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August 10, 2017 | Fire & Fury

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

The last time anyone seriously wrote about how to invest during a war was when Russia walked into the Ukraine and started grabbing turf. But that blew over.

Today it’s again the topic. This time a lot’s changed. Kim Jung Un is a nutjob, walking North Korea closer to an unwinnable conflict that could toast millions of his people. The US is being run by an unpredictable non-politician bellicose bully, who just promised “fire and fury like the world has never seen.” This is not a polite Putin-vs-Obama dust-up. These guys seem capable of anything.

At least that was the sentiment Thursday when the Dow lost the most in six weeks, and the Toronto market took a 140-point dump. The tech-heavy Nasdaq had a bird and shed 2% of its value, while the Canadian dollar tumbled back to 78 and a half, oil lost two and a half per cent, bond prices spiked and so did gold. It was classic risk-off.

Volatility erupted, with the VIX shooting 40% higher after snoozing for months. In short, bodies were piling up at the exits.

So, should you worry about your investments? That depends on what they are, of course. As this blog suggested a few months ago, it was time to lighten up on US exposure and move some portfolio heft to other areas. American equities (and others around the world) have been trading at historic highs for a while. In fact we just came off a nine-day run of record closes for the Dow, with Donald Trump sending out self-congratulatory Tweets.

Valuations in the States are about 20% above long-term norms – perfectly okay when corporate profits are robust, Washington is pondering big tax cuts, unemployment is 4% and the world is calm. But when the most obtuse country says it can, and likely will, attack the US (or its allies) with nukes, well, stuff happens. Suddenly a lot of people are motivated to take money off the table and stick it into something more predictable. Thus, stocks down, bonds up.

This blog knows a lot, but not if the dictator with the Husqvarna haircut who shot his relatives with an anti-aircraft gun is fool enough to missile Guam or even California. Probably not. It would be suicide. But he’s entirely capable of raising tensions even higher and goading an emotional and testo-laden American leader to the edge of rationality. Expect more market declines.

So here are some things to remember during scary headlines.

Do nothing, even if you have a portfolio full of the wrong stuff. Reacting emotionally to very-recent events is a formula for doing dumb things. If you didn’t reduce exposure when markets hit one record high after another, why would you do it when they’re falling?

Having said that, scares like this should remind everyone why a balanced portfolio makes sense. When stocks go down, safe stuff normally goes up. Having a bond component, for example, helps reduce volatility, mute equity drops and lets you sleep through “fire-and-fury” nonsense. Besides, a proper mix of government, corporate, provincial and high-yield bonds, plus a healthy weighting in preferred shares, can give you a 4% yield on that more stable 40% of your accounts. Not bad, considering you get a dividend tax credit on much of it.

And diversify. Have some exposure to real estate investment trusts, for example, which own office towers, malls or residential buildings where rents have to be paid regardless of whether stocks rise or fall. Use ETFs instead of individual stocks, for growth with far less volatility (at a fraction of the cost of a mutual fund).

Also, remember the best time to invest is when people are throwing themselves off balconies. Seriously. Just harken back to the spring of 2009 when retail investors were stampeding to dump equities which had lost 55% of their value, thinking they’d all go to zero. It was emotional, illogical and knee-jerk. They took needless losses as contrarians wiped the floor with them. The world did not end then. It will not end now. Except maybe for Kim.

Finally, a quick word about this blog.

Consistently I delete or mark as spam comments which are racist, intolerant or hateful, usually against immigrants and almost universally anti-Chinese. A narrow band of morons believe the reason they can’t afford a seven-figure house is because some criminal dude from Asia stole it with laundered money. That hatred extends easily to everyone who was born here and looks vaguely Chinese. It’s revolting.

The comments you will never read here have become more extreme. Lately they’ve targeted my dog and my wife. Wednesday night I was threatened with death.

Just a heads-up if, some evening, you wonder where the words went.

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August 10th, 2017

Posted In: The Greater Fool

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