Three Reasons to Ignore Market Downturns

“Long-term investors shouldn’t worry about daily or weekly blips in the markets.” How many times have you heard that? It’s true of course, but most investors don’t heed the advice. And to be fair, it’s hard to ignore the financial markets when there’s non-stop commentary in the news and on social media.

Since markets began falling early last month—the S&P/TSX Composite Index shed more than 11% in the six weeks following September 3—some investors are starting to get spooked. As one wrote to me recently: “A word of encouragement would be appreciated for those of us who recently began the Couch Potato plan and are now seeing our ETFs going down.”

Words of encouragement are helpful, but “don’t worry, be happy,” doesn’t cut it. So here are three specific reasons why a falling stock market shouldn’t shake your confidence in a balanced index portfolio.

1. Downturns are ridiculously normal. A reasonable expected rate of return for a global equity portfolio might be about 7% to 8%. But this is an annualized average over the very long term. In any given year, equity returns are likely to be much lower or much higher. Everyone knows stock returns are volatile, but few people appreciate the degree to which that’s true.

Consider that from 1970 through 2013, a portfolio with equal amounts of Canadian, U.S. and international equities would have delivered an annualized return between 9% and 10%. But performance looked absolutely nothing like that on a year-by-year basis: the portfolio would have seen calendar-year returns in the range of 6% to 11% just five times during those four-and-a-half decades. Read that last sentence again so it sinks in: that’s only one year out of every nine.

Equity returns are never slow and steady: they typically alternate between gut-wrenching losses and euphoric highs. The only way to ensure you’ll be around to enjoy the magnificent years is to stay invested during the difficult ones.

2. Your expected returns just got higher. With almost everything else we buy, we celebrate low prices. Yet investors go out of their way to load up on stocks after they’ve soared in price and avoid them when they’re cheap.

When the price of an equity index fund falls, its expected return goes up: you’re paying less for all future dividends and potential growth. (This is true of bond index funds, too.) So if you’re a long-term investor who is adding new money to your portfolio, corrections and bear markets should be welcomed, not feared. As Warren Buffett famously put it: “Whether socks or stocks, I like buying quality merchandise when it is marked down.”

3. Diversification still works. Investing would be a snap if every asset class delivered positive returns every year. Here in the real world, we build balanced portfolios. While you can’t be certain that holding roughly similar amounts of stocks and bonds will protect you from significant losses, the track record is solid.

While the last seven weeks wiped out most of the year’s earlier gains in the equity markets, bond returns have been much higher than expected: as of October 17 the Vanguard Canadian Aggregate Bond (VAB) was up 6.81% this year, according to Morningstar.

We saw a similar situation in 2011, when Europe was imploding and the U.S. government had its debt rating cut: stocks plunged dramatically that year, but the DEX Universe Bond Index was up almost 10%. Last year saw the reverse: when interest rates spiked and Canadian bonds had their first negative year since 1999, stocks enjoyed one of their best years in a generation.

Building a properly diversified portfolio is the easy part: sticking to it over the long term is much more difficult. But it’s also what separates successful investors from the roadkill.

40 Responses to Three Reasons to Ignore Market Downturns

  1. gil October 20, 2014 at 10:27 am #

    Don’t ignore market downturns.

    It’s great time to rebalance.

    I start the year with a equal positions in SPY and TLT.

    TLT is +18% and the SPY has fallen to +4%.

    Time move some of the gains.

  2. Daniel C. October 20, 2014 at 12:39 pm #

    Dan, last July and August my investment policy was forcing me to sell equites because had reached the lower bound of the equity allocation. Which I did, but it was hard! Now I am very happy. I have reached the upper bound and will start rebalancing towards my target long term allocation. Bottom line…must remove emotions out of the equation…and it works. Keep on the good work. Daniel C.

