Weekend Reading: Stock Market Roller Coaster Edition

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:

Nothing.

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).

Related: This game will show you just how foolish it is to sell stocks right now

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.

Still need to cancel or rebook your vacation? Here’s a useful guide to every major airline and hotel’s cancellation policy.

Weekend Reading

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!

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15 Comments

  1. DSB on March 14, 2020 at 11:51 am

    Glad to see you cancelled your Italy trip. I was thinking you’re completely mad for posting that you still plan to go there in last week’s post. I’m a travel Addict and booked a trip in business class to Europe in June and I already cancelled it. Happy that Aeroplan is finally waiving the cancellation fees. Hopefully a vaccine is found soon, so things go back to normal!

    • Robb Engen on March 14, 2020 at 12:05 pm

      To be fair, that was two weeks ago. A lot has changed since then. We have another trip planned in late July that is looking increasingly less likely to happen.

      I share your hope that the situation gets better soon. We’re sad about our cancelled plans, but more concerned now for our family, friends, and neighbours and want to do our part for the greater good.

  2. Mike Jeffries on March 14, 2020 at 12:31 pm

    Your recipe for retired folk is a make work project that most will not be able to navigate either due to lack of interest/intellect. Mental capacity does dwindle with age and this recipe will require a financial advisor ($$$)!
    I haven’t done that. My portfolio is in dividend paying equities and I live off that income. So far, none of the companies have decreased their dividends. That likely may not be true for all companies so I’ll have to hang on for the ride!

    • Robb Engen on March 14, 2020 at 1:11 pm

      Hi Mike, it does take some precision to set up your retirement income buckets. So many moving parts and puzzle pieces to fit together that it’s no wonder they call decumulation the nastiest problem in finance.

      Yes, many retirees will need help setting this up. That’s okay. Not everyone is in the enviable position of being able to live off the income in their portfolio. Most need to spend down their assets.

      The bucket method is an effective way to do that by setting up a system that looks after both short and long term spending needs.

      Finally, I caution anyone who believes that dividends are any kind of fixed income substitute. They’re not. Many stocks that got hammered will cut or eliminate their dividend, causing a double whammy with the price depreciation.

  3. Frito on March 14, 2020 at 12:54 pm

    Something that has always irked me in regards to % reporting re stock markets is that the line of calculation is always moving. Every day’s 10% daily drop is a lesser point change. Conversely, a 10% daily gain on a market down 30% is not a 1/3 recovery. Example, 20,000 loses 50% to 10,000 – 10,000 gains 50% is only 15,000. Having said that, now that the points are so much higher than it was in the 2008 crash, percentages have a lesser “freak-out effect” on the daily reports (for me anyway) The fact that Trump has blamed everyone else for the losses and taken credit for one days recovery that get nowhere close to recent high is ridiculous!

    Holding tight on our overall plan – much more conservative than most. Don’t have 7 years of cash/GICs but 2 years anyway. Retired so no new investments to be made. Also, not going to look at my statement balances until I do my bookkeeping at month end. Maybe by then the bottom will be behind us.

    Glad to hear you recouped the bulk of your vacation costs. Best to stick to home for a while.

    • Robb Engen on March 14, 2020 at 1:14 pm

      Hi Frito, it’s the reporting on points, not percentage, that’s the problem. We always hear about the largest point drop or largest point gain, which is meaningless because we’re dealing with larger numbers all the time.

      Another pet peeve is the tendency to report the DOW as “the market”. Who uses the DOW?

      • Matthew on March 14, 2020 at 8:01 pm

        The 30 companies in the DJIA represent about 25% of the value of the 500 companies of the S&P 500…it is pretty easy to call it the market. But you will often hear the S&P500 referred to as the broader market. I think you are thinking of the term market in the wrong sense.

  4. Kevin on March 14, 2020 at 1:11 pm

    I’m with you on the VEQT train, Rob. It hurt to see 30% losses, but I’m staying the course. Uncertain times are ahead for Alberta, and with BoC lowering rates, I caution people to not over-leverage themselves to buy the dip with money they do not have.

    A little patience goes a long way in times like these.

    • Robb Engen on March 15, 2020 at 11:05 am

      Hi Kevin, agree with your assessment. Patience, not panic, is key for long term investing. I don’t mind people viewing this as a buying opportunity – but do so with the understanding that 1) this may not be the bottom, and 2) only invest with money you won’t need for 5+ years.

      • Kevin on March 15, 2020 at 9:36 pm

        With news from the Federal Reserve today, I strongly doubt we have found the bottom yet. And apologies for the Autocorrect – my phone does not believe Robb to be a real name.

  5. John Rosenberg on March 14, 2020 at 2:21 pm

    Hi Robb, wonder what you think about using LOC to leverage expected big gains over next few years to get back? I have a defined pension that will provide approx. 80% of retirement income. I will be receiving about 50K inheritance late this year. I am 4 years from retirement. So invest now and repay LOC or wait to money comes in? I am an aggressive investor because of my pension 100% equities. I appreciate your thoughts. Thanks JR
    PS great content good job getting your name out there. I your name in lots of articles online!

    • Robb Engen on March 15, 2020 at 11:17 am

      Hi JR, thanks for the kind words.

      With a huge caveat that I don’t know anything about you or your financial situation other than what you wrote in your comment, I will say that if you know you’ll be receiving $50k later this year, and borrowing the same amount in your line of credit will represent little to no risk to you over the coming months, then putting that money to work now and paying it back later seems perfectly sensible.

      A more cautious approach: Even though the evidence supports lump sum investing over dollar cost averaging, it might feel better to split that up and invest $12,500 per month over the next four months.

      I wrestled with this decision myself over the past week but decided against borrowing from my HELOC to top up my TFSA, and to instead stick to my regular monthly contributions.

  6. Enrico M. on March 15, 2020 at 6:15 pm

    Hello RE,

    I was under the impression that an International Driving Permit is valid for 10 years, at least that’s what I was told by the CAA associates last summer. I hope that’s not incorrect.

    • Robb Engen on March 15, 2020 at 6:23 pm

      Hi Enrico, it’s only good for one year from the date of issue.

  7. Darby on March 19, 2020 at 3:15 pm

    My husband and I are lucky enough to have defined benefit pensions that more than cover our living expenses. We are in the process of withdrawing an annual lump sum from our RRSPs each year to bring our taxable income up to just below the OAS clawback threshhold. We pay the taxes and reinvest this money in our non-registered and TFSA accounts. We usually make these withdrawals near the end of the year. I am wondering if it might be wise to make that RRSP withdrawal earlier in the year this year to take advantage of the current market decline and hope to take advantage of the gains outside our RRSPs when the markets rally??? Is that market timing and is it a wise move or not? I know we would incur capital gains when the investments go back up in a non-registered account but maybe we would be paying less tax to get them out of the RRSP before they go back up. Does that make any sense?

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