How should investors deal with mass uncertainty in global financial markets?
Globe and Mail personal finance and investing writer Rob Carrick took your questions in a live chat.
The Globe and Mail - Thanks for joining us today, readers. Rob Carrick will be online in a moment to start taking your investing questions. You can start sending them in now.
[Comment From Guest ]
Hi Rob, what do you think of IPATH SP 500 VIX SHORT TERM FUT ETN to take advantage of the increased volatility in the markets?
Rob Carrick - I've been meaning to put this ETF under the microscope, but haven't had the chance. But I caution investors about it, and all other ETFs or other investing products they believe will give them profits in down markets. Not saying these things don't work, but you have to be VERY savvy in handling them. They need daily attention, and you have to understand how they work. If not, avoid.
[Comment From William ]
Hi Rob, Thank you for your time. In an earlier comment by you, you state do not change strategies during this latest downturn. How about if you have cash currently on the sidelines. Jump in or wait it out? If jump in is the option, then, into what?
Rob Carrick - Hey, William. Neither. Don't jump in, and don't wait it out. Rather, take a few measured steps into the market. Buy some, wait, buy some more. Do it monthly or quarterly. Not saying this is the MBA-smartest way to go, but it will give you some comfort. Cuts the risk of putting money into the market and then watching stocks plunge. What to buy? In a word, quality. Could be mutual funds, ETFs or stocks.
[Comment From Adam ]
Hi Rob, would you buy gold , e.g. a bullion fund ? even at today's high prices? At what price would you NOT buy?
Rob Carrick - Adam, glad you mentioned gold. Lots of investors think it's the one thing that will bail out their portfolios in rough times like these. If gold were such a slam-dunk, though, why aren't all the pension funds buying it? Why aren't all the hedge funds buying it? Why isn't the price of gold rocketing higher (I know, it is moving somewhat higher)? The reason is that gold isn't a one-way investment. It can fall in price, too, and it just might if the global economic situation stabilizes. Buy gold today? I'm skeptical, unless you're exceptionally bearish about the future.
[Comment From Juan C ]
Hello. Is seling a property (apartment) now in anticipation of a real state downturn a good move?
Rob Carrick - Hi Juan. Um, yup. Without commenting on how appropriate selling a property is for you, personally, I'd say now's an opportune time to lock in profits you made on a property. When/if prices fall a whole bunch, that's the time to buy back in.
[Comment From nb ]
Canadian bonds? Small green-energy start-ups?
Rob Carrick - Sigh. Why do investors always get goofy about bonds when the stock markets are falling? Own bonds always. That's a good rule for most investors. Buying now is tricky, though. As stocks have plunged, so have bonds soared. So you'll be buying high if you get into bonds right now. The place to invest is the stock market, if you can hack it.
[Comment From Guest ]
I'm planning on retiring in 7 years. I was thinking of moving some XEG (Energy) and CBQ (BRIC) into CDZ (Cnd Dividends). Is that a good move?
Rob Carrick - Beats me. I don't know nearly enough about you to say one way or another. Still, I can say that the dividend stocks in CDZ are an excellent way to generate retirement income. The emerging market stocks in CBQ are too speculative for retirees. The energy stocks in XEG are volatile, but they should benefit from long-term scarcity of oil.
[Comment From Worried Investor ]
Do you suggest waiting it out in the uncertain environment or selling to cut losses if the market tanks further. Thanks Rob.
Rob Carrick - Yo, WI. I'll go with Door Number One. Wait it out. Selling may seem like a good move in the short term, but it won't a few years from now.
[Comment From Guest ]
If we have stocks and are long term then should we just sit tight and hold on?
Rob Carrick - Yes, affirmative and most certainly. We assume here that you own good stocks, and not speculative flotsam.
[Comment From Jeff ]
Is the recent plunge in the markets an over reaction to the US downgrade? Perhaps unfounded jitters?
Rob Carrick - Market reactions to events like the S&P downgrade are what they are. It's hard to say they're a proper or overdone reaction. That said, I think the downgrade was like putting an official stamp on a situation that we all knew existed. The U.S. has big debt problems. Who disputes that? In that light, I think the downgrade changes little and, thus, you could argue the stock market losses today are just emotions in play.
[Comment From Guest ]
So, it's a good time to buy... I like ETFs; how should I go about choosing a few as the markets fall?
