicated financial situations. However, for those with intricate family dynamics or complex financial portfolios, consulting with a qualified estate planning attorney remains the gold standard to ensure the creation of a comprehensive and legally sound will.

Ultimately, the decision to use online Canadian wills should be informed by the complexity of one's estate and the need for personalized legal expertise.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.





Is now the time to jump into cryptocurrencies?

The Bitcoin market

The world of cryptocurrency has witnessed its fair share of ups and downs, with Bitcoin, the pioneer of the digital asset class, leading the charge.

After a remarkable bull run, Bitcoin experienced a notable fall, only to demonstrate its resilience with a recent recovery. The approval (for the first time ever) of a Bitcoin-based exchange-traded fund (ETF) in the United States on Jan. 10 has further stirred the waters, leaving Canadian investors contemplating whether now is the opportune moment to dive into this dynamic asset class.

For those of you considering whether this type of investment is appropriate for your portfolio, I’ll break down what has happened to date and some of the key points to consider before jumping in.

The fall and rise of Bitcoin

Bitcoin's journey has been marked by unprecedented volatility. In 2021, the cryptocurrency reached new heights, surpassing the $60,000 (US) mark in the spring. However, the latter half of the year saw a significant correction, with Bitcoin's value dropping to around $30,000 in the summer months.

Several factors contributed to Bitcoin's fall, including regulatory concerns, environmental criticisms related to energy consumption, and market sentiment shifts. Investors who had enjoyed the earlier bull run found themselves facing a period of uncertainty and heightened market fluctuations.

Toward the end of 2021 and into 2022, the cryptocurrency staged a recovery, climbing back toward the $60,000 mark before an even bigger drop later that year, bottoming out just above $16,000. That demonstrated both the enduring appeal of Bitcoin and the continued volatility that comes with it.

Most of 2023 saw a slow but steady recovery until the fall, when the value started climbing steeply again.

The game-changer—U.S. approval of a Bitcoin ETF

A significant development in the cryptocurrency space was the approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC). The launch of a Bitcoin ETF in the United States is seen as a game-changer, providing traditional investors with a regulated and accessible way to gain exposure to Bitcoin without directly holding the cryptocurrency.

That approval was a milestone for the cryptocurrency market, potentially opening the door to increased institutional involvement and mainstream acceptance. The ETF structure allows investors to buy and sell shares on traditional stock exchanges, offering a level of familiarity and ease that may attract a broader range of market participants.

The big question: Should investors on the sidelines jump in?

With Bitcoin's recent recovery and the U.S. approval of a Bitcoin ETF, investors may be considering whether now is the right time to venture into the world of cryptocurrency. Here are some of the key considerations to consider before making that decision.

1. Volatility awareness: Cryptocurrencies are known for their volatility, and Bitcoin is no exception. While the potential for high returns exists, so does the risk of substantial losses. Investors should be prepared for price swings and assess their risk tolerance before diving into this asset class.

2. Regulatory environment: The regulatory environment for cryptocurrencies is evolving. Canadian investors should stay informed about regulations governing cryptocurrency investments in their jurisdiction. Regulatory developments can impact market sentiment and the overall stability of the cryptocurrency market.

3. Long-term vs. short-term perspective: Investing in Bitcoin or other cryptocurrencies requires a clear understanding of one's investment horizon. While short-term price movements can be unpredictable, some investors view Bitcoin as a long-term store of value, akin to digital gold. Deciding on an investment strategy aligned with personal goals is crucial.

4. Diversification strategy: Cryptocurrencies can play a role in a diversified investment portfolio. However, it's essential to consider the proportion of the portfolio allocated to this asset class. Diversification helps spread risk and balance overall portfolio performance.

5. Due diligence: Conduct thorough research before making any cryptocurrency investments. Understand the technology, market trends, and potential risks associated with each digital asset. Knowledgeable decision-making is key to navigating the complexities of the cryptocurrency market.

6. Accessibility: Canadian investors can access cryptocurrencies through various platforms, including cryptocurrency exchanges and investment products like ETFs. Choose reputable platforms with strong security measures and regulatory compliance.

7. Global developments: Keep an eye on global developments that may impact the cryptocurrency market. Market sentiment, regulatory changes, and technological advancements can all influence the performance of Bitcoin and other digital assets.

The fall and recovery of Bitcoin, coupled with the recent approval of a Bitcoin ETF in the U.S., have reignited interest in cryptocurrency investments. Investors contemplating entry into this dynamic asset class should carefully weigh the risks and rewards, considering their risk tolerance, investment horizon, and overall financial goals.

While cryptocurrencies offer the potential for diversification and growth, they come with inherent volatility and regulatory considerations. Staying informed, conducting due diligence, and adopting a strategic approach are essential for navigating the cryptocurrency landscape.

As the market continues to evolve, investors should approach cryptocurrency investments with a thoughtful and informed mindset, recognizing both the opportunities and challenges inherent in this rapidly changing space.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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