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!
Thanks for the mention. Crazy times indeed. Great advice to go for a walk (social distanced walk) to clear the mind and unplug a bit.
You bet. Hang in 🙂
Thanks for this post and the reading list. Will check it out, I have plenty of time!
With everything going on (yet I’m sleeping better than ever?) your weekend post was a nice break!
I do want to chime in on the portion of the post about commuting pensions. If you’re lucky to have a great public service pension and many years of service, great. I’m sure we all know of former Nortel lifers who failed to commute their pension and saw their retirement plans sink to zero after 20+ years of working. I know of a lot of old BNR/Nortel couples that lost everything and are trying to build everything back up with just a few years of realistic working years left. My suggestion is that if you think your company’s pension could be at risk (don’t worry if your a teacher or in Government — else we’re all in trouble), please include this in your decision making — you don’t want to be this generation’s Nortel pensioner. Be especially aware if your pension has a large shortfall, auditor warning or the company is using the “surplus” money in the pension to fund corporate activities with accounting adjustments.
Yes, I have heard about some Nortel pensioners that owned all company stock and had their pension with them as well. Before John Roth rode off with all their money. I recall him cashing in on various stock options just before the ship sank for about $135 M. Crazy numbers…
Anyhow, I’ve learned from others that if you’re at all unsure about your pension’s viability (excluding Fed. government, excluding provincial teachers’ pension plans) then you should really consider commuting that money. Flags for me are those very same pension “shortfall” announcements and memos. Frequent memos about that are signals something is amiss.
Thanks for the great read Mark! It is funny, until a few weeks ago, I had no idea what a circuit breaker was. The concept blew my mind the first time it was triggered. Unfortunately, we are becoming very familiar with the term. I’m glad to hear you are taking some time to slow things down a little bit. At the end of the day, this is giving us a good chance to reconnect and prioritize some of the things that often fall to the side during our “busy” lives.
Well said Bert. Too bad it takes a crisis for all of us to slow down and figure out what’s really important. Hopefully we learn from it and improve.
Low interest rates are a real conundrum. I read somewhere that income investors are buying stocks for the dividends because the yield is higher than bonds. But other investors are buying long term bonds for the capital gains predicting rates will go lower. It’s like an upside down world now lol. I will stick with dividend stocks myself. Cheaper stocks mean DRIPs as lower prices. Thanks for the mention. Stay safe. 🙂
I really don’t see any money in bonds long-term. I could be wrong of course. We’ll see. I will stick with my dividend paying stocks and ETFs from the U.S. for now. We’ll see how that works out for me 🙂
Fantastic comments on pension commuting. I struggled with same decision a few years ago and decided not to commute for the following reasons.
1-Pension Plan was 90%+ fully funded and growing
2- Government style pension which I felt was more secure then a corporate style pension – mine is Alberta teachers
3- HUGE tax bill on the cash portion
4- Partially indexed to inflation (0.6-0.7 of CPI)
5- I was < 5 years from being able to receive a pension which I could start at age 55
6- Several pension options if myself or partner passes
7- Pension has a guaranteed 60 month payout period so my estate gets the balance if we both die within the first five years.
8- I didn't want to manage that large amount on my own and I knew that current fund managers were producing solid results. I have already proven to myself that I am not as good a money manager as the pension fund. I still like to play around with my small account.
9- The pension gives me a guaranteed minimum floor of income allowing me to be more aggressive with my personal portfolio
One consideration not mention is if the spouse has a pension. One could be commuted to create a legacy fund for the fraggles.
I am so glad I did not commute my pension. I came very close.
All very good reasons to keep your pension Gruff – especially #1, #4 and #6.
My wife has a DC pension but there is no way she can just live on that if something happens to me. She’ll need more income.
In 2007 all of my Investments were in a Mortgage Investment Corporation (MIC) Fund here in BC. During the “GFC” my MIC Fund dropped their Interest rates from 10.5% to 5% where they have remained these past 12 years. I continued to max out my RRSPs & TFSAs(2009) every year into the MIC Fund. Then in 2014 I started purchasing Silver with any excess cash. I retired at 60 in Jan 2014 with a Gov DB. I have since redeemed all of my RRSP $$ these past 6 years to travel to NZ every winter. Stayed home this winter though. I continue to buy Silver and max out my TFSA. I’m withholding my CPP until age 70, though I do collect the OAS now. I’m keeping my Taxable income in the Fed 15% bracket until I’m 70.
I did NOT lose any sleep during the “GFC” and I’m NOT losing any sleep now. I believe my assets are currently stable and I’m isolating at Home. Yes Silver is down a bit due to Investors selling everything liquid for margin calls but it will eventual start moving upwards.
I can honestly say I was jealous of all of your reader’s high returns over the past 12 years but I’m happy AGAIN with my Tortoise portfolio. Low stress and shooting for my 100th birthday in 34 years.
