TORONTO, ONTARIO--(Marketwire - Nov. 26, 2012) - BMO InvestorLine reminds Canadian investors that one of the keys to successful investing is awareness of how their investments are performing and watching out for warning signs.
An effective way to measure an investment's performance is by comparing it to a benchmark index such as the S&P/TSX Composite Index. This will show whether the investment is outperforming, underperforming or matching its benchmark. This is best used for investments that are indexed themselves - such as Exchange Trades Funds (ETF) and mutual funds - as the comparison is more similar. Most ETFs track an index - such as a stock index or bond index - while mutual funds are a collection of investments typically focused on a particular sector or type of investment.
Investors can also do their research by watching economic indicators - such as GDP and the unemployment rate - that point to what lies ahead for markets and the economy. This can help investors decide their next steps in managing their portfolio.
"Compare your investment's returns with those of its benchmark over one-, three-, five-, and ten-year periods, if possible," said Viki Lazaris, President & CEO, BMO InvestorLine. "It also helps to understand how leading economic indicators can affect your investments. Doing so will allow you to invest more effectively and adjust your financial strategy as necessary."
Some of the most commonly used benchmarks to measure an investment's market performance include:
- Dow Jones Industrial Average: Tracks the performance of 30 of the largest U.S. corporations during a standard trading session in the stock market.
- Standard & Poor's 500 Index (S&P 500): Tracks the performance of the top 500 publicly-traded financial, industrial, transportation, and utility company stocks in the U.S.; and is considered an important benchmark for large-cap stocks.
- NASDAQ Composite Index: Measures more than 3,000 companies listed on the NASDAQ stock market.
- S&P/TSX Composite Index: Tracks the stock prices of the largest companies listed on the Toronto Stock Exchange (TSX) by market capitalization.
- NYSE Composite Index: Follows stocks listed on the New York Stock Exchange and in four subgroup indexes: industrial, transportation, utility, and finance.
- Morgan Stanley Capital International EAFE: Tracks non-U.S. companies in Europe, Australia, Asia, and the Far East.
BMO InvestorLine offers the following tips to help investors use economic indicators to invest more wisely:
- Watch the Numbers: The Consumer Price Index (CPI), the unemployment rate and Gross Domestic Product (GDP) are some common economic indicators that can help Canadians judge how to invest.
- Heed the Signs: If the leading economic indicators suggest that the economy is slowing, investors can often become wary and decide to sell equities. The opposite is often the case when indicators show positive economic growth, enticing investors to buy stocks because they anticipate that consumers will spend money and corporate profits will rise.
- Expect the Unexpected: Investors should keep in mind that, while the economy and the markets work in general patterns, the effect of an economic indicator is influenced by the current financial context. For instance, a low unemployment report is generally considered good news for the market; however investors may fear that a tight job market could lead to higher salaries, higher prices and inflation. This could in turn lead the government to raise interest rates, lowering spending and leading to lower stock and bond prices.
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BMO InvestorLine is an online investing service that provides clients with two ways to invest online. Clients can choose from BMO InvestorLine's top ranked Self-Directed service that provides tools to help investors make independent decisions on how to invest. BMO InvestorLine's other service, adviceDirect™ provides investors with online advice and investment recommendations for their portfolios. Clients have access to trading, quotes and account information 24 hours a day through a website or Automated Telephone Trading. BMO InvestorLine also provides users with third party research, along with leading edge tools that are informative and easy to use. As an all-in-one investment source, it is a constantly evolving, cost-efficient platform that is fully compatible with tablets.
BMO InvestorLine Inc. and BMO Ligne D'action Inc. provide this commentary to clients for informational purposes only. The information contained herein is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete or may change without notice. The comments included in this document are general in nature, and professional advice regarding an individual's particular position should be obtained.
An adviceDirect account is a non-discretionary fee based account which offers investment recommendations. adviceDirect does not provide portfolio management by a portfolio manager. The client makes their own investment decisions and manages their own investment portfolio. adviceDirect does not offer discretionary, managed accounts.
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