With Canadian and US stock markets at all-time highs and up about 15% so far in 2019, many investors are wondering if it is time to sell some stocks (stocks, ETFs or mutual funds).
I can absolutely guarantee you that stocks will take a beating at some point. Stocks can easily drop 10% or 15% on market mood swings. The next recession may well wipe out (likely temporarily) 25% or more of your stock portfolio value.
But before those kinds of market downturns happen, stocks may be 10%, 20% or 30% higher. And over long periods of time, North American stocks have always gone higher. If you have a perfect crystal ball, please let me know. Otherwise you must accept that the value of your stock holdings will likely be volatile.
So, the key is to select the right mix of stocks versus bonds in your portfolio and to adjust that mix over time as your circumstances, goals, time frames and ability to handle risk change. Do not allow the percentage of stocks in your portfolio to be at a level which would cause you to panic and sell if the market takes a dive. I know that is easy to say and hard to do because future circumstances and your responses are uncertain. But it is important that you think about it this way.
If you are long term investor, don’t worry much about the state of the current market and what all the TV talking heads (“sprint coaches”) are spouting. Make sure you have the right mix of diversified stocks versus bonds in your portfolio, keep your costs low and enjoy the summer!!
I suggest you take a few minutes to re-read Chapter 9 of Beat the Bank. Although it is only nine pages, the Mindset chapter may be the most important part of the book.
Your feedback is always welcome.
Larry
I remember last summer, my friend and I were discussing the obvious upcoming crash. At that time, he was holding his asset mostly in cash for more than a year already. He was waiting for the opportunity to buy low. He’s still waiting for the obvious upcoming crash that is ahead of us as of now. I prefer to continue investing but I decided very recently (like a week ago!) to hold roughly 10% in cash. I’m 36-year old I can take a beating, no problem, I’m not afraid! Actually, only 10% afraid!
Good luck!
In my opinion, those who can “stomach” the nasty downturns (and they will be nasty) will be the big winners in the long term!
As a person who has never invested in the markets, is this a good time to get my feet wet? I just finished, Beat the Bank, and am excited to get started. I must admit though, with markets this high, I am a little nervous about the next downturn.
Being nervous is totally understandable. But I think “now” is always a good time to start. If you are unsure about how you will emotionally handle downturns, perhaps you might start with a lower amount and build up over time as you get more comfortable. Hope that helps a bit.
I think the thrust of BTB is that the best time is always the present since, over time, the market has always risen and crashes are unpredictable. If you’re feeling timid due to the current highs, consider investing only a portion of your allocated investment money and wait until the next crash. Just know that that crash could be next week or next decade.
Wow. Just read this. You sound like me! Have you ever considered writing a book?!!
Haha – if I sound like you it’s because I’m merely regurgitating the lessons I learned in BTB! Thanks Larry!
I just finished reading your book and I really enjoyed it. I realized a few years ago that I didn’t like what I was seeing on my Mutual Funds but didn’t know why – now I do. However, I wish there was a little more in Chapter 12 on how retirees might consider allocating their portfolios, as I will have to move my RRSP’s to a RRIF sometime next year. I liked your Figure 12.2 AIY Stock and Bond Portfolios – would you have another sample portfolios for retirees? Is it just more bond allocation? Appreciate your ideas.
Thanks for your comments Louise. It can be as simple as adding bond allocation if your stock remains well diversified. Even simpler are the new “all-in-one” ETFs first launched by Vanguard last year. See pages 176/177. Vanguard has expanded their line up while RBC iShares and BMO have launched their own versions. They are all good products. Hope that helps a bit. Larry
Mr Larry,
wow. Thanks for a breath of fresh air! I bought your book yesterday, the old fashioned way at Chapters and have read a good portion of it already. T-Rex score calculator is awesome! I just used it to asses 3 Index ETF’s from TSI Wealth Network website, and it matched what they recommended as buy and pass. Why haven’t I been doing this all along! Thanks for the info!
Glad you like the book and the T-Rex Score Ken. Please tell your friends!! 🙂
Loved your book, thank you for the information! Due to all the recession talk, if I had a large sum of money to invest within a TFSA, would it be more prudent to invest it all at once? Or would it be better to spread it out over the year and maybe take advantage of the potential market drop?
Thank you for your time!
Mila
Hi Mila. I don’t know your personal situation but spreading it out would be lower risk. If that makes you sleep better it probably makes sense!
Hi Larry, I just finished your book, thanks. I wish I found this information 20+ years ago. (better late than never!!!) Is there any reason why anyone not close to retirement should be in the bond market? You quite clear showed that even though there is more volatility in the stock/equity market over time it far out performs the bond market. To me it looks like 100% stock (zero % bonds) in an Index ETF (CDN, USA, and global) is the way to go.
That can be a great strategy. But only if you are prepared to ride out any storm no matter how severe or how long. Stocks have always performed in the long run.
Larry