  3. françois October 20, 2014 at 12:41 pm #

    don’t worry, be happy… see it’s easy.

    these movement actually make me question the impact of rebalancing more often (i might have to make some monte-carlo simulations), but at least confirm that using CF to rebalance (vs DRIP) is proper.

  4. Alan Whitton October 20, 2014 at 12:46 pm #

    Wait a minute, there was a market correction? I was too busy painting my house with Lysol and then sealing it air tight, did I miss something here? Hell Ebola has almost killed as many folks in America, as Kim Kardashian has married!!!

    Enough sarky comments, every time I thought I had any inclination as to what the stock market was doing, I got burned badly. I got out of the deep end of investing, got in the safe end with Couch Potato portfolios, and went back to being a PARANOID NEWS MONGER!!!

  5. Dan B. October 20, 2014 at 1:14 pm #

    I just started focusing on an indexing TFSA last week and I don’t think there will be a better time than now to buy.

  6. will October 20, 2014 at 1:31 pm #

    I think the point that connects best with me is to think of it as a sale. Stocks got cheaper, so buy more. Yes it sucks for the stocks you already have, but you just have to remember over time those losses are recovered.

    I personally like to take advantage of these buying opportunities by shifting from 20/20/20/40 to 25/25/25/25 after stocks have a nice 10% correction like this. It really helps you get in the mindset of lower prices being good.

    Stocks are also 10% less risky, so why not buy a little bit more? Yes they could drop more, but you still got a sale price anyway.

    Once prices recover in a few months I’ll gradually shift myself back to 20/20/20/40 and carry on.

  7. Edward October 20, 2014 at 1:36 pm #

    Good article!

    “A reasonable expected rate of return for a global equity portfolio might be about 7% to 8%. But this is an annualized average over the very long term.
    …corrections and bear markets should be welcomed, not feared.”

    These are the key points which I personally will have to constantly remind myself. I can’t be disappointed on a given year-end if I didn’t reach my net worth goal based on 6-7% return. Plugging numbers into retirement calculators will give a forecast while the reality could come in far above or below the prediction. Years where it comes in lower will be the years to mentally do battle against mutual fund salespeople, financial TV shills, and gold quacks.

    All that said, thanks to the CCP my mindset has happily slowly started taking most emotion from my investments. I no longer see my portfolio quite so much as a net worth pile of cash as a mathematical formula which occasionally gets out-of-whack and may need to be corrected at the beginning of January or end of June. I don’t notice the final number monthly so much as an imbalance occurring. So glad I no longer have the “chicken with its head cut off” investment style.

  8. Stephen @ How To Save Money October 20, 2014 at 2:17 pm #

    Staying the course is definitely good advice. I got lucky with this downturn as I did with the on in 2008. I happened to be changing my investment firm in 2008 and transitioning jobs for this one. The first instance caused me to sell my entire portfolio and reinvest it after much of the drop had happened. This time, the market highs in September prompted to sell my work related RRSP investments and transfer them to my main RRSP with Questrade. Then the 10% drop, prompted me to take that free cash and reinvest it. Even if the markets keep crashing, I saved 10% just there!

    I don’t advocate market timing, but it’s really nice when you catch a break like that!

  9. Willy October 20, 2014 at 2:21 pm #

    I think trying to rebalance, or certainly, change your portfolio allocations at a time like this (i.e. based on recent market moves, and your own judgment) is bound to be a fool’s errand. You have to accept that your “judgment” is useless and so the result, over time, has to be net zero. So at best, you may net out to zero impact, while at worst, you’ve cost yourself some increased trading fees.

    I think you have to stick to a rule-based rebalancing schedule (whether based on time, difference from target allocation, or both). As to whether there is any use in increasing your rebalancing frequency (or reducing your thresholds), most data I have seen suggests there is no use in rebalancing more than annually or semi-annually (certainly not monthly), at least using back-tested data from the last few decades. Unless hyper-volatility becomes the new normal (and I don’t think the last 2 weeks classifies as that), that’s unlikely to change.

