# Rob carricks article...How worried r u about your investments today?



## Blush (Jan 9, 2014)

Just read this article and I am very worried about my balanced etf portfolio....thoughts, feedback? 

http://www.theglobeandmail.com/glob...h-worries/article21046678/#dashboard/follows/

Globe and mail, oct. 10,2014...

Losses continued to pile up on the Toronto stock market Friday as worries about the global economy punished resource stocks in particular and sent the market down to its lowest level since April.

The S&P/TSX composite index tumbled 180.86 points to 14,279.74 on top of a 206-point drop Thursday sparked by worries about the global economy, central bank moves to remove stimulus measures and a stronger U.S. dollar.


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## nobleea (Oct 11, 2013)

When food is on sale, people stock up. But when stocks are on sale, they sell.


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## Eder (Feb 16, 2011)

I dont think an etf is an appropriate investment for you. Sell it and buy GIC's.


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## brad (May 22, 2009)

If you need the money you're investing next week or in a few months, sure I'd be worried if I were you.

If you won't need the money for another 10-20 years (e.g., for retirement and you're in your 50s or younger), I wouldn't be worried at all.


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## CPA Candidate (Dec 15, 2013)

The financial media play a big part in stoking the flames of irrationality. It sells papers and getting people watching BNN commercials.

People should go back and read articles from 2011/2012 about Europe's weakness, problems is Greece, etc. It's the same old story. People who make investment decisions based on big macroeconomic themes are doomed to failure. Don't become one of these "which way is the wind blowing today", David Burrows-type investors.


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## My Own Advisor (Sep 24, 2012)

Celebrate, save money and invest that money when markets are correcting or crashing. It doesn't always feel good but it's the right thing to do.

"But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

I'm sure folks can guess who said this...


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## dubmac (Jan 9, 2011)

brad said:


> If you won't need the money for another 10-20 years (e.g., for retirement and you're in your 50s or younger), I wouldn't be worried at all.


I agree with Brad...
SM has corrections..some big, some small...just like it has advances (some big, some small).


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## Cal (Jun 17, 2009)

Assuming you are investing for a longer duration, a balanced portfolio should do just fine.

If you are retiring soon, perhaps a balanced portfolio is not the right asset allocation for you.

My advice, make the appropriate plan for you, and stick to it. I am losing no sleep over the markets these past few weeks.


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## Siwash (Sep 1, 2013)

Lets hope it truly crashes! If you're a long term investor, don't worry... celebrate!


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## Blush (Jan 9, 2014)

brad said:


> If you need the money you're investing next week or in a few months, sure I'd be worried if I were you.
> 
> If you won't need the money for another 10-20 years (e.g., for retirement and you're in your 50s or younger), I wouldn't be worried at all.


I retire in 8 yrs so not looking at cashing out just questioning if a balanced etf is best or switch to mawer 104 balanced fund. 

Tks for your advice.


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## Feruk (Aug 15, 2012)

I sold some stuff this week; mostly profit taking on positions that have performed very well over the last 5 years. I'm partly placing my bets with Peter Schiff in that the Fed has artificially created the market highs and that the end of QE is driving the market down. Definitely not selling a lot, but I was already at 40% cash, so going to 50% in the hopes of gobbling up some cheaper stuff next month didn't seem like such a stretch.


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## OurBigFatWallet (Jan 20, 2014)

My Own Advisor said:


> Celebrate, save money and invest that money when markets are correcting or crashing. It doesn't always feel good but it's the right thing to do.
> 
> "But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."
> 
> I'm sure folks can guess who said this...


Great WB quote. If I had more cash available to invest Id be buying more


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## james4beach (Nov 15, 2012)

You need a certain time horizon for stock-based investments to _reliably_ give strong performance. The number is generally accepted as around 10 years (personally I believe it's closer to 20 years). Meaning that stocks are appropriate when you're willing and able to leave the money there for 10 years.

If you "need" the money sooner, as you do, then you should look at lowering your stock exposure and eventually phasing out stock exposure. Mawer's balanced fund still is stocks (partly). It's no more appropriate than your ETFs are.

In your immediate situation, I would recommend lowering your stock exposure slightly now, and then think carefully about how much stocks you want to hold onto as you near your retirement. If it was my own account, I would look to ease out of stocks slowly such that I have very low stock weighting in the years close to retirement.

As you reduce your stocks, add to your GIC portfolio -- the GIC ladder. This fixed income portfolio will steadily generate guaranteed positive returns.


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## james4beach (Nov 15, 2012)

Siwash said:


> Lets hope it truly crashes! If you're a long term investor, don't worry... celebrate!


