One very interesting question came from a member who asked whether there is any advantage to investing money in a prepaid funeral. So you can get a sense of how our Inner Circle works, I’d like to share this question, and our answer, with you.

Q: At 57 years old, it seems reasonable to me to lock in funeral costs at today’s prices and pay for it now. This makes even more sense since I can reasonably expect to live another 25 years. Funeral costs for any level of funeral have doubled every 10 years over the past 30 years, according to the brochure. Does this make sense to you?

A: This sounds like a consumer decision, but it’s really an investment decision, as well. When you prepay a funeral, you are investing money in a highly specialized fixed-return investment. You pay now, and get a fixed return (consisting of preselected funeral services) at an indeterminate point in the future — the few days or weeks after your death.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

Investing money: Prepaid funerals can conceal a host of future problems

The one advantage you get with a prepaid funeral is that you fix the cost. However, it’s easy to spot a number of disadvantages.

For instance, you don’t get any return on the money you’ve paid, though the funeral home (or the insurer) may hold your money for decades. Depending on the plan, you may be stuck with your initial choice of funeral home, even if its service has deteriorated. You may also be stuck with your initial funeral plan, even if it’s hopelessly out of date in relation to community standards or the personal circumstances of you or your survivors.

Knowing that you are largely a captive customer, the funeral home may drive a harder bargain on related services than it would if it had to win your business as a new customer.

Funeral prices may not rise as much as predicted

When you’re making a major purchase, it’s best to look beyond what it says in the marketing brochure. Remember, common sense alone can only take you so far. You need to base common-sense decisions on all available common knowledge. For instance, even if funeral costs have doubled every 10 years over the past 30 years, the rise may be due to special factors.

It may partly reflect the rising disposable income of the past 30 years. It may reflect a change in the ethnic mix — some nationalities prefer more elaborate funerals than others. It may reflect rising costs due to environmental regulations, or rising labour costs due to a shortage of qualified personnel. These and other cost-boosting factors may not all apply equally in the future, or at all. Some may reverse.

Before you prepay for a funeral, ask yourself if you’d buy other sorts of fixed-return investments from the same company, such as a long-term bond. If you can’t depend on the company to do something as simple as repay a loan, then why trust it to carry out your last wishes?

If you’re looking for authoritative advice on investment issues, or fundamental analysis of stocks you’re considering buying (or selling), you should join Pat McKeough’s Inner Circle. You will get Pat’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific advice about investing money. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “Following these 8 tips can go a long way toward ensuring your financial happiness.”

Over time, investors are bombarded with promises of lifelong financial happiness, some more legitimate than others. But there is no single magic formula for financial security. Instead, you should look at a series of useful steps that will help you secure your financial well-being.

Our approach begins with our time-tested 3-pronged strategy: investing money mainly in well-established, dividend-paying companies, spreading your money out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities); and avoiding or downplaying stocks in the broker/media limelight.

If you follow that up by investing money with a disciplined plan for saving during your working years, and selling your stocks as needed in retirement, you’re on the right track to optimal investment gains. Here are 8 tips to help you make that plan work most effectively.

1. Only buy bonds or other fixed-return investments if interest rates are high enough to be attractive. Don’t buy bonds just to “cut your risk.” After all, our 3-part advice already takes a lot of the long-term risk out of investing. Adding bonds to the mix will simply cut the volatility of your portfolio value in any given year. But it does so at the cost of increasing your risk of loss to inflation.
2. No matter how attractive they may seem, always take a skeptical approach to investing money in financial products that add an extra percentage point or more to your yearly costs. Make sure the expense is worth it.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

3. Be skeptical of advice that comes from advisors or institutions that sell insurance or other fee-heavy investment and financial products. The financial software they use naturally churns out investment plans that involve the kind of frequently-hidden costs we mentioned in point 2.
4. There is no secret investment growth hormone in insurance products, so our advice is that you should only buy what you need. For most people, this mostly this comes down to term life insurance for the main breadwinners in the family unit.
5. Before you start investing money in disability or income-replacement insurance, read all the fine print closely. Just as important, assume the insurance company will decide borderline cases in its own favour, since that’s often what happens. Viewed in that light, you won’t like what you find. That’s why they put it in the fine print.
6. In contrast, we believe you should be investing money as early as is practical of all registered savings plans—RRSPs, TFSAs, etc. RESPs are particularly attractive, due to the government grants that come with them.
7. Put off buying a house until you can afford one that you’re likely to want to live in for at least 10 years, if not 20 or more. Real-estate commissions and other costs of selling one home and buying another add up to a lot of money. Worse, it comes out of your after-tax income. You’ll be far better off financially if you instead keep that money invested at, say, 6% to 8%, all the more if you can do this on a tax-deferred basis.
8. Put off marriage and children until you find a potential mate you think you’ll want to stay with as long as you live. Of course, you may change your mind—nearly half of all marriages end in divorce.
   
