Weekend Reading – Black swan events, market circuit breakers primer, negative interest rates, COVID-19 resources and more
How are you doing out there?
I mean, really doing out there?
Wild and crazy times. Unprecedented times. A massive black swan market and market circuit breakers have been engaged – many times.
During all of this, I really hope you are taking good care of your physical and mental well-being. I’m trying to…
While working from home (something I do from time to time anyhow), I’m trying to do a few little things each day to get through these times including any market calamity.
Step 1 – doing less
I’m slowing down. I’m taking deep breaths. I’m stretching. I’m going for ~1 hour walks at night. I’m trying to relax my body and mind for as much as can in Step 2.
Step 2 – focusing on what I can control
Nicely summarized and a great reminder by Carl Richards here:
Step 3 – rinse and repeat
By doing 1, then 2, then 1 again…I figure this cycle each day will improve my well-being. I cannot control the uncontrollable. You shouldn’t either.
Take some deep breaths, put the phone down for a bit, turn off the TV for day or so, go for a nice, long walk (with social distancing in mind of course) and take some time out for yourself if you haven’t already. Things will improve with time…
Enjoy this Weekend Reading edition and as always, stay safe!
Here’s how I believe you can get through a stock market crash and benefit from it. In that post, I highlighted a few U.S. stocks or ETFs I might purchase for my RRSP in particular. Well, I made a purchase recently and I will share that next week. Any guesses on what I bought?
You learn something new every day about the markets don’t you?! Here is your market circuit breakers primer!
Market circuit breakers were established to act as regulatory measures to temporarily halt trading on some exchanges “in the event of excessive market volatility”.
I think we all know what that looks like!!!
Currently, there are three levels of circuit breakers, set to halt trading on major exchanges in the U.S. and Canada when the S&P 500 Index drops 7%, 13%, and 20% from the previous day’s close.
|Level||Percentage drop||Duration of trading halt|
|1||7%||15 minutes *|
|2||13%||15 minutes *|
|3||20%||Remainder of the trading day|
*As I understand it, no trading is halted after 3:25 p.m. ET so if things crash late in the day, then they really, really crash!!
Be positive folks, this too shall work itself out in time. I do in fact believe in the human spirit – as Dale Roberts asked this week. That said, I also feel COVID-19 should serve as a MAJOR wake-up call to all of us when it comes to the treatment of Mother Nature’s planet. She is none too pleased with us nor should she be. I hope we can all learn from this and support a better, more sustainable planet going forward. I plan to make a few changes for sure and we’re starting to put those in place when it comes to plastic use and more biodegradable detergents. More work to do.
MoneySense provided a primer on low or potentially negative interest rates in our financial future.
Could negative really rates happen? Potentially. I mean, the bank could be paying me to take my mortgage out! Of course I really hope this doesn’t happen. It would be terrible for the economy long-term. I feel like for my generation (GenX) and the next one, millennials, it’s simply kicking the debt-can down the road.
Money is not supposed to be free. A reminder about low rates not to mention it does not reward saving. Some people are finding that out the very hard way right now.
“When rates fall, bond yields tend to drop, which makes them less attractive to income-seeking investors. The main alternative to bonds, then, is dividend-paying blue-chip stocks in stable income-earning industries such as utilities, telecoms and real estate. When rates fell after the recession, stocks in these industries soared. While that’s good for equity investors, that search for yield can make these stocks expensive. You should also see company earnings rise as businesses borrow more and invest in their operations, which is good for stocks.”
Liquid Independence seems to have made a number of fine purchases of late amidst the COVID-19 market crisis. And he’s looking for more including Fortis (FTS), Canadian National Railway (CNR) among others. I own both myself and hope to DRIP CNR stock in particular in the coming year or so.
Another good reminder by Tom Bradley when it comes to the market activity, including major declines and corrections: “Markets act first and sort out the details later.”
Fan of this site and passionate investor advocate Ken Kivenko provided some smart advice when it comes to market crashes (or living through them) when it comes to the Know Your Client (KYC) profile. Paraphrasing from his email to me:
- Avoid buying mutual funds based on the Fund Facts Risk rating (Amen!)
- Do not let yourself be sold any DSC funds – those things are going away albeit kicking and screaming.
- Avoid “advisor” recommendations to borrow for investing.
- Establish an emergency fund (if you don’t have one).