The original poster is not a long term investor. As they need their money in less than 10 years, they are not invested for a long enough time horizon to be able to expect good returns in stocks.


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## brad (May 22, 2009)

james4beach said:


> As you reduce your stocks, add to your GIC portfolio -- the GIC ladder. This fixed income portfolio will steadily generate guaranteed positive returns.


Maybe more accurate to say "The fixed income portfolio will steadily generate the guaranteed *illusion* of positive returns.

Is it really a positive return when your GICs provide 1.5% and inflation is at 2%? 

GICs guarantee that you won't lose your principle, but they also provide a 100% guarantee that your investment will lose value over time due to inflation. I say that as someone who has a growing chunk of his retirement investments in GICs, so I understand their attraction, but I'm not under the illusion that they are growing in value.


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## james4beach (Nov 15, 2012)

brad, that's besides the point I'm making. My point is that a stock investor really should be staying in stocks for at least 10+ year periods. If they have a shorter horizon, they shouldn't be in stocks.

If you think a 0% real return on a GIC is bad, well, negative real returns are worse. Short-term investors have seen soooo many negative returns. Here are some 5 year TSX periods with negative returns, in which you would have been better off in GICs (or cash!)

1997-2002
1998-2003
1999-2004
2000-2005
2004-2009
2007-2012
2008-2013

Is my eyesight failing me or something? Because that sure looks like a TON of negative 5-year periods in stocks! Even _cash_ gave better than the negative return in stocks.

These periods aren't exactly rare. Roughly speaking, looking back at these 12 starting years (1997..2009), a whopping 7 of them -- or 58% -- resulted in negative 5yr returns. You'll find the same pattern historically. Shorten your time horizon, and the odds go up that you land in a negative period. Lengthen the time horizon and the odds go up that you land in a positive period.


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## My Own Advisor (Sep 24, 2012)

"GICs guarantee that you won't lose your principle, but they also provide a 100% guarantee that your investment will lose value over time due to inflation."

At today's rates, absolutely true, especially over many years of investing. 

>10 year horizon, stocks.

<2 year horizon, GICs or cash.

>2 but <10 year horizon, depends on your risk tolerance.


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## sags (May 15, 2010)

In retirement........many of the increased costs due to inflation.......are muted by the lack of the need to purchase.

The CPP and OAS are indexed to inflation, and should cover inflation costs for mandatory spending.

Unless someone is required to spend their personal savings on daily living expenses...........inflation risk isn't a big factor.


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## My Own Advisor (Sep 24, 2012)

Would happen to agree sags.

If investors put a dozen or more inflation-fighting dividend stocks in their portfolio, I think between that and any government programs that are indexed to inflation, they should be "good" as long as they don't give in to lifestyle inflation.

At least this is my plan.


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## DividendLuvr (Mar 5, 2014)

My Own Advisor said:


> Would happen to agree sags.
> 
> If investors put a dozen or more inflation-fighting dividend stocks in their portfolio, I think between that and any government programs that are indexed to inflation, they should be "good" as long as they don't give in to lifestyle inflation.
> 
> At least this is my plan.


Agreed!


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## brad (May 22, 2009)

My Own Advisor said:


> "GICs guarantee that you won't lose your principle, but they also provide a 100% guarantee that your investment will lose value over time due to inflation."
> 
> At today's rates, absolutely true, especially over many years of investing.


Have GICs ever returned more than inflation? I don't know, but I'd be surprised if they ever have. I remember back in the 1980s when I lived in the US and 5-year CDs (analogous to GICs here) were paying 10%, but inflation was still running higher than that. In general, interest rates rise as inflation rises, so I imagine the inflation rate will always be a step ahead of the rate you can get from GICs.

I agree that there are ways to insulate yourself from some of the impacts of inflation, and as I get closer to retirement I'm putting more of my new money into GICs (although I did take advantage of yesterday's bargain prices on the TSX to buy me some more equities).


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## Blush (Jan 9, 2014)

james4beach said:


> If you "need" the money sooner, as you do, then you should look at lowering your stock exposure and eventually phasing out stock exposure. Mawer's balanced fund still is stocks (partly). It's no more appropriate than your ETFs are. I would recommend lowering your stock exposure slightly now, and then think carefully about how much stocks you want to hold onto as you near your retirement. If it was my own account, I would look to ease out of stocks slowly such that I have very low stock weighting in the years close to retirement.


