Canadian Currency As Canada Fires Back At Metals Tariffs
There is always someone in the investment world, some expert, TV personality, stock analyst, fund manager or, um, media columnist, telling you what you should do. Most of these commentators are smart and spend most of their working day looking at all things investment-related.
But you are different from other investors. What works for them may not work for you. There is a reason why regulators are very strict on the “know your client” rule (KYC). Investment managers cannot just simply assume their advice is good for someone in particular.
That said, there are some basic investment rules that we do think should apply to almost everyone. The internet calls these the Five Golden Rules of Investing. Let’s take a look at them, and provide some commentary.
If you can’t afford to invest yet, don’t
This rule kind of seems obvious, but you might be surprised at how many people ignore it. We have seen people borrow money to invest on margin even while they have huge credit-card balances. We have watched people buy penny stocks even as they struggle to come up with rent money.
We think, instead, you should look at paying down debt as an investment in itself. Suppose you have a $5,000 balance on a credit card at 19.99-per-cent interest. Paying down that balance guarantees you a solid investment return through lower interest payments. Saving 20 per cent in charges is just as good as making 20 per cent as far as your net worth is concerned (even better if one looks at the after-tax impact).
Of course, there is nothing in the investment world these days (or ever, probably) that is going to guarantee you a 20-per-cent payback. So, you need to get your financial house in order before you consider investing.
Have the correct investment expectations
Risks widely vary across investment markets and products. Be wary of implied rates of return that sound too good to be true, because they probably are, at best, very high risk or, at worst, complete scams. Many investors get attracted to high yields: some derivative products have current yields of 15 per cent or more. But past and current returns are not the same as future returns.
A realistic long-term return for stock investors might be in the eight-per-cent range. For a bond investor, five per cent or so. Don’t chase returns. Don’t envy someone bragging about 20-per-cent returns — they are not you, and they might be taking on huge risks.
But if things do work out for you as an investor, don’t get greedy. If one of your stocks has soared, that’s great, but it likely now represents a big portion of your net worth. As such, any future disappointment in that stock is going to be far more painful. In addition to maintaining realistic expectations, we would also maintain portfolio balance and discipline — always.
Understand your investments
Warren Buffett said it best: “I never invest in something I do not understand.” Seriously, how many current cryptocurrency investors do you think actually know what they are doing? We always get customer questions on market-linked guaranteed investment certificates or principal-at-risk notes. Even with 40 years’ investment experience, we can barely get through all the documentation and risk disclosures that come with these products.
There are now leveraged single-stock exchange-traded funds (ETFs). There are leveraged ETFs where you are promised two or three times the return of some specified investment or index. You can buy ETFs that go up when the market goes down, or ones that go up if volatility increases.
We like to keep things simple. If you can’t explain an investment to your 10-year-old, you are probably taking on too much risk.
Diversification
A concentrated portfolio is one way to build high wealth, but it is also a way to surely go broke if things don’t work out as expected.
Many dividend investors learned a hard lesson last year when nearly every dividend stock declined at the same time as interest rates soared. Technology investors are used to getting crushed every so often as tech stocks tend to be highly correlated. Investors who loaded up on real estate when interest rates were near zero are now getting a very painful lesson in how lack of diversification can hurt.
It is commonly known that diversification reduces risks, but investors still forget. We’ve seen investors with six bank stocks who think that’s diversification (hint, it’s not.)
Take a long-term view
In the short term, the market is a voting machine. In the long term, it is a weighing machine. Short-term stock prices are influenced by a multitude of factors: interest rates, inflation, sentiment, politics, analyst upgrades and so on. But in the longer term, it is how a company specifically performs that will determine its true value. Nothing else really matters if one is looking at an investment period of 10 years or more (and you should).
Academic studies have proven that over one day or week, the odds of having a positive investment return are worse than 50/50. Over a one-year period, this rises to 73 per cent. Over three years, 84 per cent. Over five years, 88 per cent. Over 10 years, 94 per cent. Over 20 years, it’s pretty close to 100 per cent.
As they say, it’s not timing the market, it’s time in the market. But most investors do themselves a disservice by not sticking it out long enough. We get customers saying, “I’ve owned this stock for three months and it is not performing. What should I do?” Sometimes, stocks take a while to perform. Patience is certainly required at times in the market.
Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
