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(MARK BLINCH/REUTERS)
(MARK BLINCH/REUTERS)

Schizas’ mailbag

RBC's downgrade no cause for concern Add to ...

Hi Lou,

Just heard about the credit downgrade for the Royal Bank of Canada. My husband and I are retired and have a substantial amount of money with RBC, in a relatively conservative investment account. Just wondering overall, is there anything to worry about concerning the viability of RBC?

Thanks for your help.

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Karen

Hey Karen,

First of all congratulations to you and your husband for reaching the promised land of retirement. I understand your concerns and want to put you at ease regarding the Moody’s downgrade of the Royal Bank of Canada (RY-T). The announcement in no way implies that the company is at risk of failing. It does however address the ratings agency’s concerns about their exposure to the capital markets.

It should be a given that when it comes to assets and wealth there is always risk regardless of whether we are talking stocks, bonds, real estate, art, or anything of value. It’s just a matter of how much each individual investor is willing to manage.

The economic environment we find ourselves in has done a great deal of damage to investor confidence, which underpins our entire system. But as I told investors in the aftermath of the collapse of Lehman Brothers and the gut-wrenching market sell off that followed, all recessions and even depressions end.

The best advice I can give you at this point is to always review your holdings and ensure that you own great assets. The price of those assets may vary at any given time but the value will always surface over time.

A review of the charts will provide further information that you can use in your evaluative process.

The three-year chart depicts the resistance at $60.00 which the stock has not been able to break above since 2006. What is also evident is that the shares have been trading within a range moving sideways. This is an environment that is great for traders but gives buy and hold investors a headache.

The six-month chart provides a good view of the signals generated by the MACD. There was the sell indicated in March as the stock approached $60 and the buy in June when the shares hit $50.

The June advance hit resistance along the 50-day moving average the day before the Moody’s announcement and then pulled back aggressively on the news.

At this point you have to accept that RY is a trading stock and that there will be swings in its price but its not at risk of going bust.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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