Weekend Reading: Coronavirus, Markets, and Travel Edition

Let’s talk about last week. Unless you were living under a rock, which in hindsight might not have been a bad idea, you couldn’t help but notice that North American stock markets suffered their worst week of losses since the financial crisis. Global economic fears triggered by the outbreak of coronavirus disease (COVID-19) caused the S&P 500 to fall 11.5 percent, while Canada’s TSX dropped 8.9 percent this week. 

My own RRSP shed $15,000 – or 8.18 percent. Fear and speculation was rampant in the media, with several pundits predicting further losses and that the worst is yet to come. On the other side we had the ‘buying opportunity’ crowd. You know, the ones who endlessly crow about stocks being on sale and going bargain hunting. So annoying.

Then there’s me, sitting here with no bonds to sell and no unused RRSP contribution room. Sad.

A market sell-off of this magnitude has a real psychological effect on investors, no matter their age and stage. Retirees, or soon-to-be retirees, are undoubtedly concerned when their nest-egg takes a 10 or 15 percent hit. Investors still in the accumulation stage might be re-thinking their investment strategy as they watch their portfolio decline in value.

Let me remind you that a 10-15 percent correction is well within the normal distribution of returns. It happened in late 2018, and in August 2015, and again in August 2011. This is not new, so ignore any headlines that claim to say ‘this time is different’. 

Coronavirus and the Markets

So what’s an investor to do? This is a good time to remind investors that the money invested in their portfolios should have a time horizon greater than 3-5 years (ideally 10+).

It’s a good time to remind investors that their asset allocation should reflect their actual risk tolerance, not just their perceived tolerance when markets are performing well.

Finally, it’s a good time to remind investors that timing the market is incredibly difficult and so the best course of action in these volatile times is to stay the course and stick to your plan.

What that means is tuning out both the bearish pundits and the annoying ‘stocks are on sale’ investors. I say that about the latter because normal investors can get a serious case of FOMO or just feel plain dumb if they don’t have a sensible way to add to their investments during this sell-off.

Let me be the first to tell you that it’s perfectly okay to stick to your regular contribution schedule, or to not contribute at all (just stay invested). All of the great buying opportunities in history come at times when few investors are truly in a place or frame of mind to double down on their stock investments. You’re not missing out.

Here’s some perspective to consider. North American markets have basically retreated to October 2019 valuations. Ask yourself how you felt about your portfolio in October of last year? Probably pretty darn good.

Now ask yourself if markets were completely flat for four months between October and February would you still feel this sense of fear and dread? Likely not. After all, investors have been fortunate to participate in 10+ years of nearly uninterrupted gains. You’d forgive the markets for going sideways for a few months.

Instead, we got a steady climb of investment gains for four months, followed by a fast and furious tumble in the past week or so. That’s just the markets doing what they do.

It’s also another good time for a reminder of an age-old fallacy: the idea that investors can get out of the market and wait for things to settle down. When exactly have markets been calm and consistent? How about never.

Now for some more advice and perspective on investing, market corrections, and avoiding emotional panic selling.

Coronavirus and Travel

Travel in Italy Coronavirus

A more pressing concern, at least for me and my family, is how the coronavirus affects travel plans. More specifically, we’ve planned a trip to Italy in April, a country that has reported the largest number of coronavirus cases and deaths in Europe.

While areas such as Rome and Florence, which are on our itinerary, have not been affected, we planned to stay in Venice for three nights to cap-off our trip. Areas and towns in Northern Italy have been placed under quarantine, which has caused heightened security alerts for anyone travelling to the region.

We’ve been closely following the Government of Canada’s official travel advisory notice board, which says to take normal security precautions when travelling to Italy. However, there is a heightened advisory (level 2) for northern Italy, which tells travellers to exercise a high degree of caution when travelling in northern Italy due to the spread of a novel coronavirus disease (COVID-19).

For now we have no plans to cancel or alter our trip. All indications on the ground in Italy is that it’s safe to travel and live in Italy, with just 0.05 percent of the country being affected by “extraordinary measures of temporary isolation of some Italian cities”.

To be clear, we’re not concerned about contracting the virus when we travel to Italy. Of greater concern is how airlines and other countries will react to passengers and tourists going to Italy and returning from Italy.

We have flights on United Airlines (Calgary to Rome via Newark), and returning flights on Lufthansa (Venice to Calgary via Frankfurt). That means closely monitoring not only Travel Canada advisories, but also U.S. advisories, German advisories, Italian advisories, as well as watching for news from United Airlines and Lufthansa.

A lot can change either way in six to eight weeks, so for now we’re planning to travel but we’ll wait and see what happens. 

This Week’s Recap:

Earlier this week I asked if you should pay off your partner’s debt, and shared my experience in doing so.

From the archives: Here’s a more realistic retirement income target.