  10. Tawcan October 20, 2014 at 4:33 pm #

    Great advice! Staying on course and keep executing the investment strategy will come a long way.

  11. Rod-knee October 20, 2014 at 5:03 pm #

    Great article and timely. Lots of loses in equity markets but my balanced portfolio was down a max of 3%, now 2%, from it’s peak in August. I bought in a bit (and rebalanced at the same time). Should have bought in more but I couldn’t help the feeling the fear and believing that the world was falling apart as one gets from the daily media cycles.

    Thank goodness for this blog and others like it. Really helps stay focused in irrational times.

    Cheers!

  12. françois October 20, 2014 at 5:34 pm #

    @Willy. While i agree with you on changing strategy, (ie mix) just because of market change and that being a bad idea (except maybe to consider that maybe your mix was not appropriate to your own risk tolerance), I still have to convince myself about rebalancing frequency, i have now convinced myself that it should be semi-annual, and likely need to review the thresholds in between (something like +/- 20% on each class)

  13. hmichaluk October 21, 2014 at 12:21 pm #

    That “the track record is solid” for a diversified portfolio’s success going forward is the difficult part especially for peri-de-accumulation phase investors. The fine print there is that future returns may not necessarily reflect that record in the immediate longer term because the market has been so manipulated by stimulus largesse! I think this is unprecedented. When market mean reversion arrives what will that look like and how long will it take to normalize? No one knows! I’m thinking only a sliver of the pop’n can be DIY investors and follow a buy and hold strategy. These are unusual times and a good advisor is a must!

  14. Mike D October 21, 2014 at 3:04 pm #

    @hmichaluk

    I would argue that we have always lived in unusual times, which makes then not that unusual! As far back as I can remember (which is the 70s), there has been something going on that might make stock prices fall. Right now it may be the stimulus largesse hangover, before it was OPEC controlling oil prices, or too much money flowing to tech companies with no profits, or whatever.

    I agree that a good advisor can be useful, particularly if the investor lacks the discipline to stay the course. Investor psychology is such that buy high, sell low is the unfortunate result in too many cases. However, a buy and hold strategy is not the goal – a buy, hold, and rebalance periodically is better.

  15. Le Barbu October 21, 2014 at 3:40 pm #

    I just jump on this opportunity to sell my bonds to peoples who wants them and buy stock instead. Everybody is happy !

  16. Chris B October 22, 2014 at 4:32 pm #

    It’s a good reminder, thanks Dan.

    I still find, however, that the risk and variance in a buy-and-hold approach to the market outstrips its utility. After inflation, the average return is about 5% a year. With that number itself subject to significant fluctuation from year to year. That just strikes me as poor return for risking your life savings in a market that *might* not recover from a global crash. Or if it does, may take decades.

    Personally, I’m not quite certain what to do. I’ve been using a diversified momentum approach, and the return has been satisfactory. But as I further educate myself, out-of-sample simulations suggest that such approaches under perform the index to the exact extent that they are *out* of the market. This re-affirms to me the market is a random walk, with a slight upward drift. But that slight upward drift is, by nature, fragile and prone to correction.

    Call me a skeptic, but why do we have such faith that this drift will continue? A hundred years of data is no real verification of anything. I’ve seen momentum and moving average strategies perform admirably over such time frames, only to fail for decades thereafter. Insofar as buy-and-hold approaches are concerned, have we any evidence that this strategy is any more valid? I can also point to countries and times (eg: Japan and the Depression) where buy-and-hold failed for decades.

    I understand that Couch Potatoes don’t attempt to beat the market, but only capture it’s upward drift. But what evidence do we have that:

    1) This upward drift exists.
    2) That it will continue.

    Just pondering, all feedback welcome.

    Best,
    CB

  17. Ryan Purdy October 22, 2014 at 8:42 pm #

    It was a little disheartening watching the gains evaporate, but this is money I pay myself in twenty years or so. Hopefully the next 19 will have be overall positives. But in the short term, how do I rebalance? What triggers should I look for, or should I just set a calender reminder?

