But you have to be a disciplined investor to benefit....
The turmoil of the markets of early August were gut wrenching but not entirely unpredictable. After all market volatility is a fact of life in today's rapid fire electronic marketplace where the economic hiccups in one part of the world can become headaches in markets globally. If you have no need to liquidate or withdraw from your investments during a particularly topsy turvy market, the conventional wisdom is to simply wait out the storm. But if you have already set up an automatic investment purchasing program, such as through a direct debit from your chequing account to purchase mutual funds or a Group Registered Retirement Savings Plan (RRSP), you are well positioned to benefit from any market downturns through the magic of dollar-cost averaging.
Dollar-cost averaging simply means that over time, while you may pay more for an investment purchase one month, chances are you will pay less during another month, given the ups and downs of market volatility. Since most of us have neither the ability nor the nerves to sit in front of a trading screen all day to decide when to "buy low", the setting up of an automatic investment purchasing program, essentially a forced savings plan, ensures that pre-selected risk appropriate investment units or shares will bought on a pre-selected date at that day's market price without any further instruction from the client.
It is important to monitor your automatic purchases at least once a year to see if the investment selection still fits your risk profile and needs. If your finances are tight, you can opt out of most of these plans with due notice. But for those procrastinators (and we are numerous) who find making investment decisions painful, being in an automatic investment purchase program ensures that our savings will be invested come hell or high water- and with the way things are going, that is one less thing to worry about!
Showing posts with label market crisis. Show all posts
Showing posts with label market crisis. Show all posts
Friday, September 2, 2011
Tuesday, October 21, 2008
Fear and Loathing in the Markets strikes again...and again
Few people with any kind of financial interest in the markets are unaware of the current crisis, how it started and how various governments are trying to stabilize the situation and avert a freeze on global credit that would lead to a further meltdown in portfolio values.
No one knows how long this crisis is going to last( check out Warren Buffet's missive at http://www.nytimes.com/2008/10/17/opinion/17buffett.html) This appears to be always the case with seemingly "one of a kind" financial tornadoes that actually do pass thru our lives with surprising regularity every 5 or 10 years (i.e. 2001 aftermath of 9/11, the tech boom and bust of the late 90's, Black Monday in October of 1987) and so on.
So what does all this mean for you and for me? For anyone with money invested in securities,either registered or unregistered, the first question to ask oneself is "do I need this money now?" If yes, you have to weigh the cost of borrowing other funds to meet short term needs against the cost of crystallizing losses now if you convert your securities to cash. If you must sell stocks, consult a tax accountant before giving the sell order because the choice of whether to draw from a registered or unregistered account and which securities to sell may yet save you some taxes which will hopefully lessen the pain of your stock losses.
If you don't need the money and assuming you have it invested in the asset mix best suited for your risk profile, then leave it where it is for now. Avoid checking your portfolio obsessively- limit yourself to once a week or so. This will prevent you from rushing into action and give you time to reflect on how you will eventually re- balance your portfolio in order to restore your optimum asset mix.
This will likely be sometime after the U.S. Presidential elections and ideally at some quiet interlude in the financial storms so you can do an objective review of your holdings as you would ordinarily do when following a regular portfolio monitoring schedule.
Because in the end, you cannot predict nor control what the markets- and others are doing. You can only control your actions. So at least if you govern yourself according to your needs and your schedule, you will never have cause to regret a decision because you know it was the best decision you could make at the time.
No one knows how long this crisis is going to last( check out Warren Buffet's missive at http://www.nytimes.com/2008/10/17/opinion/17buffett.html) This appears to be always the case with seemingly "one of a kind" financial tornadoes that actually do pass thru our lives with surprising regularity every 5 or 10 years (i.e. 2001 aftermath of 9/11, the tech boom and bust of the late 90's, Black Monday in October of 1987) and so on.
So what does all this mean for you and for me? For anyone with money invested in securities,either registered or unregistered, the first question to ask oneself is "do I need this money now?" If yes, you have to weigh the cost of borrowing other funds to meet short term needs against the cost of crystallizing losses now if you convert your securities to cash. If you must sell stocks, consult a tax accountant before giving the sell order because the choice of whether to draw from a registered or unregistered account and which securities to sell may yet save you some taxes which will hopefully lessen the pain of your stock losses.
If you don't need the money and assuming you have it invested in the asset mix best suited for your risk profile, then leave it where it is for now. Avoid checking your portfolio obsessively- limit yourself to once a week or so. This will prevent you from rushing into action and give you time to reflect on how you will eventually re- balance your portfolio in order to restore your optimum asset mix.
This will likely be sometime after the U.S. Presidential elections and ideally at some quiet interlude in the financial storms so you can do an objective review of your holdings as you would ordinarily do when following a regular portfolio monitoring schedule.
Because in the end, you cannot predict nor control what the markets- and others are doing. You can only control your actions. So at least if you govern yourself according to your needs and your schedule, you will never have cause to regret a decision because you know it was the best decision you could make at the time.
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