Living with fierce market swings
October 28 2008 by Ellen Roseman
The October effect is a common pattern, a time for seasonal market turbulence. But who expected a month like this one? Who can remember such a severe slide in stocks around the world and so many dire forecasts about the economy and the financial system?
On TV, so-called experts are talking about markets overreacting and starting to stabilize. But where is that bottom? Will it ever arrive?
It’s not only stocks gyrating wildly. It’s also the Canadian dollar — why didn’t you take that foreign trip sooner? — and the price of oil. You’re happy to buy gas at just under a dollar, but soon after you fill the tank you see it selling at 93 cents a litre.
Last Saturday, I did a story about three investors (no longer in the work force) and how they were coping with chaos. One was meditating to keep calm, another was watching business TV all day and hunting for bargains, while the third was fierce in his determination to stick with guaranteed investments in his retirement plan.
The online comments were divided. Safety first investors said stocks were for gamblers and markets were casinos. Many asked me how Lloyd Davidson managed to get 5 per cent on GICs. He explains how he does it below.
Another group, conservative risk-takers, felt stocks gave the best returns in the long run. GICs were dangerous if they were all you owned. You would lose your purchasing power and never keep up with inflation and taxes.
I’m in the second camp myself. Having lived through financial crises in the past and seen my portfolio value recover and grow again, I know I’ll get through this one too. But it’s easier to look back on previous pullbacks than to wait for a current pullback to end.
The constant media coverage doesn’t help, either. Are you switching off the news? Or are you reading or watching more than ever?
I’m leery of anyone who talks about “buying opportunities” in these unstable markets, unless they’re describing a strategy of investing gradually and averaging your costs.
Prime Minister Stephen Harper’s comments, which probably cost him a few seats in the recent election, were pilloried in this Toronto Star editorial.
Lloyd Davidson
Oct 28 2008
The following is advice from an ordinary investor who has learned from a lot of experience and has personally succeeded with this strategy. He has no specific training or accreditation as an investment advisor.
Some tips to maximizing your returns on a GIC-only retirement investment strategy:
CDIC coverage is $100,000 for each person for regular accounts, RRSP, RRIF and joint accounts. If an institution is CDIC-insured, no matter what its name, no matter where it is, no matter if it does not even have an office, your money is safe, as long as it does not exceed that number. Some institutions have more than one entity and can insure your investments up to $500,000.
Consider GIC terms. In most cases, go long. Don’t play the market game on length of terms. At different times, shorter terms will act differently than longer ones. For example, right now, long terms are relatively stable, but short-term rates are dropping. Playing term games will not be a winning strategy either.
Put your money only where it will get the maximum return. Do not hesitate to move it for even a 1/4 point. Put it in several institutions if necessary to achieve your maximum return.
If you have a reasonable sum — I’m not sure what that is and it can vary by institution, circumstances and market conditions — you can make demands for GIC rates higher than those posted by the institution. In some institutions, branch managers have authority to offer higher rates. Their ability to offer higher rates will vary, depending on term. The bigger your investment, the bigger your demands can be.
I have been getting around 2 percentage points above so-called posted rates. My guide is to watch the market and ask for the rate that is the highest in the market anywhere, no matter what the individual banker’s posted rates are.
Do not hesitate to shop the market. If you get an offer, go to their competitors and tell them they must beat that offer to get or keep your investment. Some will do nothing. Some will actually compete. Don’t bluff.
Do not wait till the maturity date of your current GIC to begin this process. An institution that has your current investment will resist and possibly refuse to make an advance offer. An institution that does not have your current investment will make offers good for a period before the maturity — sometimes up to a month before.
If you do the math, even a 1/2% improvement will make a huge difference down the road.
RRIF investments can be managed too.
Don’t even consider talking to investment dealers or brokers about these investments. They are not interested and will only try to talk you into something else. A GIC customer does not earn a bonus for them. They are not your friend nor should you trust their advice. Their training is to get you to believe they are and you should.
Sleep well, your investments are 100% guaranteed. The alternative is playing the lottery of the “market”.
Ask yourself this queston: If I could find a way to manage to get a higher return (doubtful), how would it change my life?
If you are honest with yourself, the chances are very good that the answer will be not enough to take the risks of the market. Your retirement funds are what you must live on. Take no risks with what you will depend on to pay the taxes on your home, the clothes on your back, and buy the food for yourself and your partner.
Michael James
Oct 28 2008
I’m no fan of Harper, but I thought his remarks about the stock market were quite reasonable.
All major market drops in our history have been buying opportunities. If you wait for the bottom, you’ll never buy in because you can never be sure that you have found it.
Several years from now when the TSX gets to 20,000, we will look back and say that 12,000 was a bargain, even if 10,000 was a better bargain.
Anyone who looks to experts for short-term stock market advice is doomed to be disappointed. A key to investing is to keep money you need in the short term out of the stock market.