  18. Steve October 23, 2014 at 1:54 am #

    @ Chris B:

    “But what evidence do we have that:

    1) This upward drift exists.
    2) That it will continue.”

    1) It has generally existed in the past, over long enough time periods but with significant exceptions.

    2) Absolutely no guarantee it will continue within your investing lifespan.

    I know what you mean by “upward drift”, but the term implies a steady gradual increase which is empirically not the case – stock markets tend to occasional relatively large jumps up and down, with varying periods of much smaller movements in between.

    You can choose to believe – as implied by a buy-and-hold strategy, passive or otherwise – that past upward market bias will continue, but in the end it comes down to **belief**, not **fact**, that the future will be a mirror of the past at some level.

    Or you can bypass that question and base your investment strategy on something other than an expectation of long-term upward bias – your momentum approach, or market volatility, or providing liquidity, or many other examples. Not for everyone, certainly, but that gets you out of the **belief** trap you are pondering.

    There is nothing guaranteed about the Couch Potato strategy – it just has the benefit of being easily implemented, and **if** past is prologue to future, possibly somewhat successful.

  19. Willy October 23, 2014 at 8:53 am #

    @Chris B., Steve: I believe you are correct in suggesting that a continuing uptrend in markets is not guaranteed. In fact, I would say nothing is. Through millenia of human history, almost nothing has stayed the same. So market returns over the next 100 years may be 7%, or 2%, or -10%. I surely don’t know.

    But the point of passive investing, and where I disagree with you, is that there is no way to consistently do any better than what the market gives you. There is ample evidence to suggest that virtually no one, ever, has been able to consistently outperform the market over extended periods. The idea is, attempting to use “other methods” (trend following, active management, whatever you want) to outperform the market will not be successful over time, and only increases your costs. So if the market does return -10% in the next 50 years, you’ll get -11%!

    This may sound defeatist, that there is no choice but to accept what the market gives you. However it is not. If you truly believe that “uptrends” will not continue, there are ways to increase your net worth (which is the ultimate end goal) without resorting to active management or other schemes. You could: (a) start a business, or (b) go back to school/improve your education/switch careers to a better paying job (ie invest in yourself), and so on. I believe that those would have a higher probability of success in terms of increasing your net worth than attempting to consistently beat a market return using active/tactical strategies. All data we have suggests the latter is basically impossible.

  20. Canadian Couch Potato October 23, 2014 at 9:05 am #

    @Chris B: I’m not sure anyone can answer your question in a satisfying way. There are no guarantees in investing. In many countries and in many periods, investors were not rewarded because of war, political turmoil, hyperinflation or some other calamity. But for me it always comes down to a single question: if you don’t believe that a globally diversified buy-hold-rebalance portfolio of stocks and bonds will lead to a good outcome, what is the alternative? I just don’t understand how one could logically conclude that an active trading strategy has a higher probably of success. The only reasonable alternative, in my view, is an all-GIC portfolio with the understanding that this will mean accepting low returns and therefore will require a much greater level of savings.

  21. Steve October 23, 2014 at 9:18 am #

    @ Willy:

    I’m sorry, but I think you did not understand my point to Chris B.

    I was not talking about beating the market at all – my point was that the alternative to a settled belief that the stock market would predictably continue with a general upward bias in future would be to avoid relying upon market returns in the first place: “Or you can bypass that question and base your investment strategy on something other than an expectation of long-term upward bias …”

    I’m not suggesting such an approach, but it certainly is possible – and most importantly, it avoids the doubts that Chris B. set out.

  22. Steve October 23, 2014 at 9:34 am #

    @ CCP:

    “if you don’t believe that a globally diversified buy-hold-rebalance portfolio of stocks and bonds will lead to a good outcome, what is the alternative?”

