Last week felt like a year. It began Monday with one of the largest one-day stock market declines in history (S&P500 -7.6%) before Thursday said, “hold my beer”, and stocks fell an incredible -9.51% that day. Then markets rallied on Friday with one of the largest one-day gains in history (S&P500 +9.29%) to cap-off a roller coaster of a week in the markets.
How are you all feeling? Are you comfortable with your asset allocation? Have you used this market crash as an opportunity to rebalance? To add new money to your portfolio?
I’ll admit to having a lot of anxiety after the markets closed on Thursday. Can you blame me? My all-equity RRSP portfolio was down 30% in one month(!). With no bonds to sell, and no unused RRSP contribution room, I’m left to ride out the roller coaster and take whatever the market gives me.
It’s a different story in my TFSA, where I still have $30,000 in unused contribution room. I played out a number of scenarios in my mind, one which would have me tap into my line of credit to immediately max out my TFSA. In hindsight, had I pulled it off before markets opened Friday, that might have been a great move. But here’s what I did instead:
That’s right. I didn’t panic. I didn’t engage in market timing. I didn’t change my strategy.
I have a plan to contribute $1,000 per month to my TFSA this year, and increase that to $2,000 per month next year until I’ve used up all that contribution room. I don’t plan to touch my RRSP for 20 years. This is a long game.
That said, investors in their accumulation years can certainly view these types of corrections as tremendous buying opportunities. Stocks are on sale and since you’ll hopefully be a net purchaser of stocks for the next several decades, now is a great time to put some money to work in the market (but only if you have the money to invest).
What about those of you who are retired, or soon-to-be retired? You likely viewed this crash through a different lens than me.
Falling stock markets cause serious damage to retirement savings and can significantly impact your ability to retire, or your ability to meet your desired spending in retirement.
Hopefully you have a plan that separates your long-term savings (stocks and bonds) from your short-to-medium term savings (cash and GICs). If you don’t, here’s an approach to consider:
- Cash – Put one year’s worth of spending in a high interest savings account
- GICs – Put three-to-five years’ worth of spending in a GIC ladder
- Stocks/Bonds – Put the remainder of your retirement savings in a risk appropriate portfolio of stocks and bonds (preferably in low cost ETFs). Each year you’d replace your spending cash with the cash from a maturing GIC. Then you’d replace the maturing GIC by selling bonds, and you’d replace the bonds by selling stocks (but only in years when stocks are up)
Long-time (and newly retired) blogger Michael James shares a similar approach to his asset allocation in retirement.
This Week’s Recap
On Monday I opened up the Money Bag to answer reader questions about RRIF withdrawals, in-kind vs in-cash transfers, group RESPs, and how early retirement affects CPP benefits.
Many thanks to Sophia Harris at CBC for interviewing me for her piece on how the coronavirus is affecting your investment portfolio.
And to Erica Alini of Global News for interviewing me for her piece on how to prepare for a recession amid coronavirus.
We’ve officially cancelled our travel plans to Italy this April (obviously) and I’m happy to report that we’ve managed to get most of our money back. Aeroplan refunded our points balance, fees & taxes, and waived the cancellation fee of $75 per ticket ($600).
All of our Airbnbs had 24 hour cancellation policies and so we were able to cancel and get full refunds.
The only outstanding items are about $400 worth of train tickets booked via Italiarail – who claims to be putting together a new refund policy next week that will help affected travellers – and a Vatican tour we booked through Expedia that has proven to be impossible to cancel online (error message). I will persist.
That should just leave me out of pocket $45 for a now useless international driver’s permit. Not bad.
No money to buy stocks but I am now sitting on 500k rewards points waiting to buy the travel dip.
— Boomer and Echo (@BoomerandEcho) March 12, 2020
Still need to cancel or rebook your vacation? Here’s a useful guide to every major airline and hotel’s cancellation policy.
A must-read for travellers, our friends at Credit Card Genius take a deep dive into travel insurance, credit card trip cancellations, and how major Canadian airlines and rewards programs are responding to this pandemic.
A Wealth of Common Sense blogger Ben Carlson with a look at how long it takes to make your money back after a bear market.
Is financial independence and early retirement really achievable for most people? Here’s why semi-retirement may be more desirable.
Here’s a very technical but useful look at various investing strategies, from “normal” dollar cost averaging, to lump sum investing, to market timing. This post actually helped snap me back to reality and carry on with my “normal” investing strategy.
The Bank of Canada slashed rates again by 0.50% in an emergency measure to support the economy. Expect once again for the big banks to pass along the full rate cut to their prime lending rates, meaning my mortgage rate is about to go to 1.95% and line of credit to 3.55%.
On the flip side, the rate cut is bad news for savers. Already we’ve seen rates on high interest savings accounts plummet as the major players have adapted to the new rate environment. Expect GIC rates to fall as well.
Could we possibly see negative interest rates in Canada? RateSpy explores the increasing probability.
Preet Banerjee’s latest video explains the differences between the major types of life insurance like Term Life Insurance, Whole Life Insurance, and Universal Life Insurance:
Here’s Gen Y Money on group, pooled, and scholarship trust RESPs and why you should avoid them.
Trust Morgan Housel to deliver the perspective we all so desperately need with a look at different kinds of decline.
Mr. Housel also wrote some useful tips to get through the Corona Panic.
More sobering thoughts from Michael Batnick on falling markets and dealing with internal and external pressure to “do something.”
Michael James shares a simple guide to when to buy and sell stocks.
Finally, Bryan Borzykowksi has been working from home for a decade and shares his top tips for productivity.
Have a great weekend, everyone!