Expatriate student
Oct 28 2008
I am doing a series of internships in the United States. I get paid a modest stipend, I live simply and have no debts. I have a BMO saving account and a US account.
I lost about $800 US worth of value in my BMO account. If the loonie keeps dropping, I will empty the account and salvage what is left.
Canada and the U.S. are closely economically aligned, with stable governments and highly developed economies and societies. The drop of the loonie is akin to having a currency from a politically unstable developing country.
I discussed this with my BMO branch manager and was told I could transfer my funds to my U.S. account. I also contacted the BMO ombudswoman and she is willing to help set up a hearing about my case.
I know that currencies fluctuate daily. I can live with fluctuations within 10 per cent.
I was shocked when I looked at my BMO account balance last week and thought someone had tapped into my account. When I called BMO, I heard that the exchange rate for Canadian dollars had dropped to 77 cents (U.S.). My buying power is down about $800-$1,000.
I don’t want to close my account, but if the loonie drops further I may do that. Remember what happened in Argentina? Since I am in another country, I counted on the stability of my currency within a reasonable limit.
I wanted to know that the funds were there if I really needed them, but the risk I was exposed to is unacceptable.
I don’t plan to take large amounts out, but only small amounts a few times during my stay here. I do have dual residency and I can work, but my studies and conditions of my internships make regular work impossible.
Perhaps the US election will boost the loonie, but I know there’s a history of its dropping close to 60 cents (U.S.). It IS an unreliable currency.
If I don’t get resolution, I will put all my money in U.S. dollars and only use a Canadian account for direct deposit.
As turbulent as the economy is, the US dollar has more clout and influence in the world — although other currencies may top the dollar for a short while with only a small spread.
I plan to work in Latin America. I am locking into the U.S. dollar or a currency that is locked in or floats. I am dumping the loonie. For currency speculators, it is something to play with. For those that want to do stable business, it is a very bad card.
WGA, stockbroker
Oct 28 2008
I have to totally disagree with the investor who is putting all his money in GICs.
His RIF payment starts at 7.38% and in 15 years it is up to 10.33%. With a return of only 5%, he will find his annual RIF payment decreasing substantially over the years.
I am confident that if he had put half his funds in quality stocks when he started investing in l975, he would have obtained far better returns.
In 1996, our investment firm RBC did a projection of our RIFs using a return of 7%. At the end of 2007, the balance in the accounts is more than double the estimate and the annual payouts are also twice the estimate. This result was achieved by investing in quality, dividend-paying equities.
Although the accounts have lost almost 16% this year, the balances still far exceed the estimates.
With a number of stocks now paying a dividend of approximately 5% based on their present value, I would think that these investments would offer a far better return than GICs.
Ron Robins
Oct 28 2008
I greatly enjoyed your article, especially the points made by Murray Soupcoff!
I have been practicing TM myself for 38 years. For three decades, I also specialized in teaching it to Toronto banking, financial and investment industry executives. So it was refreshing to see TM being referred to again in a related way in your article.
The Star actually covered my TM teaching activities in a piece on May 24, 1993. You can see the article by following these links.
http://investingforthesoul.com/images/Executive%20Meditation%20Tor%20Star%20240593pg1.jpg
http://investingforthesoul.com/images/Executive%20Meditation%20Tor%20Star%20240593pg2.jpg
Incidentally, I sent you an e-mail in September notifying you about my present activities as founder and analyst, Investing for the Soul, a globally popular and unique website on ethical investing. It also covers the latest world-wide news and research on the subject.
Again, thanks for bringing the important stress-alleviation tool of TM to everyone’s attention in these difficult times.
RE
Oct 28 2008
Great article on staying calm during this stock market crash !!
Kind of hard, though, when guys like me worked 40 years to accumulate a retirement fund, only to have over 100 Grand disappear because of the United States of America !!
One thing no one ever seems to mention is the role of automation in creating the huge losses. The other day as the market plummeted, as usual the announcer commented that the drop was caused in part by automatic “Stop Loss” orders which just sold everything.
As we know, the stock market is nothing more than another form of gambling. If you have ever operated slot machines, you will notice your dollars disappear VERY fast when the machines are running fast.
This is such a problem in some areas that the government was forced to reduce the speed of these machines (the video lottery terminals, in particular) in order to keep people from losing too much $$$.
If certain forms of electronic trading were eliminated, I wonder if the huge losses would be slowed.
Or how about simply closing the exchange when the losses are too high to create a cooling off period? This was done in Manila Monday.
Anyway, there were no computers in 1929 and the American system once again crashed, taking the whole world with it. So maybe nothing is going to save us.
KC
Oct 28 2008
Global fears are driving the market plunge — some analysts say to the brink of disaster.
