Last week’s theme was market madness, with headlines filled with dire predictions of the end of our lengthy bull market. I received many emails from readers and clients who were wondering what to do. Is this the start of a major decline? Is it a buying opportunity?

My answer: I have no idea. If you’re comfortable with the investment plan that you made eight months ago, why should it change based on a few days of volatility? If you were away on vacation for two weeks, without access to any sort of financial media, you’d barely notice a change in your portfolio upon your return to civilization.

Indeed, this week saw the TSX and S&P 500 roar back to restore most of last week’s losses. The more we try to invest based on emotions rather than sticking to our plan, the more we open ourselves up to making a big mistake.

I understand if you need to rebalance. For example, I hold three TD e-Series funds in my children’s RESP account and I try to keep the allocation of each fund at one-third of the portfolio. So the portfolio looks like this today:

Fund Book value Market value Percentage
TD Canadian Index $4,272 $4,346 33.4%
TD U.S. Index $2,939 $4,340 33.4%
TD International Index $3,611 $4,315 33.2%

Now it’s not always that perfectly in balance, but each time I have to add another $300 contribution I will add it to the lagging fund, all things being equal. Note that the portfolio is rebalanced based on market value, not book value.

Some of you may have much larger contributions to invest, but it still makes sense to distribute your funds into the allocation that you decided on when you made your plan all those months (or years) ago. Today’s volatility is meaningless to your long-term investing goals.

This week’s recap:

Don’t forget to enter our HUGE five-year anniversary contest, with over 60 prizes to give away. The contest ends on August 31st, so make sure to get your entry in soon.

On Monday I ranked our kids’ summer activities from worst to first.

On Wednesday Marie wrote a great primer on CPP in a new series about understanding your retirement benefits.

And on Friday Marie shared some random musings on high gas prices, soaring food costs, and the recent stock market turmoil.

I’ve started a new column at the Toronto Star called The Comparison, where basically I’ll be pitting two products, services, or ideas against each other head-to-head to see which is best. It should appear regularly twice per month. Here’s my first column: Sitter vs. Saver.

The 5i Research blog is running a series on biggest investment mistakes and featured my biggest mistake – not having a plan when I first started investing.

Over on Rate Hub I did some simple math to tell whether an annual fee credit card is worth carrying.

Weekend Reading:

Nobel Laureate Robert Shiller says human nature, not China, explains market volatility.

Is a pullback really a buying opportunity? Canadian Couch Potato Dan Bortolotti explains:

“A disciplined plan is so important because it gives you a reason to invest. Your emotions, on the other hand, will always give you reasons not to.”

Breathe, relax, the world is not ending. Words of wisdom from the Tawcan blog.

Adam Mayers shares an interesting story about Vikings, market corrections, and the lessons of history.

In another good analogy, Robin Powell explains how active investors and football players can learn from each other.

Liz Weston talks about six kinds of money bullies and how to handle them. My personal pet-peeve: the one-upper.

Dan Wesley gave in to a bit of lifestyle inflation and hired a house cleaner. Frugal fail, or smart trade of money for time?

John Ryan wrote about financial inertia and wondered why it’s so hard to move on from long-term banking relationships.

Is the cost of post-secondary education worth it? Tim Cestnick says:

“If your child is attending post-secondary school, the amount of money they pay and the debt they are willing to take on should be driven by their potential earnings afterward.”

Along the same theme, here’s why university shouldn’t be a free ride, even if it could be.

Smart advice from Ben Felix: beware the sales pitch of “downside protection”.

Finally, Jason Heath has some suggestions for a conservative investor who’s sitting on $300,000 cash.

Have a great weekend, everyone!


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