Question from a young investor: “I just started investing two years ago. I’m freaking out about what’s going on right now. Should I sell everything?”
Answer from Darryl Brown,an independent investment consultant and founder of You&Yours Financial in Toronto.
I know it feels like the sky is falling. And honestly, there are some pretty big cracks up there right now. But freaking out, much like hoarding toilet paper, will do nothing to help.
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Darryl Brown, investment planner and founder of You&Yours Financial in Toronto.
Handout/Handout
Instead, let’s answer the following questions to determine if it’s time to sell:
1. Do you have an emergency fund? This is six months worth of your required living expenses. An emergency fund is essential and a best practice for everyone before they start investing. Given the current situation, I recommend increasing this amount beyond six months if possible. This money should be in a high-interest savings account or cash in a TFSA. You want it liquid and accessible. If you do not have an emergency fund, you should sell off enough investments to establish one.
2. Is your budget still the same in light of the current situation? Reduced hours and closures are affecting a lot of us, especially hourly employees and small-business owners. Working from home and having the kids out of school can also impact our spending habits (and sanity), so revisit your budget with the assumption that things will be like this for a while. If you have major changes or gaps you need to supplement with investment money, then you may need to sell enough to do so.
3. Are you investing for the long term? I see far too many young people investing to fund short-term goals, defined as goals less than five years off. I don’t recommend this at the best of times. If you need your money in the next five years, pull it out of the stock market. As a rule, investing is for long-term goals, saving is for short-term goals.
4. Is your asset allocation aligned with your age and risk tolerance? Asset-allocation is how your portfolio is split between stocks – riskier, with higher returns – and bonds – safer, with lower returns. Usually, the younger you are, the longer you are investing for and thus, the riskier you can be withstanding market fluctuations over time. Older folks approaching retirement or on a fixed income have less time to ride out fluctuations and need safer, more predictable returns.
An easy way to calculate an appropriate asset allocation is the ‘100-minus-your-age rule’. If you’re 30, it’s appropriate for your portfolio to be made up of about 70-per-cent stocks, and 30-per-cent bonds. It’s common for investors to be over-exposed in stocks, especially those looking for higher returns. If this is the case, sell some stocks and buy bonds to bring it in line with the aforementioned rule and balance your risk.
If you’ve answered no to any of the above questions, you need to sell at least some of your investments. Locking down the above points should be your top priority. If you answered yes to all the above, you do not need to make any material changes.
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I’m like a broken record player when it comes to the importance of investing appropriately and creating an Investment Policy Statement (which is like an investing plan; click here to read more) and times like this are exactly why.
We can expect a lot of volatility in the months ahead as our economy adjusts, but if you’ve invested appropriately, this is part of the deal. We have to take the downs with the ups. Stay home, take good care of yourself and – I cannot stress this point enough – do not check your portfolio everyday.
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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