Rob Carrick - Got just the thing for you. A little slideshow I put together on how to buy ETFs for your RRSP. A primer on ETFs in general.
[Comment From Sandy ]
Is there any one sector that you think has been relatively oversold in this market meltdown?
Rob Carrick - Sandy, I'm just back from two weeks vacation in South Africa, so I haven't had a chance to do too much drilling down into market data. That said, I notice resource stocks getting absolutely hammered. Slower economic growth or a recession could hurt these stocks in the near term, but if you're patient and can wait a while, they could reward you.
[Comment From Lori ]
I don't want to over-react right now, and know I should sit tight on the investments I already have... do you agree. Should I throw my money into gold for good measure?
Rob Carrick - Lori, I do agree. But throw more money into gold? Not sure that makes good sense. Now's the time to buy stuff that is down in price, not up. I figure most investors would be in good shape with a 5% weighting in gold, btw. Maybe up to 10% if you're a true believer. But the time to buy gold was a while ago.
[Comment From Guest ]
What would be your recommendation for RESP in these times. I have it sitting in cash for now and would like to take advantage of this market.
Rob Carrick - First, kudos to you for asking about RESP investing. I dont think nearly enough parents are taking advantage of registered education savings plans. The answer to your question depends on how old your child is. If he or she is a baby, then investing mainly in stocks or equity funds makes sense. If your child is older, then you want a much more balanced approach. As your child approaches the age of attending college of university, you'll want to get very conservative so you're not dinged by events like we're seeing today. I think a big bank Canadian dividend fund makes a decent, easy to buy option for RESPs.
[Comment From Guest ]
If you don't need your money right now - is it smarter to leave your investments untouched and hold out for better days? My money is in a mix of mid to high risk mutual funds.
Rob Carrick - Leave the money untouched. If you have a well thought out, properly diversified portfolio with a risk level appropriate to your needs, then let it ride.
[Comment From Jean ]
Rob I have to start using my RRSPs possibly as early as next year. If they decrease dramatically in value I am going to be in serious financial trouble. I've considered rolling them into GICs ... your input would be appreciated ..thanks
Rob Carrick - Hi Jean. There are so many variables in play here that I hesitate to give you an answer. Do you have a financial adviser or planner? Sounds like you could use the help of someone who will look at your savings and be able to say whether you need to put a priority on preserving the savings you now have, or if you can afford to ride the markets ups and downs. GICs might be OK, but the cost of safety is a very puny rate of return.
[Comment From Karen ]
What do you recommend someone do with cash (like a bonus payment) right now?
Rob Carrick - Hey, Karen. Pay down debt, be it credit cards, credit lines or mortgages. You get a guaranteed rate of return when you pay off debt. If you have no debt (luck you), then how about using the money to build an emergency fund?
[Comment From Alman ]
Where do you see gold going in the mid-term? Will gold stocks plummet when the market takes a serious dive or will they resist the swing of the market? What are your thoughts on buying material gold?
Rob Carrick - Material gold? Like, why? Better to buy a gold bullion ETF or closed-end fund. Let the fund handle the cost of storing the gold. As for gold bullion prices, they'll likely rise and fall according to investor sentiments. Gold stocks are tricky. They can fall in price, even while gold bullion is doing well. That's what happened in 2008.
[Comment From Danesh ]
Hey Rob, thanks for doing this. In your opinon, do you think this is a market crash and will keep going this way, or is this a market correction, a temporary setback and pushign all of us back to reality?
Rob Carrick - Most welcome, Danesh. Always happy to talk to readers. You can reach me any old time on my Facebook page at http://www.facebook.com/robcarrickfinance?ref=ts. As to your question, I see the current market as being in a correction phase that indeed brings us back to reality. It will pass.
[Comment From alex ]
Hi Rob: We sold our Greater Vancouver house recently because we're huge believers in the bubble/correction theory. We're now watching the RE market crumble, and are very happy renters. Just wanted to say thanks for having the guts to step up several times in recent months and call the Canadian (and especially BC) RE markets seriously overvalued. I think you helped a lot of people who were willing to listen. Of course, now we have to decide what to do with the proceeds of the sale (several hundred thousand dollars). :-)
Rob Carrick - Hi Alex. Thanks for the props. Have to be clear in saying that I never actually made a grand pronouncement that the r/e market was over valued. I just assumed it in looking at strategies for homeowners and buyers. The r/e market isn't a one-way ride higher.
