So, how do you feel about the stock markets?

January 24 2008 by Ellen Roseman

I knew the stock markets would be volatile, but this was more turbulence than I expected. I didn’t look at my online account all last week and certainly not on Monday. I finally dared to take a peek on Tuesday, when markets recovered a bit, and it wasn’t quite as bad as I thought.

One good thing: I’m much less tempted to buy or sell in a declining market than I am in a rising market. It’s nice to take a breather. The low cost and ease of online trading can turn you into a hyperactive investor. You can buy a leveraged bear fund that will profit from down markets. But that requires constant vigilance. It’s for traders, not investors.

If you have a financial adviser, you should be getting a call or email asking if you need help or reassurance. This a litmus test for a good adviser: Are they available when you need them? I spoke to one investor who sent an email two days ago to her adviser and hasn’t gotten a response, not even an acknowledgement. That’s a sign she should be looking to switch.

My stockbroker, who helps manage my RRSP, called and left a message yesterday. She didn’t have much to say, but wanted me to know I could call and chat if I wanted to. I didn’t take her up on the invitation, but felt good knowing that I could.

Are your investments diversified? Do you have too much in stocks and not enough in bonds and cash? How much time do you spend on asset allocation? Are you getting enough help with this important decision? All these questions are addressed by Preet, a financial industry insider, who says he didn’t blink when the TSX dropped 600 points.

10 comments

  1. Grampa

    Jan 24 2008

    2007 was a year of liquidating stocks and funds for me. I thought it was time for a few years of market depreciation.

    I have laddered terms and medium bonds. This used to be a normal selection for seniors, didn’t it? But it’s not so easy to do now if dealing with a financial planner who is a mutual fund rep. I had to listen to lots of talk and be firm.

  2. Ric

    Jan 24 2008

    Comments on Preet’s site are right on the money. When you invest your hard-earned money, you MUST know what your tolerance is to market drops. If you are going to lose sleep over a big drop, then stick with the safe investments such as savings bonds and GICs.

    And never take the investment advisor’s word 100%. Many of these people are no more able to forecast market movements than a weatherman is in forecasting the weather.

    I am currently reading a year-end analysis and 2008 forecast, which was enclosed with my investment statements I received this MONDAY.

    At no point, did these experts even suggest that we might expect the steep drops we experienced this week and last. As I am sure this analysis was written back in December, I have to wonder how good these guys really are.

    As Grampa says above, listen to the talk and if what you hear does not make sense, then be FIRM and don’t let your adviser put your money into something that you are not comfortable with.

    In addition, do some research yourself and be an INFORMED investor. This is the best way to survive.

    Always remember, letters in advisors’ titles don’t always mean they have a handle on what is happening. The reality is that although there is lots of good education out there, most schools do not teach COMMON SENSE, which is required to be successful.

  3. brad

    Jan 24 2008

    In addition to your overall risk tolerance, I think your level of concern should depend crucially on 1) whether you have long-term or short-term investments and 2) if they’re long-term, how far away you are from retirement.

    I don’t pay attention to what the market’s doing now because all my investments are long-term (in an RRSP, and I’m more than 15 years away from retirement). All my RRSP investment is in index funds, although I have some retirement accounts in the US from when I was working there — I’m a dual citizen — that are more diversified. The value of my RRSP could drop all the way to zero and I still wouldn’t bat an eye.

    But as I get closer to retirement, I’ll start paying closer attention to where the market is going, and start shifting investments out of stocks. For now, though, I just stay the course.

  4. Andy

    Jan 27 2008

    We have close to a million invested in a variety of things, mostly in my RRSPs. It goes up (last August, Yipee!) and it goes down. Most of it is invested in equities. What is the point of moving to cash and bonds when you retire? Are you going to die within years of retirement? We plan to live for a long time. Why not focus on the long term?

    We plan to stay with a lot of emphasis on equities, because that is where we can make the greatest gains. That is a risk, but so is moving to GICs.

    Are we crazy?

  5. brad

    Jan 28 2008

    @Andy: my former boss ended up postponing her retirement by five or six years because she kept all her retirement investments in equities (on the advice of her broker, who also served as her financial advisor… a really bad idea as far as I’m concerned).

    I’d be willing to keep a portion in equities during retirement, but only a relatively small portion. I’m not at all risk-averse now, but once I hit retirement age I will sleep better knowing I’m unlikely to have to go back to work full-time. I believe it’s possible to live a fairly “inflation-proof” lifestyle, so the need for my investments to stay comfortably ahead of inflation is less important to me during retirement than it is over the long haul.

  6. Andy

    Jan 29 2008

    To Brad: I don’t have everything in equities, just a lot. When I retire (at 63), I expect to live for (if the annuity guys are right) to my early 80s. That’s 20 years! Why should I walk away from the opportunities to make a bundle from equities and shy away to GICs? I can handle the risk.

    Your advice would make sense if I were to purchase an annuity. That’s not going to happen. I will swing with the market and leave my wife and children with a lot of money.

    To JL: You rock, sir, and sound like my financial advisor. I don’t need a nanny!

  7. Brian Poncelet, CFP

    Jan 29 2008

    Hi Ellen,

    This column is timely. Back in August when the market fell by 10% or so (subprime mess), I was talking about the importance of having bonds and cash in a portfolio. When markets fall as they always do. it takes much longer for stocks to come back.

    The TSX was down 13.94% in 2001 and 13.97% in 2002 — almost 28% in two years! This was with very low interest rates to get the economy moving again! Rob Carrick from the Globe and Mail pointed out a number of mutual funds (I believe in June ’07) that during this time (2001 – 2002) never lost any money!

    The key is asset allocation. When the TSX was down about 12% earlier this month and this makes front page news, some people can’t sleep because tmething wrong with their portfolio and their understanding of markets and their risk tolerance.

    A good place to track funds is Morningstar (Paltrak) or Globe Hysales. These software companies review all (4,000 plus) funds monthly. Stats include management fees, returns vs. peer groups or index scatter charts. It costs about $250 to $500 per year.

  8. JL Financial Advisor

    May 20 2008

    Well, JL, a typical advisor who can’t say anything in 1 to 2 paragraphs but needs to spew endlessly. You characters can talk and talk but never listen. THAT is why you’ve lost customers.