Good Luck everyone.
Stay Safe and Stay at Home.
LA Ed, clearly, you’ve done well.
Nothing wrong with a tortoise portfolio of slow growers and a bunch of financial safety net assets. I’ve always read and admired those that only invest to the extent they need to. Meaning, the brightest investors keep a great deal of cash in their portfolio (no less than 5-10% for a $1 M+ invested); they keep some GICs and bonds on top of that cash (maybe 1-2 years’ worth); they might have upwards of 70-80% equities in retirement. They don’t subscribe to any 4% withdrawal rule. They spend in good times and save cash in bad. Essentially, they don’t take on any unnecessary financial risks.
Thanks for your comment and stay safe as well!
My RRSPs are max out – no more room. But I just discovered that my spouses RRSP has over $50K of room! I couldn’t be more excited. And while we’re down tens of thousands of dollars on paper right now, we’re going to be able to purchase at a discount going forward for a while. So, I’m confident that, barring global catastrophe, we’ll be in good shape again. I’m sure you’re in the same boat. With about 12 years to a projected retirement date for us, we’ve got time to sit tight and continue investing.
Stay safe, Mark.
We’re down considerably as well, on paper. Haven’t sold a thing and don’t intend to. I hope to buy more stocks and ETFs in the coming weeks and months ahead. Just need to save for that amongst everything else going on…
I’m confident the stock market and its collection of companies in U.S. and Canada will rise again. When and by how much I have no idea. But these are unprecedented times for sure.
12 years is plenty of time for a recovery. I would however be worried about folks trying to retire this year without modest savings or a pension.
Post coming out today about some lessons learned from this so far, myself included.
Hi Mark. Thanks for the weekend reading list! I was glad to see that your wife put her tax refund straight into her RRSP. I just wrote something about that having been my strategy for the past several years. So long as you have room, it’s like the ultimate compounding strategy – getting a refund next year on a refund this year. Take care of yourself.
That’s the plan Will. I don’t have very much RRSP room any longer, maybe a few $k. I will know for sure next week once I get my CRA NOA.
My wife should have close to $20k in RRSP contribution room this tax year/left, and we plan to max that out by Christmas.
How are things with you during the meltdown?
Thanks for all the great information. This is the first time I have heard and seen the concept of market circuit breakers. Although I’m aware of trading being halted I never knew there was “rules” for this.
Right now we are not putting anything into that markets just yet. We are stock piling cash and growing our emergency fund because who knows what will happen in the future. That being said once things start to turn around we will be ready to dump our money into the markets. Not worries about investing right at the bottom. A sale is a sale. Doesn’t matter to us so much if it’s 50% off or just 40%.
“That being said once things start to turn around we will be ready to dump our money into the markets. Not worries about investing right at the bottom. A sale is a sale.”
I agree. I tend to invest when I have money. I really don’t try and find any bottom. There is no point and pure luck if I do anyhow.
Staying well I assume?
Yes staying well Mark. Very grateful for our emergency fund that’s for sure.
I hear ya!
I’d change the first chart from: “Things you can control” to “Things you CAN’T control”
Good stuff cannew. Doing anything with your portfolio at this time? Still DRIPping I assume?
Great post and messages as always. These are trying times and will define a generation for decades to come. This feels as big or bigger than 9/11. I have many Millennial staff seeking advice/support during this time — they’re truly concerned about the drop in their portfolios, as well as the uncertainty about the economy and their jobs. I really feel for the service sector workers who will lose several weeks/months of income — the mortgage deferrals will do nothing for many of them who rent. Landlords are not likely to be as forgiving. I can see this building support for the basic, guaranteed income concept.
I’m annoyed that I put money into the markets in February (I don’t subscribe to market timing, but this time I got my fingers burned), but I rationalize that it won’t matter much in the long run. So far, despite taking a painful hit on my 100% equity couch potato portfolio, I’m sitting tight. I’ve focused on the work I’m doing from home, reaching out to clients and keeping engaged, and minimizing how much news I watch. Going for more walks too – I’m glad it’s not Jan/Feb! Keep well everyone!
I also really feel for the service sector workers and small business owners. I’m trying to do my part without breaking my own budget to support them – I got takeout last night and I will again this week from the owners on my street.
Well, if it makes you feel any better I maxed out my TFSA and my wife’s (in early January) so I bought “high” compared to now. Nothing I can do with that. I simply buy when I can where I can and I try and keep my transaction costs low in doing so; i.e., I don’t trade.
You’re totally right about the basic, guaranteed income concept. I really wish we kept that pilot going here in Ontario. I recall Ford killed it. Idiot 🙂
What happens if the DOW drops to 6000 and they start cutting dividends?
I have no idea…I guess we might find out Paul – you never know!