Some annual housekeeping to keep allocations on track
Concerns about the health of the global economy, the effects of the U.S.-China trade and tariff dispute, rising interest rates, and the flattening yield curve combined to make the stock market slump of the fourth quarter one of the worst in a long time. Toronto’s benchmark S&P/TSX Composite Index dropped 11% in the quarter, as a 38% drop in the price of crude oil weighed on energy producers. The index ended the year with an annual loss of 11.6%. Similarly, New York’s blue-chip S&P 500 Composite Index plunged 14% in the fourth quarter for an overall 6.2% loss in the year. So is it time to sell stocks and re-set your portfolio with a heavier weighting to cash? READ MORE
Novices especially prone to classic investment pitfalls
Markets go through periods of volatility, and we are in one such period now. Market sentiment has been decidedly sour for the past few weeks. The Dow Jones Industrial Average recently sank into correction territory. And crude oil prices have slumped, hitting the energy sector hard. Economic growth in China is coming in slower than expected rattling exporters and commodity producers. So what’s an investor to do? Do you sell your stocks, get out of the market, and put your money under a mattress? But that would be precisely the wrong thing to do. Investors can go a long way to calming down if they simply avoid these four classic investment mistakes.
Even though most of us are preoccupied with other things at this time of year, there is a handful of year-end investment and tax tips that make a lot of sense to look at now. That’s because they could save you money now and next April, when it’s time to pay your taxes.
The Bank of Canada raised its interest rate to 1.75% on Oct. 24. It said that CPI inflation dropped to 2.2% in September, but that its core measures remain around 2%. For many novice investors, this may sound like a foreign language. What do these various inflation measures mean? And in any case, 2% inflation seems really low, so do you really need to be concerned about it for your longer-term investment portfolio? The short answer is yes, you should take inflation into account, because it can seriously erode your purchasing power over the long term. READ MORE
There’s nothing quite like the thrill of managing your own investments. That is, until things go south and you wonder whatever possessed you to buy that two-times daily bull crude oil ETF! Then there’s all that paperwork to contend with (what the heck is a “T3 – Statement of Trust Income Allocations and Designations”?) When should you sell to take a tax loss? And can you apply it against gains? Those brokerage fees that get into triple digits can really give you that sinking feeling at year-end (are they deductible or not?). Take heart. You’re not doing anything wrong. But you may have fallen into the trap that so many do-it-yourself investors do. You’ve let your investments start controlling you instead of the other way around. READ MORE
Carefully selected bond funds as part of a diversified asset mix
If you haven’t checked your portfolio for a while, you may have noticed that the performance of your bond mutual funds and ETFs has been lagging a bit. And you may be thinking of selling or switching. But before you do, think about how bonds are priced and the purpose they serve in a portfolio. While bonds are the classic defensive investment, and should generally be a part of a well-diversified portfolio as an asset class that is uncorrelated to equities, their prices react directly to the prevailing level of interest rates. READ MORE
Once you’re established in your profession or career, and you’re accumulating a sizeable nest-egg, getting financial advice from your second cousin or the bank teller just won’t do. You need to get some professional money advice. But where to begin? There seem to be so many people offering advice, and you often read of people losing their investments through fraud or incompetence. Begin by asking yourself what you think you might need a financial advisor to do. Very likely, you’ll be running across some of these experts. Here’s a look at what they all do. READ MORE
In this day and age of “robo-advisors” and passive index investing, many investors seem to have forgotten the single immutable truth that equity markets are inherently risky. That’s simply because the share prices of stocks traded on markets are influenced mostly by expectations of future earnings growth. Many factors can come to bear on these expectations apart from a company’s competitive position, financial strength, and industry outlook. These include shorter-term geopolitical events (not as important) and longer-term economic and monetary policies (more important). Put it all together and it adds up to market-wide trends, oscillations, and fluctuations, which are often characterized by a wide amplitude from top to bottom. This is what’s broadly called “risk.” And it’s what most investors have trouble dealing with. READ MORE
The lure of rising rates and market-linked returns
Current 5-year GIC rates are being advertised as high as 3.50%. Given that most savings accounts offer much less than 1.00%, some investors have been wondering whether it’s time to move funds into GICs as part of their risk-free allocation. Others go a step further and are considering GICs linked to a market index that, according to the marketing sheets, offer much more than 3.50%. Have GICs become a good investment choice now? READ MORE
A benchmark is a market yardstick independent of your portfolio against which your performance can be evaluated. It’s usually an index that tracks the performance of the broader market, like the S&P/TSX Composite Index or the Dow Jones Industrial Average, and so on. But with the growth of financial products over the past 20 years or so, especially exchange-traded funds (ETFs), indexes have sprouted like mushrooms, tracking ever-finer slices of this market or that. Many indexes have been created solely to provide a benchmark for just one ETF or one investment fund or pool and are therefore virtually useless as a gauge of broader market performance. READ MORE