Investing advice is general but the financial needs of individuals are specific. This point is not made enough. Market strategists have repeatedly said, for example, that equities are more attractively valued than bonds in recent years. But going to 100 per cent stocks would be terrible advice for an investor who is 70 years old with a time horizon that might not allow them to weather temporary volatility.
Former Wall Street Journal writer and author Johnathan Clements provided an important reminder that recognizing individual circumstances is paramount by proposing three questions that all investors should ask themselves when markets go haywire – How much cash do you need from your portfolio over the next five years?; What’s the value below which you never want your portfolio to fall?; and How much will you save in the years ahead?
These are straightforward questions but the answers are very important. In the first case, an investor who needs significant sums of money from their portfolio in the next few years should forbid themselves from taking extra market risk.
The answer to the second question could enforce the discipline to de-risk portfolio holdings instead of making the time-honored ‘I can’t sell anything now, it’s below what I paid for it’ mistake that often makes matters a lot worst. The third question determines investment time horizon.
Mr. Clements called his column ‘Warning Shot’ in the belief that October’s market sell-off should act as a catalyst for investors to rededicate themselves to their real financial goals and the risks that could prevent them from getting there. I couldn’t agree more.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Bombardier Inc. (BBD-B-T). Bombardier Inc. is back in the dumps, but the stock looks like a deal. After rallying to a seven-year high in mid-July, the share price has slumped about 40 per cent. One of the hottest stocks in the S&P/TSX Composite Index midway through the year, with a gain of 79 per cent between January and July, Bombardier’s year-to-date gain has shrivelled to just 7 per cent. Why has the plane and train maker’s recovery stalled? Bombardier’s sharp decline follows a volatile stretch for the broader market, at a time when investors are growing concerned about rising interest rates, trade tariffs, peak earnings and slowing global economic activity. Bombardier is exposed to all of these concerns. David Berman takes a look at the stock (for subscribers).
The Rundown
What BlackRock’s chief strategist is predicting for the TSX, loonie, bank stocks and interest rates
The second half of 2018 has been painful for many Canadian investors, at least to date. Since the beginning of July, the S&P/TSX Composite Index has reported more down days than up days, taking the S&P/TSX into negative return territory year-to-date. The S&P/TSX is trading at an attractive valuation with a forward price-to-earnings multiple of about 13 times the 2019 consensus estimate. Is this market weakness a buying opportunity? In a recent interview with The Globe and Mail, Kurt Reiman, BlackRock Inc.’s chief investment strategist for Canada, shared his latest thoughts on equity markets and how investors should position themselves in the face of heightened market volatility. Jennifer Dowty reports (for subscribers).
Why value investors will get their revenge next year
Value stocks are poised to return to favour late next year, according to the Bank Credit Analyst. The Montreal-based macro-forecasting and research firm argues in a special report that higher interest rates will bring badly needed relief to bargain-hunting investors after more than a decade of misery. For value investors, any light on the horizon would be welcome news. Standard value strategies have produced mediocre to abysmal results over the past 11 years, while growth stocks, particularly in the technology sector, have soared. At least some people now question whether value strategies are dead. Ian McGugan reports (for subscribers).
Correction reflections: What’s next for Canadian stocks?
Whether a sustained global rally is now in the works, or whether markets lose their composure again in the days ahead, there is a case to be made that the correction has only improved the chances of a long-awaited revival for Canadian equities. Tim Shufelt (for subscribers).
From global equities and bonds to pot stocks, these investments could enjoy a lift if the Democrats win the House
Cannabis producers, global stocks and U.S. bonds could all enjoy a lift from next week’s U.S. midterm elections. While Donald Trump isn’t on the ballot, his policies definitely are. The vote, in many ways, will be a referendum on Trump-style populism. Most prognosticators predict the Democrats will take back control of the House of Representatives while Republicans will retain control of the Senate. If the forecasts hold true, the most likely outcome of the election is gridlock. A Democratic majority in the House would raise oversight of the Trump administration and act as at least a partial counterbalance to the White House and Senate. With Republicans no longer controlling all the levers of the Washington policy-making machine, the Trump administration would no longer be able to push through legislation as easily as it has over the past couple of years. Most Wall Street types argue gridlock would be a negative for markets – a mild negative, to be sure, but still a negative, because it would likely curb Mr. Trump’s investor-friendly policies and lead to greater political uncertainty. Ian McGugan (for subscribers).
Questrade slashes fees on robo-advisory service
The race toward lower-cost investing continues as Questrade Wealth Management Inc. slashed fees on its robo-advisory service, as well as increased the number of investment portfolios offered to investors. The rebranded platform Questwealth Portfolios, formerly known as Questrade Portfolio IQ, will cut its management fees to 0.25 per cent from 0.7 per cent on Saturday morning, making it the cheapest online portfolio manager in Canada. For investors with more than $100,000 of assets invested, that fee drops to 0.2 per cent. The robo-adviser will also increase the number of actively managed portfolios, which will include – for the first time – socially responsible investing (SRI) portfolios. Clare O’Hara reports.
Others (for subscribers)
5 reasons oil markets are volatile and ‘particularly scary’
Global ‘fund manager confidence is shaken and may take some time to be regained’
Tuesday’s analyst upgrades and downgrades
Monday’s analyst upgrades and downgrades
Tuesday’s Insider Report: President buys shares of this company on recent price weakness
Monday’s Insider Report: Insider trades over $700,000 in this stock
The Globe’s stars and dogs for last week
Sizing up the wealth creators among U.S. technology stocks
Others (for everyone)
ETFs for each stage as you progress toward retirement
If you sell stocks now, are you taking profits or timing the market?
Canada’s grand cannabis experiment is likely to end badly for this producer
What history says investors should expect from U.S. stocks after this week’s midterm elections
Bitcoin volatility sinks to lowest in nearly two years
Ask Globe Investor
Question: How do I name my spouse a “successor holder” of my TFSA? And can I name a child a successor holder instead?
Answer: Typically, it’s easiest to designate a successor holder on your TFSA application or contract with your financial institution. You could also make the designation in your will (which is required in Quebec). Only a spouse or common-law partner can be designated as a successor holder. Making the designation provides for a smooth transition of assets to the surviving spouse because he or she takes over as the new holder immediately upon the death of the original holder. You may designate a child (or someone else) as a beneficiary. The disadvantage of naming a spouse as a beneficiary, as opposed to a successor holder, is that any growth in the value of the TFSA’s assets, generally between the time of death and the date the assets pass to the beneficiary, is taxed in the beneficiary’s hands. Designating a spouse as a successor avoids that problem. Estate-planning is complex, so make sure you get professional advice. The Government of Canada has more information at goo.gl/YpnGGx
--John Heinzl
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What’s up in the days ahead
BRP, Dollarama and Premium Brands Holdings are all growth stocks that have fallen on hard times. Will they rise again? John Heinzl will share his thoughts.
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Compiled by Gillian Livingston