Reprinted from: The Globe And Mail
By, Larry MacDonald
Which is the best investment approach – dividend stocks, index funds, value plays or growth stories? Alas, this debate is looking like an exercise in rearranging the deck chairs. That’s because financial markets are on a collision course with the Debt Supercycle.
T he Debt Supercycle, a term coined by Montreal-based BCA Research, describes a persistent increase in national debt relative to gross domestic product (GDP). What this means in layperson terms is that many countries are increasingly living beyond their means, raising serious questions about the sustainability of current levels of prosperity….
…We are now in a reflationary period, when the economy is being pumped up by central bankers and other policy-makers. Substantial equity exposure may work during this time, but adhering to target allocations will be more important than ever. Indeed, instead of rebalancing to a fixed asset mix, a progressively more conservative mix might be considered as the reflation matures and moves closer to a possible tipping point.
What will also help is diversification. Equities should include a good weighting in emerging economies given the Debt Supercycle is not as advanced in those countries, advises BCA Research.
As for fixed-income securities, say others, a good percentage in short-term quality bonds is advised.