Canadians are fortunate to enjoy one of the best lifestyles in the world.  The comfort and luxuries we are accustomed to are the envy of many other societies.

A new client came in for a meeting.  I asked her, “ what is the most important financial issue on your mind currently “ .  She answered jokingly:  “I am here to ensure that I don’t become one of those Wal-Mart greeters in retirement”. 

Not that there is anything wrong with being a Wal-Mart greeter but there is a big difference between having to be and wanting to be a greeter.  This may seem an extreme scenario but really, could this be the reality of some? 

To preserve your lifestyle, you need to plan and most importantly, save enough and early enough.  Many recent studies clearly show that Canadians do not save enough.  Most will need to continue working well past their 60s and will even see their lifestyle drop when the paycheques stops. The amount of money required to fund one’s lifestyle for 20, 30 and even sometimes 40 years, will be, for most, over $1million.  It takes time and discipline to achieve this.

Saving adequately and investing wisely is required to preserve lifestyle.  If it weren’t for inflation, cash and bonds would be all you need. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. We all have to turn to equities to provide the inflation protection we need for that lengt h of time.

Invest consistently to ensure that your nest egg grow with your lifestyle!  For most, an RRSP is the best place to save for retirement.  Make your contribution by March 1st 2010!

Last week we were worried about rampant inflation with too much government stimulus and this week we are worried that a correction may be underway as a result of not enough government stimulus; this after several weeks of amazing gains.  One thing is for sure, no matter what happens, we are going to be worried about something. 

The recession is far from over.  We are going to get more bad news which will continue to send jitters to the markets around the world.  If any correction is underway, it is normal after such a sharp and fast run up.  If you remember, no one anticipated the markets to start turning around before fall 2009 or even 2010.  This was a very fast run up after the deepest drop in a decade.  I think it is likely that we will see a very volatile summer and some drops before the recovery continues.  The markets never go up in a straight line , but again no one knows for sure.  Thus the importance to remain calm and focused.  Warren Buffet says that the number one reason for his investing success is his emotional stability.

In any event, the biggest threat, the one we must plan for, is inflation.  That is much more of a threat than a few more months of volatility.

As the governments around the world, especially the US, continue to pump money into the economy, some inflation is inevitable. Most economists don’t expect inflation to arrive anytime soon. But nobody really knows when it will appear or how bad its effects will be. In the meantime, we are suggesting that investors make sure that their portfolios are well positioned to w eather the impact of inflation to come.

We don’t see inflation as a problem this year and even perhaps for 2010, and some deflation is more probable in the short term. But inflation is a factor that we need to plan on. That doesn’t mean making radical changes to your investment portfolio. It means incorporating some classic inflation hedges—like commodities, real estate and making sure your fixed-income investments have relatively short maturities.

We recommend shorter-term fixed-income investments, because bonds with long maturities are most affected by rising interest rates.  Bonds can be a disaster in inflationary times.  People think that bonds are safe and can’t suffer a loss. This is wrong.  When interest rates rise, bond market value drops.  The longer the bond term, the bigger the drop. It can be quite shocking to see your “safe” investment drop in value.

It is also time to add commodities to your portfolio.  Commodity investments tend to perform well when there’s inflation because rising prices usually mean a stronger economy. That leads to increasing demand for raw materials to meet rising production and consumer needs. Don’t be tempted to make individual bets on oil or gold. Instead, buy a diversified basket of commodities.

We suggest 5 to 10 percent of a portfolio in commodities. Given commodities’ volatility, investors need to rebalance their portfolio periodically to make sure their position doesn’t balloon.

Real estate can also be a good way to hedge against inflation. Real estate investment trusts, which invest and own commercial and residential properties, are an easy and liquid way to gain access. Not surprisingly, REITs, which are required to distribute most of their income (generally from rent rolls) to shareholders, have been battered in the downturn. But they have shown signs of hitting bottom, and might be a good time to start building a position.

If you did not see us recently for a review, you will be receiving a portfolio review in the mail.  We want to ensure that your portfolio is well positioned for the recovery and inflation down the road.