   But before beginning a family, you need to recognize the economic cost of divorce. Supporting two households for a decade or two takes a huge bite out of your retirement savings. The current dollars themselves are a major drain. But you lose far more by missing out on an opportunity for decades of compound investment growth.

If you’d like me to personally apply my time-tested investment advice to your portfolio, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

If you’re relatively new to investing and want to learn more about how to trade stocks, joining an investment club could be a useful New Year’s resolution.

Be aware, however, that there are both benefits and drawbacks.

Investment clubs can offer social and educational benefits. They can be a good place to learn about trading stocks if you think that you would feel more comfortable learning about investments with others. And some clubs let you invest as little as, say, $50 a month.

But investment clubs also have hidden risks that can hurt your profits. That’s because they make decisions by committee, where responsibility for mistakes is diffused. When committees make mistakes, they sometimes make big ones.

In addition, investment clubs can produce unexpected personality clashes and unfortunate peer pressures. What’s more, decisions formed by group consensus sometimes take on an air of legitimacy and urgency that can ultimately cost members a great deal of money.

How to trade stocks: An investment club could lead you away from a sensible, conservative investing strategy

Here’s how you might be drawn away from a solid investment strategy in an investment club.

Let’s say you join a club that picks up on one or several investment themes or fads. You could feel pressure to do the same with your personal investments. (The risk with theme investing is that you could let the theme or fad become your overriding investment consideration—and that could distract you from other measures of value and risk).

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

Or your investment club could invest in ways that we don’t recommend. For instance, its members might prefer a sector rotation approach (where you underweight or overweight your holdings in certain sectors based on a forecast of the stage of the economic cycle, or other factors) or rely too heavily on technical analysis.

Our investment advice: Look for an investment club that follows a reduced-risk, conservative strategy like ours.

The best way to learn how to trade stocks with less risk within the framework of an investment club is to join a group whose philosophy has something in common with our three-part investing strategy. At TSI Network, our approach is to invest mainly in well-established, dividend-paying companies, to spread your money out across the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; and Utilities); and to avoid or downplay stocks in the broker/media limelight.

With this approach, you can avoid overloading yourself with stocks that are about to slump because of industry conditions or changes in investor fashion. You also increase your chances of stumbling upon a market superstar — a stock that does two to three (or more) times better than the market average.

In addition, if you do join or form an investment club, make sure that in the initial planning the group carefully creates and follows a partnership agreement and organizational by-laws.

You can find safety-conscious advice like this that shows you how you can achieve strong returns without unnecessary risk in our Canadian Wealth Advisor newsletter. And new investors can save $50.00 on a year’s subscription. Click here to get started right away.

Today’s tip: “How to be a successful investor by cutting down on your risk”

Many people come up with unrealistic answers to the question of how much risk is right for them. When they’re young and just starting out, many investors decide to abandon a prudent, conservative approach and speculate. They expect to turn a small portfolio into a big one in a hurry, and then move their money into boring, but more dependable investments. Here are several key points to remember:

• Heavy losses can be especially damaging for young investors: When you’re just starting out in any field, it’s easy to fall victim to ruses and snares that someone with more experience would spot right away. Later on, when you’ve learned how to be a successful investor, you’ll know better than to bid on an ugly painting just because it’s the work of a noted artist, or invest in a building that faces expensive repairs due to delayed maintenance, or buy a promotional stock due to rumours or touting.
  
  Note that when a young person loses money, the loss is doubly costly. You have the obvious, immediate loss. You also miss out on decades of profitable compounding that can be achieved with a better-quality investment.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

• Holding fixed-return investments can also be risky: Later in life, some investors make the opposite mistake. They decide in retirement that they are too old to assume any investment risk, and that they should put most, if not all, of their money in more conservative investments, specifically fixed-return investments and government bonds. They work out a budget that shows they can live with today’s 3% to 4% bond yields.
  