    If you see markets generally heading down, you could set up a barbell strategy with 90% in T-bills and 10% in index put options … 😉

    There are many alternatives that don’t rely on reasonable general market returns to give the possibility of good portfolio returns, as I noted to Chris B. Whether those are viable options (pardon the pun) for him, only he can say. These are not “active trading strategy” in the sense of stock picking or so on, of course.

    More generally, I think Chris B. needs to understand that it is ok not to be “certain” about future upward market bias – “belief” is a probabilistic idea, so does he “believe” strongly enough that markets will generally trend upwards or not? He seems to be looking for a future certainty that is impossible to have.

  23. Chris October 23, 2014 at 10:07 am #

    @ChrisB: If you’re willing to accept the likelihood of less than a market rate of return (because you simply cannot expect to outperform the market on a risk-adjusted basis through any non-indexed strategy), there are a variety of absolute-return type investments that can give you more certainty about what your expected return or cash flow from your investments will be. Dividend-style investing is one example of that, but there are others, including options-focused strategies. This is one reason why some people gravitate to dividend investing. But you have to be willing to accept the likelihood that you will underperform indexed investments over a long time horizon.

  24. will October 23, 2014 at 10:31 am #

    If you believe that the market will no longer perform, and will have negative or flat results, then there is a very easy way to beat the market, GIC’s.

    Your risk of course is that you are wrong and the market does perform as expected.

    I think you need to look at what you can save and what you actually need. If you can save enough that 2-3% GICs can give you what you need in the end, then there’s nothing wrong with that strategy, and it removes the market risk from the equation.

    For most people though they need a better return than that. It’s kind of ironic actually because if you “need” the better returns of the market, you are actually at far more risk if the market fails to provide it. If you don’t “need” those returns because you are able to save more, you can probably afford to take the risk as well.

  25. Chris B October 23, 2014 at 10:35 am #

    Hi guys, thanks for the response.

    Steve: I like your thoughts. And I am fully aware they are not so much recommended as an answer, but more as a means of addressing my reservations of accepting something on faith. So bypass the faith commitment, and work on the tech. I like that. As futile as it may be, at least it shifts me from an intractable situation, to one where motion is happening.

    Willy: Well, I’ve come across evidence that a simple moving average applied to the market has outperformed passive investing for over 100 years:

    http://www.mutualfundobserver.com/2013/06/timing-method-performance-over-ten-decades/

    But, fear not, I don’t find it terribly compelling. Out-of-sample simulations suggest that the last hundred years are an insufficient sample size to draw any conclusions from, prone to all sorts of survivorship bias, curve fitting, and whatnot. But it did spark a little skepticisim. If 100 years can’t substantiate a strategy, what possibly could?

    I think Steve nailed it when he identified my relation to the market as the problem. If the issue is one of requiring certainty that the market will always produce returns to skim, I’m out of luck. I just don’t have that sort of faith, but nor should anyone (past performance not being indicative of blah, blah, blah …) Oddly enough, allowing some skepticism towards the future, and acknowledging that a passive approach is not the answer, but rather a possible “best guess” is something I can can get more on board with.

    Dan: “if you don’t believe that a globally diversified buy-hold-rebalance portfolio of stocks and bonds will lead to a good outcome, what is the alternative?”

    Dividends, re-training, and a barbell strategy with 90% T-bills and 10% in put options?

    😀

    Actually, to be honest, I’m kind of interested in options and butterflies, but I’m trying to talk myself out of it. And things I start off with trying to talk myself out of never tend to end terribly well…

    Thanks Steve, Willy, Dan, and Chris for the kind feedback. I’ll wrestle with this a little more.

