The investment world is once again proving to be a complicated, messy, risky place for investors’ money. Other than under your mattress, is there anywhere safe – let alone profitable – to put your hard-earned dollars? In this month’s Virtual Water Cooler, Globe reporter David Parkinson chats via e-mail with a group of experts to consider the possibilities.
DAVID PARKINSON: We have Europe in sovereign-debt turmoil, the United States potentially just days away from its own debt default, worries about Chinese growth and Indian inflation, renewed nervousness about corruption in some major emerging markets, wobbling stock and commodity markets, and growing economic uncertainty. Is there anywhere that looks safe to invest right now? Geographically and/or by asset class?
BRENT SMITH, chief investment officer, Franklin Templeton Multi-Asset Strategies: Well Dave, given the preamble to your question, I’m wondering if farm land and munitions may be the preferred direction I take! But seriously, while many of the comments you made are issues not to be taken lightly, they are issues that investors will face for as long as they participate in the capital markets. What it really comes down to is what your time horizon and your risk tolerance is. … Twenty years from now, what the markets did in 2011 may have had a fairly minimal impact on your overall portfolio. I also think that in 20 years we will all look back and wished we may have had a bit more exposure to emerging-market equities.
PIERRE LAPOINTE, global macro strategist, Brockhouse Cooper: In the long run, given population trends and increasingly unstable weather patterns, it is relatively safe to expect food prices will be higher and that agricultural plays will do well. In the short run, our best (safest) bet would be the Swiss franc. With no sovereign credit concern, the country has proven a magnet for liquidity and [has] a responsible central bank.
DP: What about gold? Craig, I understand you still like it …
CRAIG ALEXANDER, chief economist, Toronto-Dominion Bank: I think one of the most dramatic changes in financial markets is that sovereign debt is no longer considered risk-free. If the U.S. government fails to lift the debt ceiling and should the U.S. government lose its triple-A credit status, it would lead to a much lower U.S. dollar and higher gold. Having said that, the most likely scenario (by a large margin) is that such an outcome will be avoided. So, investors shouldn't be unduly defensive. … For example, I don't think gold should be more than 5-10 per cent of portfolios. Just enough to act as a cushion if something goes terribly wrong.
PL: It seems everyone agrees that gold has to go up, but nobody agrees why. … Historically, bullion has been a safe haven, but is it really safe? Since 1997, fundamental demand (jewellery demand) for the yellow metal has continually declined. Meanwhile, financial demand has pushed gold prices from $300 (U.S.) an ounce to $1,600. Because there is a risk that this financial demand dries up if things do not turn out to be as terrible as everyone seems to think, I wouldn't consider gold to be safe.
