Why this bear market isn’t as bad as you imagine

18 responses so far ↓

• 1 Nurseb911 // Oct 26, 2008 at 9:55 pm

  It’s always a matter of perspective. I think investors look at the market decline from peak and start to get very anxious. Of course for many investors any decline of double digits is worrisome. I think this recent market decline has taught a lot of people that their risk tolerance was much lower and redemptions and selling I think clearly makes that point evident.

• 2 Traciatim // Oct 26, 2008 at 9:56 pm

  There is a very interesting post I saw over at http://www.visualizingeconomics.com that links to an NYT interactive graph showing the current decline happening at a faster rate than the great depression. It’s pretty neat and worth a look.

  I consider myself to have a guardian broker on my shoulder as I was simply using an RRSP through my work plan (since the company match is instantly vested in our plan) to buy a house right up until March of 2007 when I got out of stocks simply because we found our house (closed in April 2007). It’s kind of funny that the April to April YOY price increase for my city was an unsustainable 12% according to the CREA for average home sales. If I had of waited another year to buy the house, since I was really heavy on the equities (far more than I should have been looking back), I would probably not be looking at a house in the near future. Plus, since I’m still in the RRSP plan through work, I’m dollar costing back ll the way to the bottom at what could turn out the be the best possible starting point in stocks of my lifetime . . . Here’s hoping my guardian broker sticks around for the next 30 years.

  Of course, then there is my Dad who is retiring in 3-4 years who is also in to the equities hoping things would hold on for another 3-4 years with smooth sailing. I guess it’s OAS/GIS/CPP for him, which really sucks, but at least he doesn’t live in a country that he would to starve to death in.

• 3 Four Pillars // Oct 27, 2008 at 7:41 am

  Excellent point. I believe that investors need to keep track of the performance when things are good as well as bad so declines can be put into perspective.

• 4 moneygardener // Oct 27, 2008 at 8:44 am

  It is always interesting when people point out poor performance periods within markets as evidence that stock market returns are poor by cherry picking start date and end dates. Things can typically look as bad or as good as you want them to depending on the parameters you use. Many times it all just comes back to succeeding by staying in the market.

• 5 Rob // Oct 27, 2008 at 10:54 am

  CC- how has the sleepy portfolio beenfitted from the decline in the CDN $? Were your equities allocated according to world market weights? If so, your CDN dollar returns must not be too bad. Please comment….thanks

• 6 Canadian Capitalist // Oct 27, 2008 at 11:02 am

  Rob: The Sleepy portfolio and my personal portfolios have benefited from the steep fall in the C$. However, the benefit is only in US stocks, which are down a lot less than they would otherwise be due to unhedged exposure. Canadian equities, EAFE and emerging markets are all down significantly (close to half the portfolio). I guess this is another reason to construct well-diversified portfolios — about half of the portfolio has a much better relative performance.

• 7 Four Pillars // Oct 27, 2008 at 12:18 pm

  MG – I have a post scheduled on that very topic. It really annoys me!

• 8 Big Cajun Man // Oct 27, 2008 at 12:32 pm

  I am leaning towards the Sleepy portfolio for investing right now, since I already hold the Bond portion of it in my investments (seems to pay very nicely and regularly with a nice low MER).

• 9 Jamie // Oct 27, 2008 at 4:52 pm

  As a fairly young investor, I can’t help but think that this downturn might actually be a good thing for me. I’m in my 20’s and have a job that pays well and will likely be secure through this type of downturn. I have lost a relatively small amount of money on paper because my portfolio isn’t all that big yet, but I’m not planning on cashing that in for at least 30 years. If the market stays down for a few years, that would mean that the prices of index funds will be relatively low at a time in my life when I’m able to contribute the most to my RRSP. Am I wrong to be thinking this way? I can understand that this could be terrible for someone who is about to retire, but for young investors this isn’t such a bad thing, is it?

• 10 ETF2X // Oct 27, 2008 at 5:08 pm

  This sounds like what I would expect from a financial advisor (aka mutual fund salesperson). “You shouldn’t be upset just because all your gains since September, 2004 have been wiped out. Think of this as a great time to buy and send me a cheque for $10,000.”.

  The market decline is very serious and inflicts significant financial pain on a great number of people. Yes this is a once in a lifetime event (I hope) but it is real and will affect the spending ability of many thousands of retirees and Canadians close to retirement for the next decade.
  I hold a view which is in contrast to perhaps most of the posters on this site. I believe that always being in the market come hell or high water isn’t prudent. The S&P/TSX is down 41.5% since my timer advocated getting out of the market in mid-June. Was that a fluke call or can it be repeated? I certainly didn’t know how deep the decline was going to be but I am pleased as punch that I paid attention to the timer and put most of my RRSP in XSB.

