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Many investors fear that today’s artificially low interest rates and high government budget deficits will spur a huge rise in inflation. These fears are prompting many investors to devote more of their money to investing in gold and gold investments, because they believe gold will provide them with additional security. That helps explain why the price of gold has risen more than 50% since the fall of 2008. We agree that a huge burst of inflation is a possibility in the next few years. But it’s a mistake to assume that vastly higher inflation is a certainty, as many who are investing in gold do today....

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 making successful stock market investments. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Tip of the week: “In the long run, share buybacks can complement your dividend profits.” Stock market investments have two main ways to distribute their profits to shareholders. They can pay dividends, or they can buy back their own shares. Both dividends and buybacks pay off for investors. Here are 3 reasons why:...

The U.S. consumer sector is highly competitive. Independent stores and smaller chains continue to face rising competition from large discount retailers, like Wal-Mart and Costco. As well, retailers are more exposed to swings in the overall economy than companies in some other sectors, such as utilities. However, aggressive investing in consumer stocks also holds the potential for spectacular gains. To cut your risk and earn higher profits when aggressive investing in the junior retail segment, it’s especially important to focus on chains that can adapt quickly and prosper in the fast-changing retail landscape. ...

Over the past few months, we’ve periodically looked at common mistakes most investors make, and given you our investment advice on how to avoid them. Here are 3 more common errors all investors make from time to time.

1. Losing patience. Good chess players never “go for broke,” as the saying goes. Instead, they try to position their pieces so they can profit from the mistakes they expect from opponents who are less talented, less experienced or less patient. Successful investors follow a comparable approach. But the crucial difference is that they have no opponents who can be relied upon to make mistakes. Instead, successful investors try to arrange their portfolios so that they more-or-less automatically tap into the profit and long-term growth that inevitably comes to well-established companies operating in relatively free and stable economies.
   
   
2. Relying on brokers’ stock-price targets. Investors sometimes ask us why we don’t publish price targets in the investment advice we publish in our investment services and newsletters, including Canadian Wealth Advisor, our newsletter for conservative investing....

Tax-loss selling (or tax-loss harvesting) is a strategy for lowering your Canadian capital gains tax that involves selling a security at a loss in order to offset your capital gains. You can then deduct these losses against your taxable capital gains in the current tax year. For example, December 24 is the 2010 deadline for tax-loss selling on the Toronto Stock Exchange. If you sell at a loss on or before that date, you get to deduct your loss against your 2010 capital gains. If you still have capital losses left over, you can carry them back up to three years (2009, 2008 and 2007), or forward indefinitely to offset past or future capital gains....

Uranium prices have jumped from around $40 U.S. a pound in March 2010 to a recent high of around $58.50. That’s still well below uranium’s peak of $140 a pound in 2007. But conditions look favourable for higher long-term uranium demand. (In a Stock Pickers Digest hotline, we updated our buy/sell/hold advice on a Canadian uranium explorer whose shares have jumped since early October — and it could go higher. See below for further details on this uranium stock’s prospects.) China and many other emerging countries, such as India and Russia, are increasing their nuclear-power use as they switch from power plants that run on coal and oil. This expansion has sharply pushed up China’s uranium imports to as much as three times last year’s levels. In addition, China recently increased its nuclear-power targets by 60% over the next decade....

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 a specific advice on successful investing, including tips on portfolio management. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away....

P/e ratios (the ratio of a stock’s price to its per-share earnings) are published regularly in newspapers and on the Internet. These financial ratios are widely followed, and are an important part of many investors’ decision making. Typically, you calculate p/e’s using a stock’s current price and its earnings for the previous 12 months. The general rule is that the lower a stock’s p/e, the better. And a p/e of less than, say, 10, represents excellent value. A low p/e implies more profit for every dollar you invest. ...

A number of wind power stocks have emerged over the past few years as concern over the environment has grown. However, like many other alternative-energy firms, wind power stocks face significant costs and risks. For example, varying wind speeds cause a wind turbine’s electricity output to fluctuate. In many areas, the wind is stronger in the daytime, when demand is lower, and dies down in the evening, when consumers use more appliances. As well, electrical power can’t be stored efficiently, so to make economic sense it must be used when it is produced. As a result, utilities must maintain back-up power capacity that is equal to their reliance on wind power....

