Nikhil Srinivasan, chief investment officer of global insurance firm PartnerRe, took a bold stance in a guest column for the Financial Times entitled, “This is not a time for investors to think long term.”
Mr. Srinivasan lists a number of risk factors for asset markets – low inflation, a slowing Chinese economy, the U.S. fiscal deficit, Europe’s contribution to global market volatility, and earnings growth in emerging markets – and concludes that “the good times are over until further notice,”
“This is not a time for a market investor to think long term. There are too many unknowns. The retort will be you can’t time the market. Perhaps, but you can recognise uncertainty and you can be patient. We all want the bad times to be short and good times to be extended. But don’t expect 2018 to be an aberration. The good times are on hold until further notice”.
Ritholtz Wealth Management’s Josh Brown took the more conventional view, dismissing any attempts at market forecasting for 2019 by re-posting his ‘Be Terrified’ column from early 2018,
“You will meet all sorts of people bearing rules, formulas and equations for why this thing should most assuredly follow that thing – as though there is some fundamental, physical law that can merely be looked up in a library and adhered to by anyone who bothers to search. Be terrified, for you are in discussions with the delusional and the deranged.”
I need to admit a bias here. As someone who has spent at least two hours per day over the past month trying to understand why markets are so weak despite strong-ish economic indicators and equity fundamentals, I had a decidedly negative response to Mr. Brown’s sentiments. I interpreted them generally as “you’re an idiot for even trying.”
Mr. Brown is, nonetheless, right about a lot of it. Consensus market forecasts are almost always wrong, despite some individual successes. A diversified portfolio able to weather volatility is never not a good idea over longer time periods. Academic studies have also proven conclusively that portfolio returns rise inversely with the number of transactions – the more tinkering investors do based on recent market behaviour, the lower their performance is likely to be.
There are, on the other hand, different degrees of market timing. The most extreme example is an investor who, fearing market calamity, sells everything and goes to 100-per-cent cash. This is not a good investment idea at any time.
After the broad-based market rally from 2009 to 2017, however, less drastic measures can make a lot more sense, particularly for investors close to retirement or with shorter investment time horizons for other reasons. Increasing portfolio cash components, improving the balance sheet quality of equity holdings, or shortening the duration of bond holdings, can be merely prudent moves, even if they cause underperformance of a rallying index in the future.
-- Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Facebook Inc. (FB-Q)
It all started so honourably, as a competition between former high-school acquaintances over who has the fullest, most rewarding life as evidenced by travel photos, promotion announcements and posts about the joys of parenthood. But after engaging more than one-quarter of humanity in this daily, demoralizing culture war, Facebook took a dark turn. John Heinzl and Tim Shufelt highlight the social media giant’s turbulent year in their final look at the stars and dogs of 2018 (for subscribers).
The Rundown
Test your investing smarts with GI’s year-end quiz
Sharpen your pencils, grab a calculator and tell the family to be quiet for the next 15 minutes so you can concentrate. It’s time for John Heinzl’s annual Investor Clinic quiz (for subscribers).
A fine balance leads to successful long-term investing
The world’s most ordinary investing strategy has just wrapped up an extraordinary decade by thumping the returns produced by the big brains at Yale and Harvard. But can a plain-vanilla 60/40 portfolio keep on delighting investors as markets get stormy and interest rates begin to rise? Ian McGugan examines the approach (for subscribers).
Prepare for an uncertain 2019 with money tweaks that could help you save $2,400
The country’s top personal finance priority for 2019: Save more. There’s been reason for concern about the economy, jobs, investments and housing this year, yet the national savings rate fell to a 13-year low of 0.8 per cent in the third quarter. On both an emotional and financial level, you’ll feel better in the year ahead if you park some cash in a savings account, writes Rob Carrick.
Making sense of the current market volatility
In any challenging business or market environment, there are two main tasks. The first is to understand the major factors behind events, and the second (and more important) is to quell one’s emotions. It is an axiom in investing that the emotional component is a major factor in market losses; if investors act upon popular sentiment and their feelings of either greed or fear, they invariably end up buying high and selling low, writes Thomas Caldwell.
Use these new benchmarks to gauge your DIY investing fees
One of the best things about DIY investing is how intense the competition is to cut fees. Recent examples include a pair of fee reductions in late 2018, one by an online brokerage firm on its stock trading commissions and another by a robo-adviser on its portfolio management fee. Rob Carrick advises to make it a priority in 2019 to compare these new deals against what you pay. (For subscribers).
Markets plunge again - but that’s one more reason to be optimistic about 2019
When so many of the smart kids are nervous, it makes sense to be cautious. Especially after the past few days of brutal declines, including a 2.1-per-cent drop in the S&P 500 benchmark on Friday, the case for pessimism can seem overwhelming. U.S. stocks endured their worst week since 2011, and sank to 17-month lows. Canadian stocks declined to mid-2016 levels. But it is also worth asking if the outlook is quite as hopeless as the gloomsters suggest, according to Ian McGugan (for subscribers).
Others (for subscribers)
How this engineer saved and invested his way to financial independence by 39
Thursday’s analyst upgrades and downgrades
As FAANG stocks falter, fund managers make bets on survivors
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: CFO invests over $236,000 in a stock yielding over 10%
Others (for everyone)
Ask Globe Investor
Question: This coming spring I will be turning 71 and need to consider options in moving to a registered retirement income fund (RRIF) in 2019. To avoid having to make taxable withdrawals from a RRIF in 2020, may I use my partner’s younger age (63) to defer setting up a RRIF until she turns 71 in 2026? If this is possible, how do we do it?
Answer: You can use your younger partner or spouse’s age in determining the minimum amount that must be withdrawn from a RRIF each year, but not in deferring withdrawals.
Here’s how it works. At the time the RRIF is created, you elect to have your partner’s age apply for purposes of calculating the annual minimum. This is the only opportunity to do this.
Let’s suppose the RRIF has a balance of $100,000 on Jan. 1, 2020. You will be 71 on that date so if your age was used, the minimum withdrawal that year would be 7.38 per cent or $7,380. However, if you use the age of your partner, and we assume she will be 64 on Jan. 1, 2020, that would reduce the minimum withdrawal to 3.85 per cent, or $3,850.
This action would reduce the amount of money you receive annually from the plan, thereby cutting your tax bill.
--Gordon Pape
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by David Leeder
Scott Barlow