    All the best,
    CB

  26. hmichaluk October 23, 2014 at 12:06 pm #

    My advice to accumulation phase investors is to work hard now, live frugally, and save hard to invest using the CCP proven cost effective passive method. In your youth you have to play the game now of equities and realize that your capacity for risk is still there to deal with the market volatility whether short term or long because you have human capital of some decades to earn money at your job to add to your portfolio. But, the ultimate goal is to try at some future point to get out of the game of equities (as your human capital runs out) with the aim to have your rate of return in safe fixed income to match your realistic living expenses. When you have achieved that goal and you have extra funds then have a separate risk equity portfolio to deal with inflation worries, emergency contingencies, and other expenditures.

  27. Luxerus October 29, 2014 at 11:12 am #

    Honestly I barely felt this correction, that’s the kind of volatility and I can stomach without thinking twice. Having VRE (REITS) seemed to have helped as they did not tank as much as the canadian index (XIC). It seems that indices are already on their way to beating new records and that at some point investors will be scared again and there will be another correction. It’s almost as if good weather always followed bad weather.

    I have a question, that maybe could be answered with Monte Carlo simulations. What if every time there was a correction, instead of following say a 1/3 equity allocation in Canada/US/Intl, you went heavier in the one that went down the most? Basically, what if new contributions were always made in the current equity that went down the most, rather than striving for a perfect balance (without straying too far of course)?

  28. Canadian Couch Potato October 29, 2014 at 12:14 pm #

    @Luxerus: Running a simulation like the one you suggest would require a lot of work. 🙂 But remember that a simple rebalancing schedule (with thresholds, rather than by calendar) accomplishes almost exactly what you’re suggesting.

  29. Jakub Labath October 30, 2014 at 11:37 am #

    @hmichaluk

    “.. to get out of the game of equities (as your human capital runs out) with the aim to have your rate of return in safe fixed income …”

    Where might one find this safe fixed income you speak of?

    I have witnessed hyperinflation in my lifetime – and it obliterated any type of cash savings and the people hit the worst were the retirees.

    Smart asset allocation is crucial at any point in life. Stocks, bonds, cash, real estate… – it’s all just another asset and the value thereof can and will change.

  30. hmichaluk October 31, 2014 at 9:54 am #

    @Jakub Labath

    Retirees, indeed are the ones most vulnerable. If possible, someone entering their retirement phase should have their well thought out basic annual living expenses covered by CPP+OAS+?other pensions+the fixed income portion of their investment portfolio. The latter in GICs/gov’t bonds or etf equivalents. If that is not enough then the options are slim and even frightening! Either work longer and save more or reduce your living expenses. The purpose of investing is not to make you rich but to prevent you from dying poor. A stock market decrease of 50%+ at the beginning of retirement may take 10+ years to recover but worse causes many to sell quickly because they underestimated their risk tolerance (a more common problem few realize)! That kind of equity risk leaves retirees most vulnerable.

  31. Jakub Labath October 31, 2014 at 11:33 am #

    @hmichaluk

    I think we basically agree, It’s not like i’m suggesting people in retirement allocate heavily into stocks. All i’d like to point out that things like CPP+OAS and any fixed income are severely exposed to hyperinflation. You are mentioning 50% decline in equity market. I did some number lookups for inflation in Czechoslovakia/Slovak republic years 1990-1994 basically by 1994 one slovak crown was worth 0.42 1990 czechoslovak crown. So that’s 58% drop in actual value. This was 20 years ago, and of course there was only more inflation in that time. Compared to that 10+ years for equities to recover is starting to look good.
    One can argue such things will never happen in Canada, but i say there is a first time for everything.

  32. hmichaluk November 1, 2014 at 6:55 pm #

    @Jakub Labath
    Putting all your faith in “smart asset allocation” in “any point in life” is risky! You must remember that the success of asset allocation is valid in the accumulation phase but weaker in the distribution phase in terms of overcoming longevity risk there. Asset allocation importance based on the Brinson study of 1984 was done using data from pension plans which operate differently because they have infinite lifespans, basically immune from inflation effects, and where withdrawals are met with continuous contributions. Far different for finite retirement portfolios! Equities don’t always make up inflation problems. What do you mean by “smart asset allocation” and how does that prevent inflation/hyperinflation problems in retirement?

