Balance is emerging as the key investing theme of 2010. It’s a topic that resonates broadly, from global fiscal negotiations to retirement planning around the kitchen table. Political leaders are struggling to find economic equilibrium. And small investors, meanwhile, are reviewing their portfolios in the search for a similar sense of stability.

Stock markets around the world have had a volatile first quarter, thanks in part to events in Europe. Portugal, Ireland, Italy, Greece and Spain — the so-called “PIIGS” countries — have racked up substantial debt, and doubt in their ability to meet their financial obligations has economists on edge. Governments are trying to strike a balance between reining in spending and providing stimulus and policy measures to promote growth.

Closer to home, many Canadians have been living beyond their means. Average household debt soared to a new record in 2009, rising by 5.7% to more than $91,000, as the Vanier Institute of the Family reported last month.

Ottawa is signalling that Cana-dians need to rein in debt, too, especially when it comes to real estate speculation. The feds have adopted new rules to deflate growing concerns we are in a speculative housing bubble. Mortgage refinancing measures have tightened and minimum down payments have increased. (See story on page 14.)

It’s all about finding the right balance among debt, expenses and investing for the future. In discussions with your clients, review how they are positioned to manage household debt as well as plan ahead to meet long-term financial goals.

Assess your client’s debt and debt-servicing costs. The Bank of Canada has signalled higher interest rates are coming later this year, so it’s a good time to consolidate long-term debt at a fixed rate while borrowing costs are near historical lows. Your clients should be poised to enter retirement debt-free.

But don’t forgo savings. With the RRSP season just concluded, it’s an ideal time to review asset allocation and how a portfolio is positioned to meet long-term objectives. The strategy is to find the right mix of growth-focused stocks and equity mutual funds to take advantage of the market’s upside while protecting on the downside with fixed-income securities and funds. For the bulk of investors, fund-of-funds managed investments that mix investment styles are a terrific balancing solution.

Similarly, money managers are reading the market tea leaves in search of balance. Fund managers at my firm, Franklin Templeton Investments Corp.
of Toronto, are optimistic. Although the greatest gains in most market turnarounds historically occur within the first year, our fund managers agree there is still money to be made.

We continue to see great opportunities in global markets. Nevertheless, we are keeping our expectations in check and striving for a balance between risk and opportunity. We have become accustomed to corrections. Some volatility is likely in 2010.

It’s a much more complicated investment climate than a year ago. Last year was a time of opportunity. Equities around the world were trading at or near historical lows in the aftermath of the 2008 financial crisis. In the 2009 turnaround, opportunistic investors did well. The Toronto Stock Exchange posted a 31% gain last year, its best return in 30 years.

Now, we are experiencing an event-driven market focused on short-term noise. The economic uncertainty of 2009 has passed but, in many ways, Canadians are waiting to feel the tangible impact in their daily lives. For investors, the key to achieving their investment goals is striking the right balance of debt vs savings, stocks vs fixed-income and ultimately, risk vs reward. IE



Don Reed is president and CEO of Toronto-based Franklin Templeton Investments Corp.