Ok I need to give this more thought and perhaps need to look into getting a fee based advisor. I do have a govt defined pension plan so from what I am reading I could reduce my bonds. Also still considering the mawer 104 balanced mutual funds as I want a "set it and leave it" plan for the next 8 yrs....trying to rebalance yearly is time consuming and I don't have the knowledge. My balanced etf portfolio is as follows....your input is appreciated. Tks

iShares S&P/TSX Capped Composite Index ETF (XIC) 20% MER 0.05%
iShares High Quality Canadian Bond Index ETF (VAB) 30% MER 0.12%
Vanguard US Total Market (VUN) 20% MER 0.15%
iShares MSCI EAFE IMI (XEF) International equity 20% MER 0.20%
ZRE, real estate 5%, MER 0.55%
XEC, ishares, emerging markets, 5% MER 0.25%


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## Just a Guy (Mar 27, 2012)

I usually only buy stocks during a crisis and rarely look at the market any other time (and by rarely I mean once or twice a year I may look). If you only buy in a crisis (and by that we're talking things like 2008's meltdown, "black" whatever day of the week, etc.) you are usually buying well below the bottom in the first place, so years later it's probably doing very well despite having tanked again...at least it has for me.

So, I get the idea that it may be a good time for me to start looking at the market again? Probably not, as the mainstream isn't crying that the sky is falling...but I may start pulling out articles like moneysense's top 200 to see who they rate as "a" stocks...if they crash and people start to trash them (like BMO in 2008) they may be worth exploring for potential stocking up...pun intended.


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## leslie (May 25, 2009)

@Blush
One way to keep perspective on downdrafts is NOT to measure the fall from its peak. That maximizes the fall and sells papers.
Instead trace horizontally back though time to the last TIME the market was at this level (or your portfolio). In this case the TSX is back to 2007 levels, http://online.barrons.com/mdc/publi...r+a+symbol&ma=0&maval=20&lf=2&lf2=4&lf3=65536 Pretty dismal. But the S&P is only back to a few months ago. http://online.barrons.com/mdc/publi...r+a+symbol&ma=0&maval=20&lf=2&lf2=4&lf3=65536 Nothing at all to fret about.


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## Pluto (Sep 12, 2013)

james4beach said:


> brad, that's besides the point I'm making. My point is that a stock investor really should be staying in stocks for at least 10+ year periods. If they have a shorter horizon, they shouldn't be in stocks.
> 
> If you think a 0% real return on a GIC is bad, well, negative real returns are worse. Short-term investors have seen soooo many negative returns. Here are some 5 year TSX periods with negative returns, in which you would have been better off in GICs (or cash!)
> 
> ...


You are over looking some strategies. If you are selective and buy the obvious quality stocks, one is ahead during the 1997 to present period. For instance look at RY, royal bank, from 1997 to present. Also you are not including dividends in your analysis. Would you exclude interest from gic's? In 1997 if one bought the canadian banks, one or two telcos, a couple of pipelines, a utility dividend arstoccrat, one would do OK over the time period. Too, many use dollar cost averaging. If you test the time periods with that strategy, and include dividends, it may not look so bad. 

You are just looking at the tsx index which includes a lot of cyclicals and dogs. Its a good place to start your analysis, but if you look deeper as suggested above, you can find a better stock strategy.


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## gibor365 (Apr 1, 2011)

> Have GICs ever returned more than inflation? I don't know, but I'd be surprised if they ever have.


 Sure! Right now inflation is 2.1%, Peoples Trust 15 months GIC is 2.45%... if you use correct promos you may get on HISA 2.5 - 3% (I get currently 3% in Tangerine)


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## My Own Advisor (Sep 24, 2012)

I guess that's my take Brad, over a few years or more, GICs are losers to inflation. I don't invest in GICs. Maybe in my old age I will, maybe....

In retirement I'd rather have a "cash wedge" of 1-year worth of expenses, then maybe, just maybe some bond ETFs or a bond-ladder and then the rest will be in income-producing equities and stocks.


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## Jaberwock (Aug 22, 2012)

Don't panic. 

The best approach is to buy good quality dividend paying stocks, focusing on stocks that regularly increase their dividends, and hold them for long periods. It is very likely that your dividend increases will more than compensate for inflation, so your real income will be continually increasing.


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## Pluto (Sep 12, 2013)

I'm not worried, but I am concerned and my concern is growing, but not because of this correction. My clues to be concerned are mainly US unemployment dropped below 6%. when the economy gets good, that's generally and eventually bad for stocks. The Russell 2000 has been correcting for some time suggesting that the good economic news is weighing on small cap investors who have recently been willing to sell at lower prices. Looks like Germany is going into recession. China growth is slowing, and I doubt if their stimulus will stop the slide. UK is slowing, and so on. All that could drag down the US, and Canada with it some time next year. 

I doubt if this correction is the big one that develops into a bear market. But it has me thinking about developing a plan to preserve capital. So far, the best I can come up with, without selling stock is - at a later date yet to be determined - is buy puts on the SPY. 

