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March 16, 2020 | Cash Needed for Operating and Realty Buys Should be Nowhere Near Equity Markets

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

It is a classic financial error to put funds that are needed for operating expenses, or a capital purchase like real estate, or another asset, into publicly-traded financial products like equities, corporate debt (or funds and ETFs of them).

Unfortunately, many people have been foolishly doing this in recent years, and now, as financial markets tank, funds needed for near term costs and real estate contracts, are evaporating.  This magnifies the contagion from financial markets through other parts of the economy.

At the same time, lower revenues and wages, rising unemployment and a looming recession should naturally make buyers less inclined to take on larger amounts of debt and spending.

We are only a couple of weeks into what is likely to be at least a few quarters of intensifying financial strain here, and already people are missing large chunks of the funds they need to function and complete realty contracts.   See ‘Prices are not going to go higher’:  COVID-19 expected to put a chill on the spring housing market:

“Up until three days ago, this virus was having no impact on the housing market,” saidJohn Pasalis, President of Realosophy. “Then suddenly, we start getting all these calls, people sounding anxious and wondering what their next move should be. I got a query from a couple who are worried about their pre-construction condo and are wondering if they should assign it,” he told the Post.

…When the markets started crashing at the end of February, my younger clients were panicking because many of them were relying on their investments for a downpayment,” he said…

Janet (not her real name), a 33-year-old living in a two-bedroom condominium in downtown Toronto had been hoping to upgrade to a home, partly relying on investments in her TFSA. But the market crash has severely disrupted her plans of upgrading — she told the Post she had lost about $14,000 that she was counting on for a downpayment.”

This is the very definition of inept financial planning, and any ‘advisers’ who have been endorsing such an approach, should be jettisoned.  Wake up, people!

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March 16th, 2020

Posted In: Juggling Dynamite

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