On Rewards Cards Canada: Here are the best Aeroplan credit cards in Canada.

Promo of the Week:

I’ll admit that the price of admission is pretty steep ($699) for what’s widely considered to be the top travel rewards credit card in Canada. But the American Express Platinum card comes with a host of points and travel benefits that more than make up for the annual fee, at least in the first year of card ownership.

The incentive is even sweeter to sign up for the card right now because you can get 70,000 Membership Rewards points when you sign up with a referral link (it’s just 50,000 points on the Amex website). Check out this review by travel expert Barry Choi, who explains the new Amex promotion and its benefits.

Bottom line: You’ll get a minimum $950 worth of travel rewards with this card, which more than makes up for the annual fee. Couple that with a Priority Pass membership, which gives you and one guest unlimited airport lounge visits, plus automatic hotel status upgrades at Hilton, Marriott, and more, and you’ve got a fantastic travel rewards card.

Weekend Reading:

Our friends at Credit Card Genius have a terrific (and free) $100 Amazon gift card offer when you sign up for the Scotia Momentum Visa Infinite card – this card pays an incredible 10 percent cash back in the first three months!

There are changes coming to CDIC deposit insurance and Barry Choi has all the details, plus a chance to win a $500 Air Canada gift card.

An interesting post on the gambler’s fallacy and the simple math error that can lead to bankruptcy.

Pension expert Alexandra Macqueen on why bad pension planning advice could cost you your retirement. Watch for my own collaboration with Ms. Macqueen on my pension decision coming soon.

Here’s Michael James on Money explaining why behavioural biases are in all of us:

These rules of thumb have served us well throughout human evolution, but they sometimes give us the wrong answer to modern questions such as “should I save some of my windfall or just go blow it all on a wild trip to Las Vegas?”

Rob Carrick says, ‘this is a hell of a time to tell people they need to take more risk with their retirement investing’. But that’s exactly what long term investors should be doing – stocking up on more stocks if they want to retire earlier. Indeed, Canadians are notoriously conservative when it comes to investing.

I love this video by the Prince of Travel explaining some hard truths about credit cards and travel points:

What happens next in the stock market? Nick Maggiulli offers a historical examination of short-term market declines.

Mr. Maggiulli also takes a deep dive on when to invest your money with the definitive guide on dollar cost averaging vs. lump sum investing.

Financial advisor Jason Pereira looks at what the Globe and Mail missed in its assessment that Wealthsimple (and the robo advisor business) is a flop:

“Or consider what happens in the next market correction – when the parents’ old-school, stock-picking broker, who doesn’t implement Modern Portfolio Theory and thinks he can “time the market” – fails to deliver on downside protection?”

Finally, digital nomad and Canadian expat Andrew Hallam shares why adventurous, cost-conscious retirees should consider Costa Rica.

Have a great weekend, everyone!

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22 Comments

  1. Matthew on February 29, 2020 at 11:58 am

    So you don’t have bonds to sell and no RRSP room. So what about your TFSA and non-registered account?

    • Robb Engen on February 29, 2020 at 2:54 pm

      I do have some TFSA room but I’m sticking to my $1k per month schedule for now. Opening a non-registered account is further down the priority list. I mention the RRSP because it’s the largest account, contributions would give a tax deduction (with a looming deadline), and of course it’s tax-sheltered.

      Frankly, I’m not getting too excited about a 10-15% correction. If we get into 30-40% territory then I might change my mind.

  2. Maria @ Handful of Thoughts on February 29, 2020 at 12:21 pm

    With the markets going “crazy” right now there is a lot of noise. Honestly, we have not even checked our accounts. We are investing for the long haul and know that markets go up and markets go down.

    In a luck of timing, just this week we transferred money to top up our RESP for the year. We didn’t have the money for it at the beginning of the year but do now so our little one will benefit from this dip.

    • Robb Engen on February 29, 2020 at 2:57 pm

      Not a bad strategy to just avoid looking at your portfolio. Fortunate timing with your RESP contribution, but I suspect you’ll benefit the most from the corresponding 20% government match.

  3. Phyllis on February 29, 2020 at 3:24 pm

    I assumed that any investments held in RRSPs and TFSAs at financial institutions that are protected by the CDIC would be covered by the insurance. Have I understood correctly by reading the article from the link above that if those investments are in ETFs they are not insured by the CDIC?

    • Robb Engen on February 29, 2020 at 3:28 pm

      Hi Phyllis, CDIC is just deposit insurance – so for savings accounts and GICs (which can be held in an RRSP, TFSA, or in a taxable account). Investments (like ETFs) come with different protection in the form of the Canadian Investor Protection Fund, which protects accounts up to $1M.

      http://cipf.ca/Public/CIPFCoverage/WhatAretheCoverageLimits.aspx

      • Phyllis on February 29, 2020 at 3:33 pm

        Oh, that makes sense! I really wish I would have been taught this stuff in school but better late than never. I have learned so much from reading your articles. Thank you so much!

        • Brian on March 1, 2020 at 1:24 am

          So my ETF’s are insured by CIPF might as well load up on them if they’re insured!? Does Phyllis understand what they are insured for?

          • Phyllis on March 1, 2020 at 9:11 am

            Hmmm, well I assume that if the financial institutions that we’re with fall apart, we wouldn’t lose our investments up to $1 million????



          • Robb Engen on March 2, 2020 at 10:39 am

            Hi Brian (and Phyllis), sorry – I should have been more clear. CIPF protects against the bank or investment firm going insolvent. But what it protects is the number of shares you own. So if you held 1000 shares of VBAL and the institution at which you held those shares went bankrupt, CIPF would make sure that your 1000 shares are returned to you.



          • Brian on March 2, 2020 at 3:35 pm

            CIPF does not protect from any market loses do to the change in value of your investments as the market moves down.



      • Grant on March 3, 2020 at 1:40 pm

        Rob, personally, I wouldn’t travel to Italy now. Mind you we are older and my partner has mild coexisting medical conditions, so I am concerned about contracting the virus, being in a higher risk group, but also of the risk of being quarantined in a foreign country. We cancelled a trip planned for March 15th to the Philippines because we don’t want to be in a country with a weak health system right now. The Philippines doesn’t appear to have community transmission right now, but that can change overnight, as happened with South Korea and Northern Italy.

  4. DTR on February 29, 2020 at 6:40 pm

    My portfolio went down over $50K in less than a week…. That to me is a loss…. because it will probably take many months to get my portfolio back to where is was and all that time I am losing money albeit on paper….
    I am seriously thinking of liquidating my TFSA’s so I have cash on the sideline to buy back in on the bottom or thereabouts. I can invest that at 2.45% guaranteed with EQ so if the market continues to tank I’m getting something…. AND here it comes…. You can’t time the market I’ll be told…. Maybe not but I can watch it go down along with my portfolio…. I don’t think so…

    • Matthew on February 29, 2020 at 7:32 pm

      That is a foolish, panic-driven method to lose more money. Don’t do it.

    • Grant on March 1, 2020 at 12:09 pm

      Don’t do that. You’ll start down the rabbit hole of market timing. It will never feel right to get back in. I know people who sold out in 2008 and are still in cash. All the research on this shows you don’t win with market timing. All downturns are a temporary interruption in a permanent uptrend, so just wait them out.

    • JEG on March 2, 2020 at 3:42 pm

      I was down 100K in a week but to me it feels like Christmas…make that Boxing Day, with all the stocks on sale. I guess that’s what makes a market though – some people sell while in panic mode and others gladly pick the deals. In all seriousness it is likely a good idea for some to stick with the hand-holding of a financial adviser – no disrespect. The fees may be steep – especially here in Canada if your’re dealing with mutual funds. But you would possibly still come out ahead.

      • Dtr on March 2, 2020 at 11:44 pm

        Looking at the far east markets late Sunday night decided to stay the course….,

  5. Lynda Williams on February 29, 2020 at 7:33 pm

    I hope your travel plans go well. At least you’re not connecting to the US on your way back from Italy. We went to Antigua from Victoria last spring break. Had a 4 hour layover in Miami and the whole layover was eaten up with customs and security. There was a young couple from Finland crying over a missed connection that they had 3 hours for. The place was a zoo with dogs sniffing every passenger and that’s just in the plane transfer area. I will not connect through the US again ( maybe it’s just a Miami thing with Key Largo) unless there is a super big savings. I would be a bit concerned coming back from a viral zone, not for the virus itself, but for how you are the mercy of border agents.

  6. Rob on March 1, 2020 at 7:03 am

    Retired last May on $1.5M, DIY, ETFs, B&D. Last week was an 82K hit. Meh … just a blip.

  7. Erin D on March 1, 2020 at 12:30 pm

    Just an FYI on Newark airport. In all my years of travelling it was the worst airport I have ever connected through. Very poor signage and transferring from Air Canada to United caused us to get out of the secure zone and have to go through security all over again on the Friday night of the Presidents Day long weekend in the USA. Hope you have a better experience than my husband and I.

  8. Mike on March 3, 2020 at 8:21 am

    It’s easy to panic at times like these but in most cases your best move it to stay the course. After the market started nosediving, my buddy told me he transferred all his retirement savings from stocks to a money market and he’ll buy back in when it starts to go back up. I told him, dude…you’re selling at the low point and you’re going to buy in after it starts moving up. You’re literally selling low and planning to buy high. He thought I was nuts.

  9. GYM on March 3, 2020 at 10:42 am

    I was wanting to go to Costa Rica but haven’t booked any travel yet given the Coronavirus situation. The Fed panics and cuts the rate today. Things are very interesting right now.

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