Living with fierce market swings

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.


  1. Lloyd Davidson

    Oct 28 2008

    The following is advice from an ordinary investor who has learned from a lot of experience and has personally succeeded with this strategy. He has no specific training or accreditation as an investment advisor.

    Some tips to maximizing your returns on a GIC-only retirement investment strategy:

    CDIC coverage is $100,000 for each person for regular accounts, RRSP, RRIF and joint accounts. If an institution is CDIC-insured, no matter what its name, no matter where it is, no matter if it does not even have an office, your money is safe, as long as it does not exceed that number. Some institutions have more than one entity and can insure your investments up to $500,000.

    Consider GIC terms. In most cases, go long. Don’t play the market game on length of terms. At different times, shorter terms will act differently than longer ones. For example, right now, long terms are relatively stable, but short-term rates are dropping. Playing term games will not be a winning strategy either.

    Put your money only where it will get the maximum return. Do not hesitate to move it for even a 1/4 point. Put it in several institutions if necessary to achieve your maximum return.

    If you have a reasonable sum — I’m not sure what that is and it can vary by institution, circumstances and market conditions — you can make demands for GIC rates higher than those posted by the institution. In some institutions, branch managers have authority to offer higher rates. Their ability to offer higher rates will vary, depending on term. The bigger your investment, the bigger your demands can be.

    I have been getting around 2 percentage points above so-called posted rates. My guide is to watch the market and ask for the rate that is the highest in the market anywhere, no matter what the individual banker’s posted rates are.

    Do not hesitate to shop the market. If you get an offer, go to their competitors and tell them they must beat that offer to get or keep your investment. Some will do nothing. Some will actually compete. Don’t bluff.

    Do not wait till the maturity date of your current GIC to begin this process. An institution that has your current investment will resist and possibly refuse to make an advance offer. An institution that does not have your current investment will make offers good for a period before the maturity — sometimes up to a month before.

    If you do the math, even a 1/2% improvement will make a huge difference down the road.

    RRIF investments can be managed too.

    Don’t even consider talking to investment dealers or brokers about these investments. They are not interested and will only try to talk you into something else. A GIC customer does not earn a bonus for them. They are not your friend nor should you trust their advice. Their training is to get you to believe they are and you should.

    Sleep well, your investments are 100% guaranteed. The alternative is playing the lottery of the “market”.

    Ask yourself this queston: If I could find a way to manage to get a higher return (doubtful), how would it change my life?

    If you are honest with yourself, the chances are very good that the answer will be not enough to take the risks of the market. Your retirement funds are what you must live on. Take no risks with what you will depend on to pay the taxes on your home, the clothes on your back, and buy the food for yourself and your partner.

  2. Michael James

    Oct 28 2008

    I’m no fan of Harper, but I thought his remarks about the stock market were quite reasonable.

    All major market drops in our history have been buying opportunities. If you wait for the bottom, you’ll never buy in because you can never be sure that you have found it.

    Several years from now when the TSX gets to 20,000, we will look back and say that 12,000 was a bargain, even if 10,000 was a better bargain.

    Anyone who looks to experts for short-term stock market advice is doomed to be disappointed. A key to investing is to keep money you need in the short term out of the stock market.

  3. Grampa Ken

    Oct 29 2008

    Lloyd I agree with your comments. Shopping for a higher rate (1%) can be as simple as moving an account from a bank to a credit union. They did offer a higher rate after I transferred the account.

    I also found the bank way too persuasive towards equities and would often return home with something I didn’t want.

    On my Dow chart a baseline thru the 1942 and 1982 lows extended to the present is at about 3500. A bit drastic perhaps. The run from 1980-2007 also looks unreasonable in its very strong high rise. It just looks out of place on the 100 year chart so as to suggest that enough is enough, for now.

  4. Paul Fraser

    Dec 15 2008

    RBC Bank President Gordon Nixon – Salary $11.73 Million


    I’m a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.

    There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.

    Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.

    Only problem is the loans officer was a replacement who wasn’t familiar with these type of loans. She never informed me verbally or in writing about the new criteria.

    Phone or e-mail:

    RBC President, Gordon Nixon, Toronto (416)974-6415
    RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
    RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail
    RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
    RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail
    RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail
    RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail

    Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail

    “Fighting the Royal Bank of Canada (RBC Bank) one customer at a time”

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