FORTIS INC. $32 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 173.7 million; Market cap: $5.6 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.fortis.ca) is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also operates power plants in other parts of Canada, as well as the U.S., Belize and the Cayman Islands. Fortis’ other businesses include Terasen Inc., which distributes natural gas in B.C., and hotels in Atlantic Canada. Fortis earned $45 million in the three months ended September 30, 2010. That’s up 25.0% from $36 million a year earlier. Earnings per share rose 23.8%, to $0.26 from $0.21, on more shares outstanding. Earnings rose at the company’s power businesses. That helped offset a $5 million loss at Terasen, which makes most of its money in the winter, when customers need gas to heat their homes. Revenue rose 8.3%, to $720 million from $665 million. The company will spend $6.6 on capital upgrades over the next six years, including $1.1 billion in 2010. One of its projects is a new hydroelectric plant near the Waneta Dam south of Trail, B.C. Fortis will own 51% of this new facility, and the B.C. government will own the remaining 49%. BC Hydro, the provincial power authority, will buy most of the power from this plant when it begins operating in 2015. That cuts the risk of this investment....

CAE INC. $12 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 256.6 million; Market cap: $3.1 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.3%; TSINetwork Rating: Average; www.cae.com) makes military and airline flight simulators. It also runs commercial and military pilot-training schools in over 20 countries. In its second quarter, which ended September 30, 2010, CAE’s earnings rose 0.3%, to $40.0 million from $39.9 million a year earlier. Earnings per share were unchanged at $0.16. Revenue rose 6.1%, to $386.6 million from $364.5 million. Revenue from civilian clients rose 8%. CAE sold 16 flight simulators in the first half of fiscal 2011, and expects to sell around 25 for the full year. Revenue from military clients rose 4%....

BOMBARDIER INC. (Toronto symbols BBD.A $4.97 and BBD.B $4.98; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $8.5 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bombardier.com) is the world’s third-largest commercial-aircraft maker, behind Boeing and Airbus. Its aerospace division supplies roughly half of its revenue. The other half comes from its transportation division, which is the world’s largest maker of passenger railcars. In its 2011 second quarter, which ended July 31, 2010, the company earned $0.08 a share (all amounts except share prices and market cap in U.S. dollars). That’s down 27.2% from $0.11 a share, a year earlier. Revenue fell 17.5%, to $4.1 billion from $4.9 billion. The uncertain economy continues to hurt demand for Bombardier’s jets. It delivered 46 aircraft in the latest quarter. That’s down from 80 a year earlier. However, Bombardier received orders for 29 new planes (net of cancellations) in the latest quarter. A year ago, it had negative 38 net orders. The railcar division received $4.3 billion of new orders, up 43.3% from $3.0 billion a year earlier....

EMERA INC. $31 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 114.0 million; Market cap: $3.5 billion; Price-to-sales ratio: 2.3; Dividend yield: 4.2%; TSINetwork Rating: Average; www.emera.com) gets 70% of its revenue from Nova Scotia Power Inc., which is Nova Scotia’s main electrical-power supplier. The rest comes from its investments in pipelines and power companies in the U.S. and Caribbean. Emera is expanding into other businesses and countries. For example, it recently paid $85 million U.S. for 38% of Barbados Light & Power Co. Ltd. As well, its $350-million Brunswick Pipeline, which pumps natural gas from Saint John, New Brunswick, to the U.S. border, began operating on July 16, 2009. Thanks to these new operations and a lower tax bill, Emera’s earnings rose 20.1%, to $44.8 million from $37.3 million a year earlier. Earnings per share rose 18.2%, to $0.39 from $0.33, on more shares outstanding. Revenue rose 10.1%, to $373.5 million from $339.1 million....

