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moneysense.ca, 10/10/08
This and That # 113: Financial Fear Factor Edition
- The markets have gone totally mad. The S&P 500 has lost more than 17% of its value in just the past four trading days. In October alone, the market is down 22%. And investors are bailing out of the markets in record numbers.
- With the markets in a free fall, Jason Zweig says that pretty much everything is on sale these days.
- With all the turmoil in the markets, the Federal elections have become a side-show. Canadian Financial DIY neatly summed up the platforms of the major political parties.
- Squawk Fox reviewed The Dip by Seth Godin.
- Money Ning on things to do in a bear market and uncertain economy.
- Four Pillars wonders if now is a good time to buy a house.
- Clever Dude couldn’t resist checking his investments.
- Blunt Money has some tips on preparing for a layoff.
- Million Dollar Journey featured a guest post on using universal life insurance with corporations.
- Congratulations to Canadian Financial Stuff on a significant milestone: 1000 posts.
Happy Thanksgiving everyone! Have a great long weekend!
moneysense.ca, 10/10/08
Hey CC! Thank you so much for the dippy linky! Happy Thanksgiving!
CC:
Happy Thanksgiving, and thanks very much for the mention as well. Don’t eat too much Turkey (or hurt your back raking leaves).
C8j
Thanks for the mention!
Thanks for the link CC. Enjoy the long weekend!
Hi CC, thanks for the link. I liked Michael James’ follow-up analysis on his blog of the unintended effects of some of the parties’ proposals.
One more worthwhile newspaper story today, banks are starting to give us the other half of the prime reduction, Scotia dropping prime to 4.25%, TD/CIBC to 4.35%.
http://www.globeinvestor.com/servlet/story/RTGAM.20081010.wtdrate1010/GIStory/
Hey CC… This financial fear factor that you describe has caused some interesting predicaments for me.
The first is asset allocation. As I’m currently 40 yrs old, I try to stay 40% in fixed income products. Before the madness, I was actually under my target at about 30% to 35% fixed income, but now that my equities have plummeted, I’m now officially 50% in fixed income which is OVER my target. I’m sure many other Canadian investors who watch their asset allocation are in the same predicament. Do you only try to re-balance using “new” cash, or do you actually sell off some of your fixed income holdings to re-balance into equities?
So far this year, the total net worth of my investment portfolio has been slashed by about $100K. So, the second dilemna that I have is that my total investment portfolio balance has fallen so far that I no longer qualify for the lower trading commission rates from my broker. In order to re-capitalize my brokerage account based solely upon my earned income, it is going to take me about 3 to 4 yrs of saving every extra loonie in order just to re-qualify for the lower commission rates, assuming that the equity prices stay where they are today. If they continue to drop, then it will take even longer to qualify. That means I’ll have to either eat the higher commissions, move my accounts to another institution, or else I’ll just have to save money for the next 4 yrs in some money market mutual fund until I can get my balance up to the point where I can re-qualify.
That said, I still have 25 yrs until retirement, so I’m not THAT concerned yet, this is only a relatively minor setback for me. I actually fear for the people who are approaching retirement, let’s say in their late 50′s or early 60′s. How on earth are THEY going to afford retirement? They’re totally screwed.
Although I do agree with the overall market sentiment that things still look very very bad and there’s no light at the end of the tunnel yet… On the other hand, I think the stock market is reaching “capitulation” status as it may be nearing an over-sold situation. However, as I mentioned above, how do I recapitalize when my fees have gone through the roof? Things to ponder over the next while.
I see that you recommend people dont panic and dont sell their investments – however, I think that is advice for a normal market – and as you say the market has gone mad, and so I think it is very dangerous to advise people to do the normal thing in an abnormal situation.
Nice list CC and thanks for taking the time to compile it!
Steve: Thanks for the heads up. It’s nice to see that most banks have now matched the BoC cut.
Phil: I did both in the current decline: I added new savings to stocks and rebalanced last week as bond allocation increased to 25%. I’m also a bit puzzled that your losses are greater than 50%. I have a smaller allocation to bonds and have experienced losses (similar to the Sleepy Portfolio) of about 30%. The actually loss is much less because I’ve been investing savings over the last year at lower prices. That might suggest that your allocation within stocks could be riskier than you thought?
Jason: Panicking is the wrong thing to do. Yes, the markets have gone mad but sanity will return. The markets do go mad and just as we shouldn’t lose our heads when everyone is greedy, we should be calm when others are panicking.
Wow, reading that Globe and Mail article really hammered home something that I long suspected to be true: a lot of financial planners are really dumb! Seriously, there is a LOT of bad advice and stupid commentary from “the pros” in that article.
My favourite dumb quote:
“I advise selling at a peak and not having to go through this… Well, they should sell. Let the market capitulate without their savings.”
Yeah, right, sell at the market peak, what could be more simple? And, don’t capitulate- sell! Nevermind that selling is what capitulation is all about. Shocking. Really, it is completely shocking. I could go on, as there is a gold mine of dumb quotes in the article, but I should get back to work.
TEMPLE
PS, CC, I really enjoy your blog, and lurk frequently. Keep up the good work!
The Dip, like almost anything by Seth Godin, is worthwhile. I prefer his audiobooks since he reads them.
I wrote about The Dip last year (http://blog.riscario.com/2007/10/thoughts-on-dip-by-seth-godin.html).
I still love his line: “A woodpecker can tap 20 times on 1,000 trees and get nowhere but stay busy. Or he can tap 20,000 on one tree and get dinner.”