I think that folks who are fully invested and are buy and holders should at least consider such a strategy. A comparatively small amount in puts on a major index could help to dull the pain of a bear market, and when the puts are sold, provide cash to perhaps buy more of what you already have at lower prices.


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## brad (May 22, 2009)

gibor said:


> Sure! Right now inflation is 2.1%, Peoples Trust 15 months GIC is 2.45%... if you use correct promos you may get on HISA 2.5 - 3% (I get currently 3% in Tangerine)


Um, Gibor, can you state with confidence that inflation will stay at 2.1% for the next 15 months? I can't, and nobody can. My question was "have GICs ever returned more than inflation?" To answer that question you have to look backward not forward, because you have to compare the rate of inflation that actually occurred over the period of a GIC with the rate returned by that GIC. It's entirely possible that there are examples where GICs beat inflation, I'm just not aware of them and would like to see the evidence.


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## birdman (Feb 12, 2013)

http://www.slideshare.net/LColePEI/looking-back-at-historical-returns

The above provides some historical info on 5 yr GIC rates and inflation rates are easily found. As an aside, I'm pretty sure GIC rates normally mimic the G/C bond rates within about 50 bps or so. Both bond and GIC rates are based on the market and if the market forces suggest higher interest rates then that predicts higher inflation. Also, some GIC rates are directed at areas where the F/I needs funds. For example, if most of their mortgage customer are wanting 5 yr mortgages the F/I may either increase their 5 yr GIC rate to fund or "match off" the interest rate on the mortgages. Alternatively they increase the mortgage rates. Alternative interest rate strategies are also available. The F/I operates on the spread between "matched" deposits. This is a simplistic approach and the process is considerably more involved and dynamic. I think the only way to beat inflation with GIC's is to invest in longer dated deposits when interest rates are expected to fall. Ifollowed this strategy a number of years back and invested long (5 yrs) in GIC's and when inflation was around 2% I was receiving up to 5.5%. I believe I still have 2 GIC's pahying 4% or slightly higher but they mature within the next 12 mos.


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## james4beach (Nov 15, 2012)

5 yr GIC rates tend to follow the 5 year corp bond market with higher yields because they're illiquid. The corp bonds in turn follow the govt bond market, so yes ultimately everything rests on the govt yields.

It's true that bond yields and thus GIC yields are very low right now. But you're not supposed to time the market: in the GIC ladder approach, you regularly buy 5 year GICs

Just as stocks can't be predicted, interest rates can't be predicted either. You're _not supposed_ to trade around the stock and bond markets (you can try; it's just next to impossible). This is all about asset allocation... the fundamental question is the % breakdown you desire between equities and fixed income.

Earlier this year I remember seeing some GIC promotions from scotia. It was 3% on a 5 year. Luckily I bought some at the time, but I didn't realize how great a deal that would be -- in hindsight. It's very difficult to predict interest rates; look where we are now. That's why you're supposed to keep buying them regularly into your GIC ladder... I believe that's the best way.


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## birdman (Feb 12, 2013)

I know yourself and lots of others support GIC ladders but they are not for me. Interest rates go up and interest rates go down and when they are the way down I like to extend my maturities and when they are low, like now, I like to shorten my maturities. I believe 2.2% or thereabouts is presently available for around 2 yrs and I would take that over say 2.7% for 5 yrs. Also, following the GIC ladder would not seem logical when you have an inverse yield or other abnormal interest rate curves. The GIC ladder seems to ignore the steepness of the interest rate curve, the shape of the interest rate curve, the economic forecast, and where we are in the economic cycle. Perhaps a modified ladder approach allowing some variation in percentages in each bucket could be a consideration. Not saying everyone should do what I do but to each their own.


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## lonewolf (Jun 12, 2012)

The banks like to promote the GIC ladder esp in registered accounts so they can keep their clients on the merry go round. Their fees are so high to transfer out into an institution with a higher interest rate, investors will not bother to transfer or they make a bundle in fees if the investor transfers. It would not surprise me if most investor just went with the 5 year GIC when ever they wanted to buy GICs, unless if some point in the future the shorter term GICs paid more then the longer term GICs would make more money over their lifetimes


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## lonewolf (Jun 12, 2012)

nobleea said:


> When food is on sale, people stock up. But when stocks are on sale, they sell.


 The more expensive stocks are the more the retail investor buys. 

When something is bought & sold @ auction by a herd the laws that govern price of when people buy & sell seam to invert.

@ or near the top of the bubble it is easy to forget the second part ( the more expensive stocks get the more the retail investor buys)


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