  33. Alan m November 17, 2014 at 11:14 am #

    Sorry for last post was an accident. I’ll try to keep this as concise as possible.

    Situation
    New to investing 32 married new house
    Income 110k+ wife subbing teaching but will be 71k start. We sold old house bought new 5000km away so refund will be a bit better this year and he chance of securing full time next year very likely. Monthly fixed expenses appx. 3k

    Recently opened Td account normal couch potato suggestion of e series 28% bond and remainder split evenly over other 3. Monthly contribution equates to about 500-600

    Have a employer or union run rrsp of about 8500 and no longer with company and going to transfer to my own rrsp. Also have about 15k savings and another 9 or so in chequing. I like a cushion but I know the savings is doing nothing for me there. Monthly contribution to rrsp is from cheque appx. 1k

    My question is about the rrsp. Alot of what I read suggests that I get into fixed income. Current plan is with gwl advanced continuum fund. What I don’t want to do is end up with basically two mirrored plans in the tfsa and the rrsp. Should one be more aggressive? Should I use a portion of the 15k? I like to keep a good chunk liquid just because. Is there an ideal spot for it. I know I will have a lump into rrsp because my accountant works numbers and gives me my threshold at 85k. With moving expenses it will get there. Because I have so much room in tfsa only about 5k in it currently I was using the rrsp and in turn the return to max it asap then move on to focus on the rrsp. Keeping in mind this will speed up considerably once wife is full time I just wanted some opinions. Is this a good method? I just feel that getting the tfsa maxed is good move because it’s a faiirly easy annual chunk to set aside. I have a hard time doing two things slowly when I could just focus on one and get it control then hammer the other. Anyway long winded but maybe some of your advice will clear it up and give me some clarification
    Appreciate it
    Al

  34. Canadian Couch Potato November 17, 2014 at 3:46 pm #

    @Alan: I can’t offer any specific advice for you, but I’ll make a general comment about your remark: “What I don’t want to do is end up with basically two mirrored plans in the tfsa and the rrsp. Should one be more aggressive?” Assuming both of these accounts are for long-term retirement savings, it doesn’t make a lot of sense to use different strategies for each one. Better to come up with a big-picture plan and then simply figure out who each account fits into that plan:

    http://canadiancouchpotato.com/2012/03/12/ask-the-spud-investing-with-multiple-accounts/
    http://canadiancouchpotato.com/2014/08/13/managing-multiple-family-accounts/

  35. Alan m November 17, 2014 at 4:42 pm #

    Thanks for quick response and yes you are right about the big picture. The picture is not totally complete until she enters the investing world with me.

    I know you can offer advice or go too far with suggestions but is the rrsp strategy I offered a good short term measure to fill the tfsa? I know it’s beneficial to put your return right back into rrsp but I was going to use it as a means to an end short term.

    As for transferring out of the company fund I think I would just do Questrade and complete couch potato was plan for rrsp without the US etf. The e series is a fairly simple plan on autopilot so I guess I could get more exposure with the complete plan inside the rrsp . thanks again

  36. Oldie November 18, 2014 at 10:55 pm #

    @Alan m: Welcome to the community of (neophyte to more experienced) searchers of the truth.

    You will find a lot of support and sympathy from your fellow searchers here, and the blog site contains a wealth of useful information that may be overwhelming all at once, but can be profitably mined at your own speed.

