October 28 2008 by Ellen Roseman
The October effect is a common pattern, a time for seasonal market turbulence. But who expected a month like this one? Who can remember such a severe slide in stocks around the world and so many dire forecasts about the economy and the financial system?
On TV, so-called experts are talking about markets overreacting and starting to stabilize. But where is that bottom? Will it ever arrive?
It’s not only stocks gyrating wildly. It’s also the Canadian dollar — why didn’t you take that foreign trip sooner? — and the price of oil. You’re happy to buy gas at just under a dollar, but soon after you fill the tank you see it selling at 93 cents a litre.
Last Saturday, I did a story about three investors (no longer in the work force) and how they were coping with chaos. One was meditating to keep calm, another was watching business TV all day and hunting for bargains, while the third was fierce in his determination to stick with guaranteed investments in his retirement plan.
The online comments were divided. Safety first investors said stocks were for gamblers and markets were casinos. Many asked me how Lloyd Davidson managed to get 5 per cent on GICs. He explains how he does it below.
Another group, conservative risk-takers, felt stocks gave the best returns in the long run. GICs were dangerous if they were all you owned. You would lose your purchasing power and never keep up with inflation and taxes.
I’m in the second camp myself. Having lived through financial crises in the past and seen my portfolio value recover and grow again, I know I’ll get through this one too. But it’s easier to look back on previous pullbacks than to wait for a current pullback to end.
The constant media coverage doesn’t help, either. Are you switching off the news? Or are you reading or watching more than ever?
I’m leery of anyone who talks about “buying opportunities” in these unstable markets, unless they’re describing a strategy of investing gradually and averaging your costs.
Prime Minister Stephen Harper’s comments, which probably cost him a few seats in the recent election, were pilloried in this Toronto Star editorial.