Be wary of investing in emerging markets like third world countries and pay down your mortgage, TV star and international investor Kevin O'Leary says.
O'Leary relayed that advice during a wine and cheese social/speech at the Pomeroy Inn & Suites this past week. About 185 people attended the event, organized by BMO Nesbitt Burns.
An audience member asked O'Leary if people should invest in emerging markets.
“The upside of the emerging markets is most of those economies are growing north of five per cent. Here in North America, we are now growing at under three. So China, even though it's in a correction, it's still north of six. So there's room in the portfolio for emerging markets, but they are very volatile,” O'Leary said.
O'Leary suggested investors should adopt his rule: never keep more than 20 per cent of any sector in your portfolio, no matter how tempting it might be to keep more. He said that should apply to emerging markets as well.
He said he invests in emerging markets via the S & P 500 (Standard and Poor's stock index in the U.S) which has 47 per cent of their sales outside of America, including Asia, and South America.
“Unless you're very adventurous, emerging markets can have a lot of volatility. You wake up some day and ISIS blew something up or cut somebody's head off, which is horrible, it affects the value of those markets, and I'm just – the older I get the less excitement I want,” O'Leary said to some laughter. “I just want that cheque every month.”
His firm also invests in infrastructure (things like roads, pipelines, terminals, railroads, and water facilities) around the world via a fund they've created.
“It's made 7.8 per cent since its inception, it's really boring -- these are very large companies – but it's another way to play it,” O'Leary said.
Another audience member asked if he should invest or pay his mortgage down.
“I don't like debt, so I paid my mortgage down and it's a guaranteed return, because you're paying for your mortgage in Canada with after-tax dollars. So if your mortgage is four per cent, you're having to make eight to pay the four,” O'Leary said.
“By the way, by the time you're 50, you shouldn't have any debt. You should have an investment portfolio making you interest or there's something horribly wrong,” O'Leary added. “People have too much debt; that's bad. It just is.”
O'Leary was asked what fees he charges to invest with his company.
O'Leary didn't state specifically what those fees are. He said his firm's MERs (Management Expense Ratios) vary and are “very competitive.”
MERs include management fees plus other expenses such as covering the cost of tracking investments, legal fees and audits.
O'Leary said his firm is the only mutual fund company in Canada that doesn't pay for any advertising because it doesn't need to – O'Leary is well known as a result of the TV shows he appears on. As a result, he said, his company's MERs in at least one case are “ some of the lowest in the country.”
“But you shouldn't invest in mutual funds based on celebrity. You should invest (based) on performance. So if you can find a better bond fund than mine, please show it to me, because I am number one, and I care a lot about that and making sure that my bonds make me money every year,” he said.