    A couple of brief observations, if I may, from a fellow neophyte:

    “A lot of what I read suggests that I get into fixed income…” this snippet, among others, suggests that like many other newcomers to the Couch Potato Philosophy, you are receiving lots of input from many sources, including authoritative sounding ones, such as commentary from experts in the Financial Section, etc. Remember, the Couch Potato Philosophy, while it is supported by rigorous academic and economic research, is decidedly counter intuitive, and is not accepted by many who consider themselves financial experts. This particular directive of yours (that I quoted at the start of this paragraph), if it means “load up on fixed income now, and stay tuned for possibly different advice next month/year”, is not compatible with the rest of a properly run Couch Potato management plan, which requires that you think carefully about a well diversified mix of appropriate asset classes and about what your ideal allocation might be before you invest, then once you decide on an appropriate allocation mix, aim to keep to that mix, no matter what happens, until your age/investment horizon/life situation etc. changes.

    Along that theme, your desire to follow a “normal couch potato suggestion” by purchasing a 28% proportion of e series bond and splitting the rest in equities is certainly an excellent move; however, please note that the 28%, which maybe you obtained by some formula involving your age or your wife’s age, may give you a rather artificial sense of precision. I think the Couch Potato principle would inform us not that this particular figure is wrong or right; rather that the appropriate percentage is one that you can comfortably live with (and not change in some future panic) after considering all the various ups and downs that might and will happen in future market gyrations.

    It isn’t clear from your description if you are close to maxing your RRSP; but generally it would be the best strategy, largely through using untaxed dollars and by sheltering, for now, the income (think bond funds) from further tax, especially with you being in a higher tax bracket, and your wife not being particularly under-taxed, either; however I really don’t intend to offer anything that might be interpreted as specific advice for your current circumstances — your best strategy is to absorb the Couch Potato principles — it really isn’t Rocket Science — and you will quite naturally come to see what will be your appropriate mix.

    Welcome again. Invest long and prosper. (I wish there was a salute to go with that, but there isn’t. Yet.)

  37. Alan m November 19, 2014 at 9:54 am #

    Thank you oldie. You are correct in many instances on perception of info I’m taking in and how it relates to the couch potato plan. The rrsp contribution for me is for the normal reasons of tax deferral but also for the refund to fill the tfsa. Once full and put on annual autopilot from other funds the returns will be rolled back into rrsp. The aim of my first question was because when looking at model portfolios and then at e series I hold in tfsa I was curious if in fact it was smart to be contributing to both when they both have many of the same holdings and I was trying to answer the diversification question and get some advice on how best to structure the rrsp side of things. I just want to move it away from my employer and handle it myself. Hourly deductions are taken from cheque but I would then just make a bi monthly flip to my own account as there are no fees to transfer. The tfsa and rrsp are both long term but In essence I didn’t want them to be clones of each other. The levels I have invested now lead me to believe I have the cart ahead of the horse. This will change in coming years but perhaps it’s best to take some of the advice found here and go with say an ING rrsp and keep the e series under the tfsa. They have slightly higher mer but maybe a bit higher is a trade off for ease at this point and with my level of experience. The e series are weighted heavier on equities so possibly a more conservative or bond heavier rrsp. The 28 %was not a careful calculation just where it ended up as a close ballpark to age and what I wanted to put in on a regular basis. I will Make my monthlies to both and use the return as mentioned above until I reach a level of more careful planning. Until then just digest info and try to avoid the fear that advisor’s try to put into those who want to handle it themselves. Some fee only advice may be best once I’ve attained higher balances. Any more comments are welcome and I appreciate any insight thanks again oldie and dan

  38. Sam March 5, 2015 at 12:40 pm #

    @CCP

    If there is a major market crash like that of 2008, wouldn’t it be better to get out, then buy back in at the bottom at lower priced shares?

    Holding on through the crash would mean it would take a long time to get back to break even would it not?

  39. Canadian Couch Potato March 5, 2015 at 1:36 pm #

    @Sam: In theory, of course. The question is, how do you know when to sell and when to buy back in? There are many, many investors who sold in 2008 and then sat on the sidelines for years, missing an opportunity that may never come around again in their lifetime.

    http://canadiancouchpotato.com/2013/02/07/scary-when-theyre-down-scary-when-theyre-up/

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