So you want to take advantage of the ‘buy low’ opportunity presented by falling markets – will that be stocks or bonds?
Both are having a time of it in 2022 – the S&P/TSX composite index was down 10.9 per cent for the year to date, while the FTSE Canada Universe Bond Index was down 11.8 per cent. An easy and effective way to start taking advantage of falling prices for both stocks and bonds is to buy an asset allocation ETF.
Asset allocation ETFs are a diversified portfolio of bonds and global stocks packaged into a single exchange-traded fund you buy through any online broker. Asset allocation ETFs come in a variety of stock-bond mixes suitable for conservative, balanced and growth investors. For example, a growth version might have 20 per cent of its assets in bonds and 80 per cent in Canadian, U.S. and international stocks.
You can see the benefit of buying into a falling market with a fund like this – exposure to global stock markets diversifies away the risk of focusing on a particular market or group of stocks that underperform. The bond exposure offers some upside when inflation peaks, allowing interest rates to stabilize and then decline.
Without doubt, there is potential downside ahead for stocks and bonds.Expect extreme volatility until we get a sense of whether inflation can be brought under control without triggering a recession. Mind the pitfalls of being too finicky as an investor in taking advantage of falling markets.
For example, there’s the risk of trying to time a market bottom and missing out on a rebound that comes out of nowhere. There’s also the risk of thinking you can pick the sectors best suited for the investing environment that emerges in the months and years ahead. Finally, there’s the risk of being overly influenced by recent trends and ignoring bonds as holding in long-term portfolios. Don’t guess what will and won’t work in the years to come - buy everything.
Edging into the market in the months ahead is strictly for people able to wait at least 10 years before they need their money. Practically speaking, think about making a series of purchases of an asset allocation ETF suited to your needs and preference on risk. You could buy biweekly, monthly or quarterly. Another thought is to buy after a particularly bad day for the markets, say a drop of 2 to 3 per cent or more.
The point is to average into the market so you don’t commit a big amount that gets savaged in market declines just ahead. Long term, the direction is up. It always is.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
DRI Healthcare Trust (DHT-UN-T) Year-to-date, DRI is the second best performing stock in the S&P/TSX Small-Cap HealthCare Sector with a gain of 22 per cent. The unit price is still trading well below its initial public offering price. But Jennifer Dowty tells us why the recent positive price momentum may continue.
The Rundown
The case for Canada: A BlackRock senior strategist on energy, banks, bonds and why our market rules in 2022
This remarkably bad year for investing still has almost six months to go. Both stocks and bonds have already fallen by double digits. Inflation is raging, interest rates are rising and economists are assessing the risk of recession ahead. For help in navigating the twists and turns still ahead in 2022, Rob Carrick speaks with Kurt Reiman, BlackRock’s senior strategist for North America.
Stocks are less expensive, but that doesn’t mean they’re cheap
The one thing we know for sure about stocks is that they are a lot less expensive than they were at the start of the year. Unfortunately, that doesn’t mean they’re actually cheap. Based on long-run averages, stocks appear to be offering decent but unexciting value if economic growth continues to plug along. But in the increasingly likely event that a recession hits, they’re a dicey bet on a rose-tinted view of the future. Ian McGugan explains.
Also see: Recession fears loom over value stocks
No, it’s not time yet to buy bonds - but here’s an ETF to get to know for when it is
Gordon Pape is receiving questions he rarely sees. Like this one: Is it time to dip back into bonds (with talk of a recession)? In his opinion, the time is coming when bond investments will offer the potential for some rich capital gains. But it’s not here yet. Here he explains why, and tells us about an ETF to put on our watchlist for when that day does arrive.
Where a $7.1-billion fixed income fund manager is placing his bets
Hanif Mamdani, the lead manager of Royal Bank of Canada’s giant PH&N High Yield Bond Fund, offers a high-profile example of an investor looking to take advantage of eye-popping bond yields. As David Berman tells us, he’s now prowling for corporate bonds he believes could deliver double-digit annualized returns – breathtaking gains in the normally staid world of bonds – within a couple of years.
Also see: Credit investors see more risk ahead as recession fears rise
Why young ETF investors should be partying in the streets right now
New investors with diversified portfolios of ETFs should be excited to see stocks fall. It’s an opportunity for them to buy funds at lower prices. When investors stockpile such assets at a discount, those assets soar as markets recover. Andrew Hallam has some math that shows just how well this works.
Watch for these two things before making a bet that stock markets have bottomed
The stock markets are anticipatory and, as they often do, have already reacted negatively to fears the economy will crater. Investors are left to wonder how bad the downturn will get or if the worst is already behind us. Either way, the stock market should turn before the economy starts to recover. Investors would be wise to look for the deployment of economic parachutes before loading up on stocks. Norman Rothery tells us about a couple of these after examining what bond yields and history are suggesting.
Why this money manager has the confidence to recommend investors ‘stay calm’
John Zechner has seen his share of market downturns in his nearly 40 years managing money. It’s that experience that gives him the confidence to recommend investors “stay calm” during the latest market rout – and start buying if they have the stomach for more volatility. The chairman and lead equity manager at J. Zechner Associates, which oversees more than $1-billion in assets, tells Brenda Bouw what he’s been buying and selling of late.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: CEO’s are buying these stocks on price weakness
My First Stock: How buying Royal Bank stock taught this investor the value of patience
What’s up in the days ahead
Dr. George Athanassakos explains why he believe the price of oil will stay high for years to come.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff
Rob Carrick