CANADIAN UTILITIES LTD. (Toronto symbols CU (class A non-voting) $50 and CU.X (class B voting) $50; Income Portfolio, Utilities sector; Shares outstanding: 125.8 million; Market cap: $6.3 billion; Price-to-sales ratio: 2.4; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.canadian-utilities.com) distributes electricity and natural gas in Alberta. It also operates a total of 20 power plants in Canada, Australia, and the U.K., and sells its expertise to other firms. ATCO Ltd. (see ATCO LTD. - Toronto symbols ACO.X $57 and ACO.Y $57) owns 52.2% of the company. Canadian Utilities earned $82.0 million, or $0.66 a share, in the three months ended September 30, 2010. That’s up 6.9% from $76.7 million, or $0.61 a share, a year earlier. These figures exclude unusual items, mostly gains and losses on hedging contracts that Canadian Utilities uses to lock in natural-gas prices. Revenue rose 2.5% in quarter, to $550.7 million from $537.1 million. Regulatory rulings helped offset lower power prices in Alberta. The company will probably earn $3.31 a share in 2010. The stock trades at 15.1 times that estimate. That’s a reasonable p/e ratio in light of the steady cash flows it gets from its regulated operations....

TRANSALTA CORP. $21 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 220.3 million; Market cap: $4.6 billion; Price-to-sales ratio: 1.6; Dividend yield: 5.5%; TSINetwork Rating: Average; www.transalta.com) operates over 85 unregulated power plants in Canada, the U.S. and Australia. Coal-fired plants generate 53% of TransAlta’s power. Natural gas accounts for 25%, and the remaining 22% comes from hydroelectric and renewable sources. Lower power prices in Alberta and the northwestern U.S. continue to weigh on TransAlta’s earnings. In the three months ended September 30, 2010, earnings fell 42.4%, to $38 million from $66 million a year earlier. Earnings per share fell 50.0%, to $0.17 from $0.34, on more shares outstanding. However, cash flow per share rose 7.1%, to $1.05 from $0.98. As well, revenue rose 5.1%, to $700 million from $666 million. These increases mainly came from the 21 power plants that TransAlta gained following its 2009 purchase of Canadian Hydro Developers Inc. The new plants also pushed up production by 9.8% in the latest quarter. As well, TransAlta’s plants operated at 91.0% of capacity, up from 83.9% a year earlier....

ATCO LTD. (Toronto symbols ACO.X (class I non-voting) $57 and ACO.Y (class II voting) $57; Income Portfolio, Utilities sector; Shares outstanding: 58.1 million; Market cap: $3.3 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.2%-owned Canadian Utilities (see CANADIAN UTILITIES LTD. - Toronto symbols CU $50 and CU.X $50). ATCO recently grouped its businesses into three main divisions: Utilities (which distributes electricity and natural gas); Energy (which operates power plants); and Structures & Logistics (which sells services to construction companies and firms that explore for oil and natural gas). ATCO owns 75.5% of the Structures & Logistics division; Canadian Utilities owns the remaining 24.5%. The company earned $1.02 a share (or a total of $59.1 million) in the three months ended September 30, 2010. That’s up 10.9% from $0.92 a share (or $53.3 million) a year earlier. These figures exclude one-time items, such as losses on hedging contracts. Regulators let ATCO’s utilities businesses increase their rates. As well, rising oil and mineral prices have prompted mining and energy firms to increase exploration. That has lifted earnings at ATCO’s structures business. Revenue rose 11.2%, to $761.1 million from $684.3 million....

Lately, more Inner Circle members have been asking us about investing in commodity stocks that mine or process rare earth elements. Rare earths are used in a variety of modern devices and applications, including catalytic converters and petroleum refining; magnets in small and large motors; glass additives and glass polishing compounds; rechargeable batteries; television and computer screens; lighting; X-ray machines; and lasers. Prices of rare earth elements have risen sharply. That’s mainly because China, which accounts for around 95% of global production, has imposed a 72% cut in export quotas for the second half of 2010. China regularly imposes quotas on exports of rare earths to boost prices internationally and ensure enough supplies for Chinese companies....