[Comment From peter ]
A couple of weeks ago i dumped all my mutual funds, out of fear just what is going on now. Where would you recommend to put your money?
Rob Carrick - Peter, Peter, Peter. I'm not sure what to tell you. Have you decided once and for all that stocks and equity funds aren't for you? if so, then GICs are a good, safe, option. You have to accept very low returns, though. I wouldn't want to see you buy GICs, get disgusted with the low yields and then buy back into a stock market that has risen a whole bunch.
[Comment From Ken ]
There are solid oil/pipeline dividend payers out there; would you rate these better than gold for jumping back in?
Rob Carrick - Ken, depends on what your goal is. For long-term share price gains and dividend income, those pipes look good. To me, gold is speculative. Oh, and it pays no dividends.
[Comment From Dan ]
I'm a first time investor with money to spend. I don;t know much about this world, but what I do know is "buy low/sell high". This seems to be a fabulous
Rob Carrick - Dan, let's just say that it's a much better time to buy stocks than it was several months ago. But you have to be able to stomach more declines ahead. There are long-term rewards in stocks, but also short-term pain.
[Comment From Guest ]
Should you hang on to current assets rather than move more of the portfolio into bonds
Rob Carrick - Hang on.
[Comment From Albin ]
I love the smell of napalm in the morning. But it's August after all. With all the big money in the Hamptons or global equivalents, do you take anything seriously before Labour Day?
Rob Carrick - Good one, Albin. But big money never sleeps. It's always watching and reacting. Post Labour-Day markets could be ugly, but I don't see why losses would be more severe then than now. It's all about what's happening in the moment.
[Comment From Ross ]
Hi Rob. What do you think of high dividend yield ETFs like the BMO COVERED CALL CANADIAN BANKS (ZWB)?
Rob Carrick - Ross, lots of investors are interested in covered call ETFs because of the big yields. But I'm a big believer in the theory that elevated yields mean elevated risks. I'll be watching ZWB and its peers to see how they perform in the current market. A very good acid test. Stay tuned.
A recent column i wrote on covered call ETFs: http://www.theglobeandmail.com/globe-investor/investment-ideas/portfolio-strategy/covered-call-etfs-approach-with-caution/article2046613/ 1:00
[Comment From Guest ]
Hello Mr. Carrick, Much of my stock holdings are in US stocks. I have seen these drop about 10%to 20% in the last few days. Would it make sense to sell and put the money into some good Canadian stocks?
Rob Carrick - Tricky. The Canadian market depends on high commodity prices, and we won't see those if global economic growth weakens. There's a good case now for big multinational U.S. blue chips.
[Comment From Dan S ]
what are you thoughts on buying one of the big five CDN banks at these levels? the yields for BMO?CM are 5% currently?
Rob Carrick - Dan, given that Cdn banks don't have major exposure to European debt, I think buying now for the long term can make sense. The higher the yield on a bank stock, the less investors think of that bank.
[Comment From Colin Tunney ]
An "expert" on CTV New at 11 last Friday said "if you are a pensioner and still in the market, your financial adviser is not doing his job". Your comments please.
Rob Carrick - Disagree. You can be a pensioner who is sensibly holds some dividend stocks for income. Also can make sense to keep a bit in stocks to add some growth to your retirement investments. That said, preservation of capital and income are your prime goals when you're retired.
[Comment From Neil ]
what do you think of the RBC Canadian Dividend fund in this economic time?
Rob Carrick - Neil, I think this and most other big bank Canadian dividend funds are ideal core investments for many investors. The RBC fund has super long-term numbers.
[Comment From J*town ]
Do you have any advice for a new investor in this current economic situation?
Rob Carrick - Get used to it - that's my best advice. There will be ups and downs in the market for a long time to come.
The Globe and Mail - Thanks for taking the time to answer so many questions today, Rob. Sorry we didn't have time to get to everyone's questions.... we got tons!
The Globe and Mail - Personal finance and investing writer Gordon Pape will be online tomorrow at 11am ET to take more questions on investing in today's volatile markets. Join the chat here: http://www.theglobeandmail.com/globe-investor/investment-ideas/are-your-investments-working-for-you/article2122801/
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