Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Record cash levels in bear market suggests buying opportunity for stocks?

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Stock market trend business concept and financial prediction uncertainty symbol as a heard of bulls and bears running towards each other to set the direction of an economic forecast.
Is Cash your no-man’s land between battle of the bulls and bears? Try not to get trampled!

Here’s my latest Financial Post blog, which looks at the record amounts of cash scared Canadian investors are sitting on during this bear market. For full blog, click on the coloured headline here: When Volatility Scares You, is it Time for Investors to Buy or Sell?

The blog accompanies Garry Marr’s piece on the CIBC World Markets report released Tuesday: Ocean of Fear: Canadian investors sitting on record cash pile risk billion in lost returns.

Since markets got off to their worst January in decades, per force the Hub has been running several blogs on the topic of volatility. See also from the past week:

Hedging in the Retirement Risk Zone (which is mentioned in today’s FP blog).

Volatile, Unpredictable and entirely normal.

Behavioural Finance: Coping with Losses.

Indexers are terrible at indexing

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Cartoon Humor Concept Illustration of Couch Potato Saying or Proverb

By Robb Engen, Boomer & Echo

Special to the Financial Independence Hub

Despite all of the evidence that low-cost passive investing outperforms actively managed portfolios, many investors still cling to the belief that an active approach can help steer them through turbulent times in the market.

Even investors who have taken the plunge into index funds and ETFs can’t help themselves when faced with uncertainty. Emotions take over, as do our instincts to tinker with our investments to try and optimize performance.

Earlier this month, Dan Bortolotti updated the investment returns from the ever-popular Canadian Couch Potato model portfolios.

Despite Dan’s best efforts to explain that these new and simplified portfolios should be used as part of a long-term investment strategy, the overwhelming number of comments from readers suggests that it’s nearly impossible for indexers to simply set-it and forget it.

Continue Reading…

Volatile, Unpredictable … and entirely Normal

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Kara Lilly

By Kara Lilly, CFA

Special to the Financial Independence Hub

Stock markets have been jittery lately.

After improved sentiment last quarter, investors now appear to have heightened concerns. Not only have fears around China resurfaced, stoked in part by downbeat economic data and circuit breaker sell-offs, but weak global commodity prices also continue to elicit concern. Oil now sits below $30 per barrel, while the VIX index, a measure of volatility in the S&P 500, remains at an elevated level (approximately 29).

A lot has been going on in the global economy…enough that some shops have issued dire warnings of the days ahead. But while recent events do appear negative—insofar as they represent bad cards that have come up—they are not wholly surprising; the risks around China and weak commodity prices have been known for some time. Moreover, they warrant neither a kneejerk reaction nor panic.

Investor apprehension in this environment is both understandable and natural —and we must ensure it does not hijack us.

Markets are always volatile and unpredictable

Continue Reading…

Behavioural Finance: Coping with Losses

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Depositphotos_65204705_s-2015By Aman Raina, Sage Investors

Special to the Financial Independence Hub

In the 20-plus years I have been investing, I have yet to meet or work with anyone who enjoys losing money.

I’ve met people who have lost money (yours truly included) and I can’t say it gives anyone or myself great satisfaction. We spend all of our time trying to make investment decisions that will be successful.

Unfortunately and it’s nobody’s fault, we don’t spend enough time understanding what losses mean and how they can impact our future decision making beyond the tangible reduction in our RRSP or TFSA broker account.

In my previous post, I discussed a concept involving the Endownment Effect that Richard Thaler observed in his book, Misbehaving: The making of behaviorial economics. According to Mr. Thaler, the Endowment Effect feeds into a general discussion on how we behave when it comes to losing and making money. Conventional thinking suggest that because we don’t like losing money that we will tend to take less risk to minimize loss and conversely take more risk when we are making money.

Losses “hurt” more than “gains” provide pleasure

Continue Reading…

Hedging in the Retirement Risk Zone

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Bull Vs Bear stock market conceptMy latest MoneySense blog reveals some of my personal strategies for dealing with the bear market: How I’m preparing for Retirement in a bear market.

There may be a few ideas for anyone who, like myself, is in the “Retirement Risk Zone.” That’s the five years prior to and five years following your projected retirement date. If it’s 65, the traditional age, then the Risk Zone is between age 60 and 70. Based on the Hub’s demographic user patterns, a lot of people are in that category (although we actually have lots of millennial and Gen X traffic too on both sides of the border).

Towards the end of the blog, I talk about portfolio hedging. I have to credit my fee-for-service financial advisor for most of these concepts. He didn’t want to be named for the MoneySense blog but he is listed in the Hub’s “Guidance” section elsewhere in this site.

It took me awhile to accept that hedging — that is, using options or selling short certain ETFs representing the major indices — is as much a risk reduction strategy as it is a “risky” strategy.

Hedging means trading off some upside for downside protection

The best way I can describe it is that you’re willing to give up some upside in return for protecting the downside. Continue Reading…