- Think at least twice before being sold a “hot” IPO (Initial Public Offering).
- Consider crowdfunding at your peril.
- Assume your “advisor” is influenced by the method he/she is compensated; do not assume he/she has your best interests at heart.
- Check your account statements and review any statements for unusual transactions – respond immediately to any transactions you do not understand or you do not agree with.
Mat Litalien highlighted three Canadian dividend paying stocks to buy right now.
Some solid personal finance reading from GenY Money this weekend, check that out.
Great infographic here about black swan events – those rare, unexpected events that deliver severe consequences. Thanks Visual Capitalist.
Cool stuff in the works at The Sunday Investor, starting with the Communications sector on some fundamental analysis.
“Using Reuters as my data source, I have created some queries for all S&P/TSX Composite companies and organized them by sector and/or industry. Within each Excel file is over 500 metrics for each company with side-by-side comparisons for each company within the group. While 500 is obviously excessive, it was done this way in recognition that every investor is different and therefore chooses to focus on different things. It is my hope that each user will filter for such metrics (either by highlighting the cells and filtering by color, or just by hiding rows) and use these files to keep a closer eye on their current and prospective holdings.”
Smart call by Robb Engen with help from Money Gal professional Alexandra Macqueen on what Robb should do with his defined benefit pension – to commute or not too commute. These are my five (5) key factors in this decision when readers email me something similar:
- How viable is the pension? Does it have a reputable shelf life? If “No” or “Not Confident/Not Sure” then I would definitely commute.
- How would the pension income compare to an annuity? Recall DB pensions are very annuity-like, money for life. Consider an annuity in the 4-5% rate of return range, every single year, as your benchmark. If you can achieve that with confidence regardless of market conditions (as in now) that then I would consider commuting.
- Are you giving up major pension survivorship benefits? This is another factor you should not dismiss.
- How close are you to retirement? Certainly a 30 or 35-year DB pension at any age 50+ is MUCH different than deciding to commute any pension in your 30s or 40s. I would argue the closer you are to retirement, assuming the pension is viable and secure, don’t commute. Take the pension if you’re close to retirement age.
- Fifth and finally, how much personal investment control do you want when it comes to your income stream? If you’re OK to take matters into your own hands, primarily via low-cost investing amongst other investment assets, then I would say commute. Otherwise, you have some thinking to do!!
Congratulations to Linda, Jonnie and Josh on winning the three (3) TurboTax Canada online codes to help you with your tax needs this year! Thanks to the thousands of entries – very much appreciated.
Don’t forget, even if you didn’t win free online codes, with our CRA tax filing deadline extended to June 1, 2020 you can still get a 15% discount from me until April 30, 2020! Just click the link below!
For the curious, I recently completed our taxes. I had to pay a bit again this year but my wife is getting a modest refund back. Our plan is to take that refund and put as much of it as we can into my wife’s RRSP account to buy more stocks or U.S. ETFs. I try and eat my own cooking when it comes to how to get through a stock market crash – and benefit from it!
Stephen Weyman has set-up a free money-stuff Coronavirus Canada page to keep you informed about COIVD-19 and how it may impact your financial affairs. Read about and follow up to date news on:
- How to deal with any job loss or job hour restrictions
- What we know so far about big bank financial relief
- How travel insurance works during a pandemic
- And much more…
Last but not least, reader question of the week (adapted slightly for the site):
Love your site. How do you calculate capital gains; your adjusted cost base, when there are multiple purchases and DRIPs? I would like to balance a portfolio!
Thanks for your email. Well, I don’t worry about my adjusted cost base whatsoever in my registered accounts and you shouldn’t either. That money can grow tax-free (thanks TFSA!) or tax-deferred (e.g., RRSP, RRIF) so there is no need to manage your capital gains. For your RRSP or RRIF, you only need to pay taxes upon money withdrawal.
For your non-registered account, consider selecting the Adjusted Cost Base link from my Helpful Sites page.
From the site:
“AdjustedCostBase.ca is an web-based application allowing Canadian investors to calculate adjusted cost base (ACB) and capital gains. This service is free and extremely easy to use. By registering for a free account, you’ll be able to easily manage your investment information online.”
Now, some discount brokerages might also offer free tools for your adjusted cost base as part of their platform as well, which is great. You can find a list of the top Canadian discount brokerages here.
Stay safe everyone and see you next week!