  It’s true that government bonds don’t expose you to any default risk. But it’s equally true that they are not always the best choice for lower-risk investing. Today, they are a particularly poor choice, because they leave you at the mercy of inflation and rising interest rates.
  
  Right now, the risk of an immediate rise in inflation and interest rates may seem small. But both remain at the low end of their historical ranges. So the next big move is likely to be upward. Meanwhile, taxes weigh particularly heavily on any interest income.
  
  A two-point cut in your rate of investment return, and a loss of the tax deferral available in stocks, can take an enormous bite out of your capital over a decade or two.
• Growing more optimistic as share prices rise is especially dangerous: Between youth and old age, many investors repeatedly make the mistake of growing more optimistic (or bullish) as share prices rise. This is the opposite of a sound investing strategy. It can leave you owning the riskiest portfolio of your life just when it can do maximum harm to your finances.

Our investment advice: Well-established companies are the key to profitable and lower-risk investing. Instead of moving between extremes of risk, investors will profit most — and with the least risk — by buying shares of well-established companies with strong business prospects and strong positions in healthy industries.

Of course, any company can run into unpleasant surprises. But well-established, safety-conscious stocks have the asset size and the financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions.

If you’d like me to personally apply my time-tested advice to your investments, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on how you can make the best investments for your portfolio. Each Investor Toolkit update gives you a fundamental piece of investment strategy, and shows you how you can put it into practice right away.

Tip of the week: “Insider trading is just one indicator when you’re looking for the best investments”

The value of insider buying and selling as a market indicator seems self-evident. After all, company insiders — officers, directors, or owners of 10% or more of a company’s stock — are apt to know more than outsiders do about what’s going on in their business.

Many advisors claim that they can find the best investments by studying insider data. But the deeper you look, the more you’ll find that this data leads to muddled conclusions at best. That’s why insider trading is only one aspect we consider when we’re looking for the best investments to recommend in our newsletters and investment services.

• Not all insiders have equal knowledge. It would help if you could categorize the clout that each insider has within the organization. You’d expect the CEO to have a better overall picture of things than the CIO (the chief information officer, who keeps the corporate computers running). You’d also want to grade the size of the transaction in relation to the insider’s personal wealth, and in relation to his or her stake in the company. You would also want to weigh the insider’s investing skills.

  Of course, if you look at insider trading data that closely, you’re down to a case-by-case basis. While you’re at it, you might as well look at whatever else you can find out about the company. That’s what we would recommend in any event. But it defeats the labour-saving purpose of using an indicator to find the best investments.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

• Insiders’ perception can be just as skewed as outsiders’. It pays to remember that insiders can delude themselves about their employer just as easily as outsiders. As well, insiders may sell for a variety of personal reasons that have nothing to do with the company. On the other hand, insiders only make substantial buys for one reason—they think the company has attractive investment appeal.

Our investment advice: Everybody wants to find the financial philosopher’s stone: the foolproof market indicator that can tell you when or what to buy or sell in 10 minutes a day or less. They will never succeed, because no such indicator can ever exist.

By design, market indicators restrict the information they include to a narrow range, and reject everything else. The market responds to virtually anything that can influence the business of a company or the economy, though its focus constantly shifts.

That’s why we say investment success flows from mainly investing in well-established companies and spreading your money out across the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities).

This may cut the excitement, but it will increase your long-term returns.

You can get our latest analysis, including our clear buy/sell/hold advice on dozens of Canadian stocks you may be considering buying in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on investing money. Each Investor Toolkit update gives you a fundamental piece of investment strategy, and shows you how you can put it into practice right away.

Tip of the week: “Our advice on 2 ways of investing money in the stock market”

Most investors place two types of orders when buying stocks: “market orders” or “limit orders.”

1. Market orders: A market order is an order to buy or sell a specific number of shares at the best price available when you place your order. Market orders are almost always filled within a very short period of time — minutes, if not seconds. However, you only learn the price you paid (for a purchase) or received (for a sale) after the order is filled. The market price may change, for or against you, between the time you place the order and when it is filled.
2. Limit orders: With a limit order, you specify the highest price you are willing to pay when investing money in a stock. The main risk here is that your order will go unfilled if there is no stock available at or below your price. This introduces a filtering mechanism that can cost you money, especially if you set your limit below the current market price.
   
