- the source for market opinions


October 8, 2019 | Boo

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.

What is it about October? Volatile weather. Volatile markets. Elections. Shorter days. Falling leaves. These are weeks when investors brace for a financial roller-coaster ride.

For well over a century this month has sucked. Stock market gyrations during October have averaged 38% more than any other slice of the calendar. The biggest, scariest declines have happened here– back in 1929 (Oct. 28 – 13%), again in 1987 (Oct. 19 – 22%) and once again in 2008 (Oct. 15 – 8%).

Nobody really knows why. It’s just a thing. Maybe the autumn makes us think about change. Perhaps it’s worry about the coming winter. Or the sight of people dressed up in Donald Trump masks extorting candy.

When you think about it, no shortage of reasons to be morose. Washington just escalated the war with China by blacklisting tech companies. Brexit is blowing up along with Bojo. The new boss at the IMF is warning of a global slowdown. Manufacturing data is weak. Turkey, Syria, Iran and Hong Kong. Adele’s preparing to tour.

But at the same time the economy’s growing in NA. Unemployment in the world’s biggest economy has plunged to a 50-year low. Central banks are adding stimulus again. Inflation is weak. Mortgages are cheap. Corporate profits are okay. Stock markets are near record highs. Investors have had a great 2019 so far.

Should you get all bent out of shape over the 20-odd days left in the month? Is it worth going to cash to avoid the October Effect?

Hmm. Human nature might nudge you in that direction, but this would probably be dumb. For a number of reasons.

First, market corrections are temporary. They pass. Look at what happened last Christmas, then the months following. Anyone selling at that moment turned paper losses into real ones. Bad idea. Just chill. Second, the danger of missing good days is greater than the safety of avoiding bad ones. If a person with ten grand to invest 15 years ago stuck it in an S&P 500 index fund and ignored fluctuations, they’d have $30,000 now. If they tried to time the market, avoiding the worst days but also missing 10 of the best days, they’d have $15,000. The lesson has been proven over and again – the best time to invest is when you have the money.

Third, cash is trash. Look at this rate schedule I captured while in the TD Bank to use the washroom earlier today. Pathetic:


Inflation these days is 2% and about to rock higher after October 21st. Plus, money invested in a non-registered account yields taxable returns. That means most people would have to earn at least 4% interest just to break even in the short term, and you can’t even get that by locking up money for five years in a GIC where you must pay tax on cash not yet received.

Daily interest accounts, HISAs or term deposits don’t even come close to providing people with the returns they need to finance their futures. So pity the uneducated, risk-riddled people who get talked into ‘safe’ investments by TNL@TB. When money is giving you less than inflation and taxes take, you’re bleeding to death. Do not let the fear of loss hobble you.

Fourth, what stock markets do is interesting but hardly earth-moving for people with balanced portfolios. If you maintain 40% of your portfolio in fixed income assets, like bond or preferred ETFs, plus throw in some REITs, and have the correct weightings among Canadian, American and international equity markets, the Dow’s a minor deal. Bonds go up when equities fall. Dividends keep rolling in from the prefs and REIT tenants must their rents.

Fifth, no stocks. No individual equities should be in most people’s accounts, only ETFs. This helps shield you from the volatility caused when trendy weed stocks tank, profitless app companies blow up or there’s a Nortel/Blackberry/Enron implosion. Picking stocks is gambling. Using ETFs is investing. Your choice.

Remember human nature is the enemy. Fear and greed lead us into temptation and regret. Rarely to profit or safety. Build a portfolio with the correct weightings, invest when you have the funds, then fuggeddaboutit.

It’s only scary when you look.

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October 8th, 2019

Posted In: The Greater Fool

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