Look beyond the banks for safe investments

We continue to recommend that all investors own at least two of Canada’s big-five banks – Bank of Montreal, Royal Bank, CIBC, TD Bank and Bank of Nova Scotia. These are key safe investments for a portfolio. But these should not be the extent of your financial holdings. It is also essential to diversity within each economic sector. Other types of financial investments, such as non-bank financial companies, should play a role in your portfolio.

Non-bank financial companies include property and casualty insurance companies, mutual fund companies, wealth management companies, mortgage lenders and more. It also includes life insurance companies. The best of these can be safe investments in a well-balanced portfolio.

Recently, Canadian life-insurance stocks have been held back by investor concerns that the recession will continue to hurt their profits.

As well, insurers use gains on their bond and stock holdings to cover future claims and make up underwriting losses. As a result, many insurance companies have suffered as the values of these securities have fallen, along with credit quality and stock markets.

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However, for that same reason, insurers stand to make significant gains as markets continue to recover, pushing up the value of their bond and stock holdings.

Many high-quality Canadian non-bank financial companies offer an attractive combination of growth and value, which makes them ideal as safe investments. One, in particular, stands out for us, so we highlighted it in the most recent issue of Canadian Wealth Advisor.

While all life-insurance companies have been hurt by the recession, Great-West Lifeco is still a leader in its field. It is focused in Canada, but it also operates in the U.S. and Europe. This gives it geographic diversification. The company’s revenue is also rising – up 30.9% in 2008 from 2007. That was mainly because it bought a U.S. mutual fund company named Putnam Investments in August of 2007.

The recent drop in stock prices as well as other lingering problems have dropped Putnam’s assets under management by 32% since 2007. That helped to push down Great-West shares from their 2007 highs to a low point in March 2009. However, the stock price has doubled since then.

With significant cash holdings, Great-West Lifeco Inc. is well positioned to deal with any challenges ahead from the recession, while its insurance and wealth-management services will benefit if the recovery continues. Either way, because the stock has a high 5.5% dividend yield, it will probably continue to earn income for you as long as you own it.

You can get the full story on Great-West Lifeco and other safe investments in the most recent issue of Canadian Wealth Advisor.

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