Recently, we heard from an investor who inquired about our Successful Investor Wealth Management service. She said she likes our approach to investing, but she admits to some concern about what she called our “all-equities philosophy.” Her broker says that all investors need to hold some bonds to reduce the volatility in their portfolios. “Philosophy” is the wrong word for it. Our view on bonds and other fixed-return investments is a reaction to today’s economic and investment situation. Up till the mid-1990s, in fact, we routinely advised that fixed-return investments, such as bonds, should make up anywhere from one-third to two-thirds of a conservative investor’s portfolio.

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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 successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Tip of the week: “It takes more than a DRIP to make a stock a worthwhile buy.” Some companies offer automatic dividend reinvestment plans, also known as DRIPs. These plans let shareholders reinvest their dividends to buy additional shares (or fractions of shares) of the company. DRIPs bypass brokers, so shareholders save on commissions....

Last week, the Canadian government said it would block BHP Billiton’s (New York symbol BHP) hostile, $38.6-billion U.S. takeover bid for Potash Corp. of Saskatchewan (New York and Toronto symbol POT). However, under the Investment Canada Act, which governs foreign takeovers of Canadian companies, BHP now has 30 days to modify its offer so that it is a “net benefit” to Canada. In light of the federal government’s decision, we updated our buy/sell/hold advice in last week’s Successful Investor and Wall Street Stock Forecaster hotlines. We cover Potash Corp. in The Successful Investor and BHP in Wall Street Stock Forecaster....

Real estate investment trusts (REITs) resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels. The best REITs have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite the weak economy, and are taking advantage of low interest rates to refinance long-term mortgages. We advise against overindulging in REITs. But high quality REITs can make attractive, low-risk additions to your portfolio....

ISHARES MSCI CANADA INDEX FUND $29.28 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) is like a market-cap-based index fund, but its managers try to improve performance by tinkering with the index-fund formula. They do this through their Morgan Stanley Capital International Canada Index. The fund has an MER of 0.55%. The index’s top holdings are Royal Bank, 6.5%; TD Bank, 5.5%; Bank of Nova Scotia, 4.8%; Suncor Energy, 4.4%; Barrick Gold, 4.0%; Potash Corp., 3.7%; Canadian Natural Resources, 3.3%; Bank of Montreal, 2.8%; Goldcorp, 2.8%; CN Railway, 2.6%; CIBC, 2.5% and TransCanada Corp., 2.2%. If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index Fund (see previous page). You’ll pay about a third of the management fees....

SPDR DOW JONES INDUSTRIAL AVERAGE ETF $112.30 (New York Exchange symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average. The fund’s top holdings are IBM, Exxon Mobil, Chevron Corp., 3M, Procter & Gamble, McDonald’s Corp., Johnson & Johnson, Caterpillar Inc., United Technologies and Boeing Co. The fund’s expenses are about 0.18% of its assets. SPDR Dow Jones ETF is a buy....

SPDR S&P 500 ETF $119.95 (New York symbol SPY; buy or sell through brokers; www.spdrs.com) holds the stocks in the S&P 500 Index, which consists of 500 major U.S. stocks that are chosen based on their market cap, liquidity and industry group. The index’s highest-weighted stocks are Exxon Mobil, Microsoft, Procter & Gamble, Apple, JP Morgan Chase & Co., Johnson & Johnson, IBM, Chevron, General Electric, Coca Cola, Google and AT&T. The fund’s expenses are just 0.10% of its assets....

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $20.26 (Toronto symbol XDV; buy or sell through a broker; ca.ishares.com) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. It yields 5.3%. The fund’s top holdings are CIBC, 8.0%; Bank of Montreal, 6.4%; National Bank, 5.7%; TD Bank, 5.6%; Telus, 5.2%; Bank of Nova Scotia, 4.6%; Manitoba Telecom, 4.5%; IGM Financial, 4.2%; Royal Bank, 4.0%; Enbridge, 3.5%, TMX Group, 3.5%; and TransCanada Corp., 3.3%. The fund holds 60.1% of its assets in financial stocks. Utilities are next, at 23.0%. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector....