What’s the difference between a run of the mill stock market correction and a blood in the streets bear market? By definition a market correction is a loss of around 10 percent over a short period of about two months or less. A bear market is a loss of 20 percent or more and typically lasts longer than three months.
So where does that put us today? It’s hard to tell. Using my globally diversified investment portfolio (VCN and VXC) as a benchmark it is down 12 percent since September 24. That puts this downturn squarely in market correction territory but the continued losses entering a third month has us trending towards a bear market.
All I know is these are times when investors tend to panic and abandon long-term plans for short-term “safe-havens”. What that does, unfortunately, is lock in losses today and ensure these investors will miss out when stocks inevitably rise again.
You are only allowed to be concerned about the markets right now if you are:
1) Retired
2) Spending from your portfolio
3) Have a financial plan that assumes zero bear markets during your lifetime.— James Osborne, CFP® (@BasonAsset) December 21, 2018
Part of the problem with our stock market expectations is we think in terms of straight line growth. I’m guilty of this myself. I have a financial freedom plan that includes expected annual portfolio returns of 8 percent. Well, barring a major Santa Claus rally next week, my portfolio will close the year down 7 percent.
While this is a problem for me when it comes to hitting my net worth target this year, it should not impact any of my long-term planning. In fact, a market correction or bear market lasting through the first quarter of 2019 will give me a chance to make major RRSP and TFSA contributions at a discount – which will only help my long-term goals.
As investing blogger Nick Maggiulli demonstrates here, it’s all about stock market expectations versus reality. If you’re planning a land journey across Antarctica, you’d better account for some unexpected variables along the way.
For investors, sure it’s reasonable to expect 8 percent growth annually over an investor’s lifetime. But the annual variations are going to be roller-coaster like in nature and you’d better be prepared to handle that volatility.
This Week’s Recap:
On Monday I wrote about budgeting basics for your financial plan, perfect for those just starting out to the soon-to-be or newly retired.
On Thursday I shared 11 worthwhile fees to pay.
Over on the CoPower blog I was asked to explain the inverted yield curve and what it means for investors. Here’s a snippet of advice:
“Those close to or in retirement may want to rethink their asset allocation and shift to safer investments with the portion of their portfolio they’ll need to access in the immediate future for retirement income,” said Robb. “But investors with a long time horizon should probably ignore any speculation around economic trends and just stick with their regular contributions and asset allocation,” he continued.
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Website traffic doubled in 2018 to more than two million page views – which is pretty amazing and humbling. Many thanks to all of you for reading, following, and sharing my posts this year. It means a lot.
Weekend Reading:
Only Morgan Housel could use a story about a guy who won the Nobel Prize for infecting syphilis patients with malaria to explain why it’s okay to make irrational investment decisions.
Housel also shares some investing ideas that changed his life. My favourite:
“Keeping money is harder than making money, because you can get rich by luck, but staying rich is almost always due to a series of good, hard decisions.”
No one is happy with the amount of money they have. Josh Brown shares three reasons why you’re never satisfied.
A great post by Mark Seed at My Own Advisor, who shares 10 ways to master your money in 2019.
Lisa Kramer, a professor of finance at the University of Toronto, explains why robo-advisors are shaking up the Canadian investment landscape – in a good way.
Ben Felix wants to talk to you about owning individual stocks, and no, he’s not going to tell you how to do it successfully. This is not that kind of channel:
Jonathan Chevreau explains what retirees need to know if they plan to defer Old Age Security benefits until 70.
Here’s Jason Heath on why retirement planning needs to be a major political issue in 2019 and beyond.
The Fat Tailed and Happy blog explains (with charts!) why $1 million isn’t enough – a direct shot at the FIRE crowd who assumes anyone can retire on $1 million even as early as age 35.
Meet XGRO and XBAL, iShares newly formed competitors to Vanguard’s all-in-one balanced ETFs, VGRO and VBAL. The competition is heating up in this space, driving down costs and making investing more simple for Canadian investors. Great news!
Dale Roberts shares a detailed review of Retirement Income for Life, the excellent retirement handbook by Fred Vettese.
Finally, for the holidays, Tim Cestnick shares five financial lessons for 2019 from Christmas movie characters.
Merry Christmas, everyone! Wishing you all the best this holiday season!