   However, an unfilled order is much more likely with your best choices, since they are far more likely to shoot up faster than you guessed. But you’ll always get a fill on your worst choices; they’ll come down to meet your price, then go lower.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

Investing money: Let trading volumes help you decide between market and limit orders

In general, most investors should use market orders when buying or selling widely traded shares. That’s because the market-order risk of occasionally paying too much is more than offset by the limit-order risk of missing out on your best ideas.

When investing money in thin-trading shares, you may want to put a limit on the price you are willing to pay if you are buying (or the price you are willing to accept if you are selling). If so, set your limit on buy orders above the price of recent trades. It’s better to pay a little more or receive a little less than to miss out entirely on your best ideas.

If you’d like me to personally apply my time-tested approach to your investments, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

Today’s market volatility makes some investors wonder how much cash they should hold.

I can think of three reasons why you might want to sell some stocks and hold cash now or at any time.

1. You can’t sleep at night because you are nervous about the market outlook. In that case you should, as the saying goes, sell down to the sleeping point. This is less an issue of understanding the stock market and more about understanding your own risk tolerance.
2. You expect you will need to take cash out of your portfolio in the next year or two and you don’t want to risk having to raise cash by selling stocks at low prices.
3. You have some realistic reason to think stock prices will be substantially lower in, say, six months or a year. This is why most people take money out of their portfolio. Unfortunately they often get that pessimistic feeling at or near a market low.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

Numbers 1 and 2 are personal decisions. Number 3 is different.

Here’s how understanding the stock market and its role in your portfolio is key. Of course, at times you will guess right about a coming market downturn. But this urge to “go into cash” (as brokers refer to it) rarely appears at times that will pay off for you. All too often, investors give in to the urge to raise cash just when the market is near bottom. If you do that, you may wind up getting back in the market at higher prices. That can happen even if a downturn appears after you sell. After all, you won’t plunge back in the market just when prices hit bottom. You may instead sell more of your stocks.

I have to tell you that I know several investors who sold all their stocks within days of the March 9, 2009 market bottom. I tried talking them out of it and got nowhere.

Today’s low interest rates tone down a key risk factor, and I don’t see any reason for a huge upturn in rates. Low rates also minimize the return on T-bills and other cash-equivalent investments. So my view is that it doesn’t make a lot of sense to hold cash at this time.

If you currently have a large cash position, that doesn’t mean you need to rush or make snap judgments to get all your money into the market. Instead, take your time and weigh various investments to see which one is the best fit for the rest of your portfolio.

You can get our latest analysis, including our clear buy/sell/hold advice on dozens of Canadian stocks you may be considering buying in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

Every industry and group has its own special jargon. This specialized language always has the same purpose. It simplifies communications within the industry, and helps make insiders feel they are part of a tightly knit community. It also helps the group pursue its goals. It does that by shaping concepts so that they facilitate lines of thought and discussions that match the industry’s view of the world.

This natural human tendency has probably been going on ever since language began.

You may recall George Orwell’s classic Cold War novel, 1984. In the book, the totalitarian government that rules the English-speaking world has decided to replace English with an invented language called Newspeak. This new language uses lots of English words, but it defines concepts in such a way that forbidden ideas are clumsy, if not impossible, to express.

For instance, Newspeak has no word for “free” in the political sense, although there are ways to say, for instance, that a mattress is free of fleas.

How stock broker jargon can slant your investment decisions

You may have noticed that your stock broker sometimes uses unfamiliar words and phrases to describe investment concepts. Some of this stock broker jargon is simply shorthand that brokers use amongst themselves, to refer to familiar situations without having to explain the underlying concept. However, the concepts that these “broker-ese” words and phrases represent are just naturally conducive to furthering the goals of the brokerage business.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

If you find yourself thinking in broker-ese, you’ll naturally make assumptions that are in tune with the goals of your stock broker, and may be out of tune with yours.

Here’s an example: From time to time your stock broker may advise you to sell a particular stock you own because it represents “dead money.” This doesn’t mean there’s anything wrong with the stock or the company. Instead, your stock broker simply thinks the stock may only go sideways for a period of months or longer, producing no capital gains for you. So he naturally feels you should sell it and buy something with better short-term capital-gains potential.

To do so, of course, you have to pay one commission to sell and another to buy. You may also face some costs from the bid-ask spread. If you make money on the sale and the stock is outside your RRSP or other registered account, you’ll have to pay capital-gains taxes, which will leave you with less capital to reinvest.

Taking all that into account, putting up with a little “dead money” in your portfolio doesn’t seem so bad.