  Fred

• 11 Canadian Capitalist // Oct 27, 2008 at 6:39 pm

  ETF2X: Unlike a mutual fund salesperson, I believe in low-cost investing in a well-diversified portfolio of asset classes, rebalancing and having modest returns expectations. Just as it is inappropriate to extrapolate the 50% gain over 2.5 years, it is incorrect to worry about the little or no gain over 3.5 years.

  It is not clear if market timing even works — there is plenty of evidence that market timers as a group fail miserably. I have no idea whether your market timer works, that’s for you to decide after taking the real costs of commissions, bid-ask spreads and taxes into account.

  Comparing long-term investing results based on 1 or 3 year results is a bit like handicapping the Stanley Cup on the results of the first game of the season — it’s meaningless. The latest market turmoil has done nothing to change my expectation that the Sleepy Portfolio returning 3.5% in real terms over the long term — 20 years or more.

• 12 TheProfitMaze // Oct 27, 2008 at 7:11 pm

  According to you, would it make sense to sell some bonds (which did not lose too much, at least much less than stocks) and buy some stocks with it now while stocks are cheap ?
  I agree that having an asset allocation and re-balancing is important but does it make always sense ? Maybe I can re-buy some bonds when the markets are getting back up… and meanwhile the money from my bonds could yield much higher future growth invested in stocks… What do you think ?

  Note : I am talking long-term here… around 25 years.

• 13 Hungry_Gal // Oct 27, 2008 at 9:05 pm

  The bear market may be great for us who are 20-25 years away from retirement. (Optimistically…)

  However, I am shocked by the number of investors who are in the retirement corridor who own portfolios that are completely inappropriate for them and are now in a position of having to liquidate some of their holdings for income. I am astounded by the number of investors/planners who adjust investment portfolios to reflect their financial objectives and time horizon.

  BTW – good point about ETFs with high MERs. wow. Why bother buying an ETF at that price?

  Moral of the story – take an active interest in your portfolio regardless of your financial acumen. Ask questions, and demand good answers from your financial planner.

• 14 Retired @ 31 // Oct 27, 2008 at 11:39 pm

  You haven’t lost anything until you sell! It’s just a number on the screen or paper statement. And you’re not really down as much as the market, unless you bought everything you own at the peak. The longer you’ve been putting money in on a regular basis for, the less you’re actually down.

  If you can’t recognize that things are on sale now, and hopefully getting cheaper by the day, then you really shouldn’t be in the market. Go buy a GIC and sleep at night. It is a terrific time to be buying. I plan to double or triple the size of my portfolio in the coming 6 months or so – cash is king and now’s the time to be putting it to work!

  TPM: It’s a good time to be rebalancing stuff back to your target allocations. You’ll be buying low right now by selling bonds and buying equities. Ask yourself if you were investing all the money today, would you be using the same allocation %’s? If so, then why wouldn’t you rebalance your “old” money today as well?

• 15 B.C. Doc // Oct 28, 2008 at 1:56 am

  That’s a great graph from the NY Times Traciatim. The slope of the cliff is impressive. It’s helpful to see some of the nastiest bear markets and see how far we might still have to fall.

  I was fortunate enough to head into cash while transferring accounts in December and May. I’ve been averaging back in– some days it feels like throwing money down into a black hole!

  I’m confident (hopeful?) that some day I’ll be rewarded for buying on sale. And I’ll continue to throw any cash I can find into ETFs over the upcoming months. Talk about a leap of faith…

• 16 Laura // Oct 28, 2008 at 10:48 pm

  Re currency conversion in the Sleepy Portfolio – back in April 2007 you said “My personal preference is to invest directly in US-listed ETFs without hedging currency exposure because in my opinion, hedging is simply chasing performance after the Canadian dollar has run up significantly. Recall that hardly any mutual fund or ETF engaged in hedging when the loonie was in the dumps but now it is a popular selling feature. Why pay an extra fee when currency fluctuations will even out over the long term? It is so predictable – investors are always fighting the last war.”

  Is this still your view given the drop in Canadian$ ? I’m interested as I was looking seriously at some of the Vanguard ETFs but the conversion gives me pause.

• 17 Canadian Capitalist // Oct 28, 2008 at 11:47 pm

  Profit Maze: I’ve personally sold some bonds and purchased stocks as bonds grew from 20% to more than 25% in many of our personal portfolios. I have no idea whether stocks will get cheaper — that’s always a risk.

  Hungry gal: In addition to the point you make about investors taking on more risk than they can handle, comments on how this bear market is derailing retirement plans are due to having unrealistic expectations — double digit returns over the next 20 years, even with recent drops, aren’t very likely.

  Laura: Currency fluctuations can either help or hurt returns — we don’t know which ahead of time. However, hedging costs are certain — higher fees, larger tracking errors etc. That’s why I continue to prefer to have unhedged exposure, whatever the recent performance of our currency.

• 18 squawkfox » Rehab, Girl Crush, and Links Oh My! // Nov 2, 2008 at 8:01 pm

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