Q&A: How to invest for the long term in a volatile market

15 comments

With continuing turbulence in the markets, investors find themselves questioning long-cherished beliefs. But there are risks in abandoning a strategy, say experts.

Joel Clark, a chartered financial analyst, is the managing partner of the private client team, a portfolio manager and a director at KJ Harrison & Partners Inc. He answered reader's questions during this live online discussion.

Joel has more than 12 years of experience in the investment industry. Before joining KJH in 2002, he worked at Canadian Mortgage Capital Corporation. He received a Bachelor of Business Administration degree from Acadia University and has earned his Chartered Financial Analyst (CFA) designation.

The following is an edited transcript of the discussion (You can also see how the Q&A originally appeared in the window below).

Akbar: For plans like RDSP where Government grants and bonds are pretty handsome, do you recommend holding highly volatile stocks like IT in the current market?

Joel Clark, KJH: Given that RESPs have a shorter time horizon and have a specific goal (kids education) its important to keep asset mix conservative. Although IT (assuming you mean tech stocks) are equities, it gets down to the type of tech stock you mean. I would say Intel or MSFT is a safer tech stock then venture tech idea.

Guest: My fiancee and I are in our mid twenties and recently purchased a house. With the extra income we have leftover each month, which percentage would you recommend be put towards long term investing and which percentage should be put towards paying down our mortgage sooner (via double up payments).

Joel Clark, KJH: Although most people would disagree with me, I would say that given the level of uncertainty today and for the next 5 years, I would be aggressively taking all your available free cash flow and reduce your mortgage. My sense is that interest rates are going to be widely higher in 5 years and value of Canadian real estate will be flat to down. I would make paying down debt your top priority.

John R: After pulling out half of my portfolio last July, which is held in a self directed RRSP account, is this the time to venture back in to the market or is there another option to park those funds in a safe holding place with some sort of return until the global economic outlook improves somewhat?

Joel Clark, KJH: In the short-term I would wait as there has been a very big rally off the October 2011 low. My sense is there is about to be a bit more pain in next month with Europe that will provide you with a better opportunity.

Grant: I presently hold in my Mutual Fund RRSP 100% Equity. Equity is 50% Can / 40%US / 10%INT I hold 25% of the total RSP value in non registered cash (high interest savings) I plan to add to the INT Exposure for the next 2 years After 2 years I plan to continually add exposure to Bonds until retirement in 13 years to reach a target of 50% Equity/50% Bonds I also am starting a TFSA this year with ETF”S holding CAN + US Div Stocks, REITS and Utilities. I may also add Bond or GIC exposure to the TFSA. Your comments please on my strategy.

Joel Clark, KJH: Generally, I think you are heading in the right direction. however, in the long-term I am worried about bonds given the 30 year outperformance in this asset class is near its end. once yields start to go the other way, it becomes an up hill battle.

Guest 2: For someone close to retirement say in 2-5 years would you be better off getting out of equities and investing in bonds?

Joel Clark, KJH: I think that is a big mistake. Bonds are setting up to become one of the worst 3, 5, 10, 20 year decisions one could make. plus once inflation starts to cook, you will need the inflation protection you get from dividend equities to offset this. given today's low yields 10 year less than 2% on an after inflation, after tax basis you are depleting capital in an entire bond portfolio.

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