Besides, many stocks qualify as “dead money” much of the time. That’s because they go sideways over long periods; their biggest gains occur in unpredictable spurts. Risk is relatively low in a high-quality stock that is going through a “dead-money” phase, by the way. But profits can be spectacular when it comes back to life.

Building a portfolio for the long term — not avoiding “dead money” stocks — is key to investment success

Rather than trying to stay out of so-called “dead-money” stocks, it’s better to focus on building a portfolio that can produce a growing stream of dividends for you, plus long-term gains.

That’s your goal as an investor. It differs and often clashes with the goal of the brokerage business, which is to sell you investments.

You can get our clear investing advice, plus buy/sell/hold advice on stock market picks you may be considering buying in our Successful Investor newsletter. Click here to learn how you can get one month free when you subscribe today.

Tip of the week: “Too many stocks can hurt your returns.”

The right number of stocks for you to own depends in part on where you are in your investing career.

• The beginning investor: When they’re starting out, most investors have modest amounts of money to invest. Even so, our investment advice is that you should invest at least several thousand dollars at a time, even if this means you can only buy a handful of stocks. Otherwise, your broker’s minimum commission will work out to too high a percentage of your investment on each purchase.
• Pick at least one stock from each of the 5 sectors. At the outset, you should aim to invest in a minimum of four or five stocks. Our investment advice is to pick one from each of most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities).
  
  You can buy them one at a time, over a period of months or even years, rather than all at once. After that, you can gradually add new stocks to your portfolio as funds become available, taking care to spread your holdings out as we advise.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

• Add new stocks as your portfolio’s value increases. When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. If you’re married, it’s best to treat your family holdings as one big portfolio, even if you and your spouse keep your money separate. That way, you can be sure you aren’t operating at cross purposes, or investing too much of the family fortune in a single area.
• Our 3-part investment advice is key. When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1 million range, 25 to 30 stocks is a good number to aim for.
  
  Of course, you may fall a few stocks below that range, or go a few above it, particularly when you’re making changes in your holdings. That won’t matter if you follow our three-part investment advice: invest mainly in well-established companies; spread your money out across the five main economic sectors, and downplay stocks that are in the broker/public-relations limelight.

Our upper limit for any portfolio is around 40 stocks. Any more than that and even your best choices will have little impact on your personal wealth.

You can get our latest analysis, including our clear buy/sell/hold advice on dozens of Canadian stocks you may be considering buying in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

We think this would be a mistake. In fact, our investment advice is that you should keep at least one fifth of your portfolio in U.S. stocks. Here’s why.

The troubles that have stirred markets recently – like the downgrade in the U.S. debt rating – are much different from great house-price collapse in the U.S. in 2007-2009. Today there is no boom that could deflate and bring down the economy.

And while the economic recovery has slowed, businesses are piling up record-breaking hoards of cash.

"Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada": In this special report, Pat McKeough gives you his time-tested advice on how you can make more money from your investments and save thousands on brokers' fees and other expenses. Best of all, you can get a copy absolutely FREE. Click here to claim yours now.

Investment advice: Gridlock in Congress can be a good thing

During the tense debate on raising America’s debt ceiling this summer, it became clear that the Democrats are obliged to tone down their policies to get the Republicans to agree to any new legislation. Republican opposition could well lead to a state of gridlock in the U.S. However, our investment advice on this situation may surprise you. A state of gridlock can be a good thing, if it reduces uncertainty. And U.S. presidents tend to get a lot more market-friendly in the second half of their four-year term.

That’s especially so after they’ve lost control of one house of Congress and lost a lot of members in the other. In the November 2010 mid-term elections, of course, the Obama administration lost control of the House of Representatives and also lost much of its majority in the Senate.

Following those elections, the stock market went up, as if to prove our point about gridlock.

Investment advice: Now is a bad time to dump U.S. stocks

Aside from the U.S. economy’s long-term powers of recovery, we see exposure to both the U.S. dollar and U.S. stocks as valuable forms of geographic diversification for Canadian investors.

It’s also true that if the United States tackles its debt and deficit by cutting tax rates and eliminating tax gimmicks and incentives, the market and economy could turn around quickly.

That’s why we continue to recommend that you hold 20% to 30% of your portfolio in high-quality U.S. stocks.

As a member of TSI Network, you may have already seen “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.” If you haven’t yet read this free report, click here to download your copy today. I’d also encourage you to email the report to friends. It’s my “thank you” just for signing up for my free daily updates.