Sunday, March 25, 2018

What To Do When Everything Drops?

I usually go for a walk and try not to obsess about my portfolio on days like yesterday and also the pullback in February. It's all Trump's fault anyway. Never before has one person wreaked havoc on the stock market as he's done lately.

All that BS about the biggest and best tax cut in history has vanished into the fog of tariffs and a trade war with China.

The problem in today's environment for investors is where do I park my money so it grows for a future date? 

The President declares war on China and everything you own blows up. Is it likely to continue or will we see a rebound. I mean 700 points of the Dow is no small cheese but can this get worse?

I'm not buying anything but instead increasing my exposure to bonds in my wife's account. In my own account I'm holding everything (I mean why sell on a down day?).

My utility stocks and a bond ETF are the only ones in the green.

What about everything else going on here in these exciting and frightening times we live in?

I am fortunate enough to have lived and was invested in the markets during the financial crisis of 2008/9. Most millenials invested with a robo or worse yet bank mutual funds have never experienced down days like Thursday and Friday of this week or February of 2018.

Historically, this is a big yawn. A 3% down day is something you have to stomach and a 10% loss on the week is something you have to hold through.

You would never sell your house when it's value drops. No, you know over time it will rise in price and when and if you decide to sell or downsize it will make money. Nobody I know of has ever complained that they sold their house for less money than they paid.

The same applies with your investment and retirement portfolios. 

The Noise

Another thing that bothers me is when I hear people talk about alternative investments like gold in trying and the end of days scenarios. They think gold is going to explode on days like Thursday and Friday.

The price went up a couple bucks but most of the stocks went down and did nothing. Why didn't they skyrocket when Trump declared war on China?

This is bullshit. There was nowhere to hide but to sell and go to cash. Nobody does that but pros who need to generate commissions.

It's just a major distraction and us little guys should never jump in and out of our stocks or ETFs.

The point and question is, what do you do?
  • ignorance is bliss, don't look
  • some days everything in the world drops, it happens
  • never react to day to day noise
  • it's all temporary
  • the stock market always recovers and moves higher
  • there is nowhere to hide so stop trying
  • nobody will have a good reason for you
  • it's all out of your control
  • gold does go down in bad times too

Active ETFs

These were created by the mutual fund companies to combat redemptions from their high priced funds. Instead of buying a globally diversified basket of ETFs you can purchase one that has an active manager in charge of trading in and out of positions to minimize losses. 

Are they any good? I dunno, never bought one either.

DXC which is Dynamic iShares Active Canadian Dividend Fund has a MER of 0.75 (expensive).

That's a lot higher than the broad based passive Canadian ETF XIC by iShares. It clocks in at a paltry .06% and is invested in the whole Canadian market.

DXC only holds 44 stocks, XIC 212.

You are paying for that active management and whether it reduces your risk remains to be seen. That's the whole point of active management or so I've heard.

iShares is just betting on the mutual fund customers who are fed up paying 2.5% for a Canadian Index Mutual Fund will be attracted to these new offers.

Cash is Still King

If you are tired of seeing profits erode with steep stock market declines, then hold a lot of cash. Anything that let's you sleep at night you should do. Matter of fact construct your whole portfolio that way.

I personally never hold a lot of cash because I think retirees still need a lot of growth in their portfolios so they don't run out of money when they need it the most.

I just take my lumps along the way and hold on for the inevitable market rise.

Whatever you do, don't believe the myth that there are better places to be invested when the whole market goes for a dump like Feb and March of this year.

It's the Trump factor in play, I just hope the game is over soon.

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  1. Give you credit, I could never write as many posts as you do or be objective. I don't mind different view points, I just am not one to be able to express the other view objectively.
    Back to your post, yea, do nothing or if you have cash buy more of those good DG stocks at dirt cheap prices.

  2. Thanks cannew. Well I am cutting back on those posts and points of view lately. It's summer and I'm busy as we all are. What was it Jack Bogle said "The stock market is a giant distraction to investing". Take care!