Expert: Steven Taylor - 10/15/2011

Question
Hello: I have a managed investment portfolio and am approaching retirement.I am writing to get your take on worst case scenarios vis a vis the Eurozone debt crisis which I've read could conceivably lead to a new global depression.How should a small investor position him/herself for maximum capital preservation? I have a mix of Canadian bonds and GICs,U.S. and Canadian stocks,with minimum exposure to European investments.Thanks!

Answer
Michael, the Eurozone crisis has had a worldwide effect on all the financial markets. The linkages between all the financial markets definitely means an investor in North America has to pay close attention to what is happening worldwide, as it will ultimately have a reflection on their investments. Fortunately, I think the European governments caught the crisis before it could cause widespread worldwide meltdown. I don't know if we have seen the worst of it yet, but I don't foresee a global depression as a result. Of course, the situation could change and other factors may come into play, but as of now, I think over the longer-term things will rebound.

I don't know your entire financial situation, so I cannot make specific recommendations or suggestions. However, from the information you provided, capital preservation should be quite high on your investment strategy list as you are approaching retirement. I would not vary much from your investment game plan regardless of the short-term world-wide economic effects. That includes timing the overall market, but certainly events such as the Eurozone crisis would make me reduce my exposure in the area. Swapping Euro investments for less volatile investments in the same category, for instance. However, since it seems you don't have much exposure to European investments at this point, I don't think the current crisis will have much effect on your portfolio.

I don't know the specific blend of your investments, but from your description it looks like you are pretty solid in terms of growth and conservative investments that satisfy your need for capital preservation for retirement. Really, the best advice I can give is one you are already following - keep a close eye on your investments. Unfortunately, this is one rule a lot of investors don't follow. It is probably rooted in the past, where the investment phrase "widows and orphans" was often used to define a stock so safe and guaranteed that a person could buy and hold it forever. Over the last 20 years, the market has taught us there is no such thing #as if there truly ever was#, and even the "best" stocks and financial instruments can crash and burn in a short period of time. I would not suggest people, especially those at or nearing retirement, become short-term traders, always switching and swapping investments, but as you are doing here, a solid dose of review and attention to a person's investments #and a willingness to make such changes when necessary# will go a long way to help meet a person's long-term financial goals.