February 19, 2010 Market Update

January 19th looks to have been the high for the DJIA as well as the S&P indexes  Either the 18th or the 19th  was the high point for the TSX as well.  Now we are into the slow but sure downward spiral of the stock markets.
After much reading and studying I am coming to the conclusion that my initial fear of inflation in the short term is not correct.  Long term, yes. Inflation will be something to be concerned about in the future, but that could be as much as two or even three years away.  But short term deflation will be the enemy at the gate.
 As a result, I believe that we can invest at least half of our money into a bond fund.  Empire's Bond Fund is still holding predominantly Government issued bonds so there is very little risk in that fund.  The big advantage is that it allows you to make some money while we wait for the stock market to continue its downward slide.  The bond fund should generate between 5 and 7 percent in the next year.
I am also suggesting a small part of your holdings could be invested in Empire's Income Fund.  A little more risk as this fund does hold some stocks but the stocks it holds are dividend paying stocks  This fund is geared to generating an income.  I expect it should generate 6 to 8 percent over the next year.

I would suggest that you keep 40 to 50 percent of your money in the Money market Fund and overweight the other 50% into the Bond Fund. Say 60/40 or even 70/30
So you should end up at around 50% Money Market Fund, 30% Bond Fund and 20% Income Fund. Please do be aware that the Income Fund is holding some stock and therefore does carry with it some risk.