Amidst the mounting despair comes a new financial institution, located at 70 Broad St., one block from the NYSE, which is offering a comprehensive plan to quell the market panic and even stimulate the economy.
John Hagelin, Ph.D., is a world-renowned quantum physicist and executive director of the Global Financial Capital of New York. Dr. Hagelin is also expert in the research and applications of meditation.
He says the stress-busting outcomes of Transcendental Meditation, documented for decades by medical researchers, can be applied to society as a whole, including the markets.
Dr. Hagelin outlined his plan to quell market panic during a news conference on Tuesday, October 28, 11 a.m., at the Global Financial Capital of New York. The plan includes:
–Teaching Transcendental Meditation to Wall Street firms to reduce stress and anxiety and improve leadership and decision-making skills.
–Establishing an elite group of 1,000 advanced meditation experts in New York, whose calming influence will spill over into the surrounding environment, quelling fear and increasing creativity and productivity. Similar elite groups will be established near other world financial centers.
–Enlarge the current group of 2,000 experts to 8,000 experts at Maharishi University of Management in Fairfield, Iowa, to create coherence for the whole world. This is the basis of an invincible, prosperous global economy.
Dr. Hagelin said dozens of studies published in leading scientific journals have confirmed the positive effects of group meditation on social trends, including improved economic growth and reduced crime and violence.
http://globalfinancialcapitalny.org/
DLB
Oct 28 2008
Hi Ellen, I saw your “scary markets” in Saturday’s Star and was intrigued by your interview with Murray Soupcoff. If you’re planning on following this story, I wanted to pass along a news release that came across my desk a few weeks ago. I still get emails from angry investors on this one… and CRIIA is no exception.
——————————————————————————————–
Citizen group pleads for trust cash flow to continue
Vancouver, BC – October 9, 2008: Today, as millions of Canadians remain invested in income trusts and many rely on trust distributions for their livelihood, the Canadian Retired & Income Investors’ Association (CRIIA) is calling for a review of the rules to support the much needed income provided by trusts.
Amid a looming global financial crisis and Canadian federal election, retired investors represented by CRIIA are left wondering why they have even less options to earn income in periods of instability.
“I started CRIIA because I saw how my retired parents were so terribly harmed when this important investment vehicle was suddenly and surprisingly targeted to be wiped from the market,” says Alexander Irwin, Director and General Secretary of CRIIA.
“Trusts remain a good source of monthly income to pay the bills for many hard-working Canadians like my parents. But ever since the tax rules were changed, investors are hurting and this once reliable income source has been thrown into uncertainty. A potential world financial crisis only makes matters worse.”
Millions of Canadians, either directly or indirectly, are invested in income trusts, which, through distributions to unit holders, represent an income stream that is taxed as personal income – a fact often overlooked. Many Canadians have trust holdings in their RRSPs, mutual funds or benefit plans.
As economic times are changing, retired investors are finding it more difficult to earn enough investment income to make ends meet. And it’s seniors who are feeling the financial pinch the most.
“We need to rethink the trust rules,” says Irwin. “We need practical solutions to help money flow into the hands of Canadians and bolster our economy. We can’t let income trusts become a financial tragedy in the livelihoods of so many Canadian seniors.”
The Canadian Retired & Income Investors’ Association is a federally incorporated not-for-profit corporation representing the interests of ordinary Canadian retired and income investors.
For media interviews and inquiries, please contact:
Alexander Irwin
Director and General Secretary
Canadian Retired & Income Investors’ Association
criia@telus.net (604) 230-0980
http://www.criia.ca
Grampa Ken
Oct 29 2008
Lloyd I agree with your comments. Shopping for a higher rate (1%) can be as simple as moving an account from a bank to a credit union. They did offer a higher rate after I transferred the account.
I also found the bank way too persuasive towards equities and would often return home with something I didn’t want.
On my Dow chart a baseline thru the 1942 and 1982 lows extended to the present is at about 3500. A bit drastic perhaps. The run from 1980-2007 also looks unreasonable in its very strong high rise. It just looks out of place on the 100 year chart so as to suggest that enough is enough, for now.
Paul Fraser
Dec 15 2008
RBC Bank President Gordon Nixon - Salary $11.73 Million
$100,000 - MISTAKE (FISHERMEN’S LOAN)
I’m a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.
There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn’t familiar with these type of loans. She never informed me verbally or in writing about the new criteria.
Phone or e-mail:
RBC President, Gordon Nixon, Toronto (416)974-6415
RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail to:greg.grice@rbc.com
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail to:brian.conway@rbc.com
RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail to:tammy.holland@rbc.com
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail to:ombudsman@rbc.com
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail to:ombudsman@obsi.ca
http://www.corporatebully.ca
http://www.youtube.com/CORPORATEBULLY
http://www.p2pnet.net/story/17877
“Fighting the Royal Bank of Canada (RBC Bank) one customer at a time”