Evelyn Jacks: The best ways to put your money to workPosted: June 20, 2012
Wondering where to make your next investment? You're not alone. The current investment climate is stormy and that makes decision-making difficult. However, two important clues come from recent reports: first, taking a global view is critical in today's environment and, second, debt management is key to positioning your investments for future growth.
The G20 leaders meeting in Mexico recently confirmed that Greece should stay in the euro zone. But that doesn't mean the euro zone crisis is resolved. The World Bank believes Europe's struggle will continue as it shoulders its way through a prolonged financial crisis, dampening global growth. Nor will developing countries offer relief, as the World Bank warns that they, too, face a long period of financial market volatility and weaker growth. Against this reality, the World Bank has lowered its forecast for global growth in 2012 to 2.5%.
IHS Global Insight, whose Country Intelligence report provides daily analysis of world events, shares the World Bank's pessimism. It has downgraded the euro zone's outlook to a recessionary -0.1% for 2013. Continued uncertainty on whether Greece stays in the euro zone, which analysts at HIS Global Insight doubt, extends concerns that the break-up of the euro zone could trigger yet another global financial crisis.
The IHS Global Insight report, moreover, puts a strong emphasis on debt management. A good way to position for growth in this climate, it says, is to focus on building strong balance sheets. This is important advice for individual households, as well. In today's fragile economic recovery, debt management is as important as choosing the right investments. It may well be that paying down potentially unmanageable debt is a smarter use of your money than investing in unpredictable markets.
There is another important risk-management tool used to protect accumulated wealth that is not making the headlines today: tax efficiency. Taking a tax-efficient approach to investing ó splitting income, using losses wisely, transferring assets to family members at the right time, managing tax on accrued gains ó all can add significantly to the ultimate returns on your investments. So, if you are venturing into the marketplace, or considering ways to protect your wealth, position your investments properly for tax efficiency. That way, when the markets return to normal, your portfolio will be ready to reap after-tax results.
It's Your Money. Your Life. When making plans to grow your personal wealth, put as much focus on your debt-to-asset ratio as you do on your return on investment (ROI). Then, employ a tax-efficiency strategy to move forward in these stormy seas.
Evelyn Jacks is president of Knowledge Bureau and founder of the Distinguished Advisor Conference, now in its ninth year. This annual event attracts hundreds of top advisors from across Canada to discuss recent trends in economics, tax, investment and retirement and estate planning.