Editor’s note: Read the latest on how the coronavirus is rattling the markets and what you can do to navigate it.
Ruth Saldanha: For many investors, the steep downturn of March and April this year brought back bad memories of 2008. To avoid getting more burnt than they already had been, several investors fled to cash, exiting their equity portfolios to safeguard them from further losses. But is now the time to get back into equities. The Chief Investment Officer of Steadyhand Investment Funds, Tom Bradley has called this decision of when to get back into the market after you get out the hardest decision in investing. He is here today to talk about why. Tom, thank you so much for being here today.
Tom Bradley: Thanks for having me, Ruth.
Saldanha: First up, does panic selling ever work? Put another way for individual investors, does it ever pay to go with your gut?
Bradley: Well, I know some pretty savvy investors and – who have a pretty good gut. But for the vast majority of investing the gut – you going with your gut does not work indeed. And indeed, investors like me have taken Warren Buffett’s lead, and we actually trade against the average investors gut. And what I mean by that is, you’ll remember Warren’s great comment about it’s time to be – “be fearful when everybody is greedy, and greedy when everybody is fearful.” And that is exactly speaking to the fact that generally, when times get tough, stocks are down.
The gut that we’re talking about is actually churning. And the easiest way to relieve that pain is to do something like sell out. So, yes, it can work for sure. But I think what makes it so hard and why I call it the hardest decision is not the first decision to sell, it’s the second one and it’s only successful strategy if you get both decisions, relatively correct. And we’ll talk about that for sure. But I should say that this isn’t just sort of an imaginary issue BlackRock did some research late in the cycle, the last cycle, we had ’09 to call it to ’19. And their research showed that Canadians on average had over half of their retirement assets in cash or cash like instruments. So, BGICs and things like that. Many, many Canadians missed the last bull market because they were so scarred by what happened in ’08, ’09. And so, this is a very real issue out there for investors.
Saldanha: And is that the reason that this decision is perhaps the hardest one investors will make?
Bradley: You know, there is lots of reasons, I’ll give you three. First of all, if you think about going from, you know, an average investor goes from a balanced portfolio all to cash they are so far from their long-term plan, farther than they’ve probably ever been. And so, the stakes are really high. Now, they’ll sleep better for a few nights because their portfolio won’t be bouncing around. But one of those mornings they’re going to wake up, and they’re going to realize they have a huge decision because they’re so far away from where they should be. So, I think, you know, if you think about trying to put the puck in the net or write an exam, when the pressure is really on, that tends to lead to poor decisions. And so, I think the fact that the stakes are so high, you’re so far away from where you should be is one of the problems.
The other one is that you get – in our society, we get constant reinforcement as to why it’s the right thing to be out of the market. The media machine is generally biased towards negative news, the headlines are negative, Page 8 might be positive. And so, there is always something feeding your view that you should stay out of the market and in my observation, it makes it very hard for people to turn around and go the other way.
The third thing I’d mention, and it doesn’t always happen, but think about the cases where you sell out and you’re wrong. The market, for instance, last month say you sold out in late March, here we are in – heading in – further into the spring, and markets are back up. And, boy, that makes it really tough to get back in because you’re so worried about, you’ve made a bad decision already, and you’re worried about whipsawing. So, I think there is just all kinds of things that make it behaviorally. As I say, the toughest decision in investing.
Saldanha: Well, the fear that accompanies these market crashes is understandable. How should investors prepare psychologically to venture into equities and face those volatility again? And are there any investment tips that could perhaps make it easier?
Bradley: You know, it’s the $64,000 question, Ruth, I think about this a lot because I do study investor behavior, and I think the main thing is somebody has to, you know, after they get out and things have settled, they need to sit down and think about – go back to square one, what is the purpose of the money. If the money is for a vacation or a college tuition or whatever, that’s fine, keep it in cash. But if it is to fund a retirement over 10, 20, 30 years, then they need to figure out what that should look like. So, I think that’s number one. Maybe one of the easiest little cues to help get people in us to think about investing only the money that you’re going to need in 20 years. Forget about even 10 years, even though that’s pretty long term. Think about the money that’s longer term, because you should certainly be able to handle the volatility for that kind of money.
The other thing I’d say, and this is maybe a plug-in for Morningstar, but I think people, I often offer them a long-term, even a 100 year chart of stocks, to show them that that chart goes up and to the right and the crash in ’87, the tech wreck, the financial crisis of ’08, ’09 and now the COVID crisis all as you look longer and longer term look more insignificant in the scheme of things. And so, I don’t have an easy answer for that one, Ruth, I think you almost got to trick yourself behaviorally, but you do need to go at it.
Saldanha: Finally, what are some of the ways to safeguard a portfolio from volatility?
Bradley: Ruth, you can’t avoid volatility in these times. You know, Ruth, all kidding aside, you know, rates are – interest rates are where they are we – you know, our parents talked about the day when they could buy a bond and they earned a 3% or 4% real return after inflation and they didn’t have to worry about stocks. That isn’t the case today. Fixed income investments safety in the sense is very expensive, so you’re losing ground to inflation. So, I don’t think you can totally avoid it even as retired. I think, number one, you need to accept that your portfolio – at least part of your portfolio is going to bounce around a little bit. Prepare for it both mentally, but also cash flow wise if you’re – certainly if you’re retired, make sure you have a spending reserve set aside so that some of – the rest of your portfolio can bounce around.
And then I think the biggest dial that we all have on our dashboard, as far as dealing with volatility is asset mix. So, if you can’t stomach the asset mix or the volatility that goes with really aggressive portfolios, then you dial it down on less stocks, on less high yield, on more secure investments like GICs, government bonds, et cetera. So, no easy answer there. And we all have to accept some volatility in our investing approach, but the asset mix is the way to kind of dial it up or down.
Saldanha: Thank you so much for joining us with your perspectives, Tom.
Bradley: Thanks, Ruth.
Saldanha: For Morningstar, I’m Ruth Saldanha.
Knightscope Opens Investment Opportunity to Canada – GlobeNewswire
MOUNTAIN VIEW, Calif., May 28, 2020 (GLOBE NEWSWIRE) — Knightscope, Inc., a developer of advanced physical security technologies utilizing fully autonomous robots focused on enhancing U.S. security operations, announced today that it is able to accept investments in support of the Company’s Regulation A+ Offering from Canadian investors through FrontFundr. FrontFundr is Canada’s leading online investment platform offering access to select private placements. Investments from the U.S. and other international markets are still available through StartEngine.
FrontFundr founder and CEO, Peter-Paul Van Hoeken stated, “I see Knightscope as a revolutionary deal where all North Americans, retail investors on both sides of the border, can invest in a North American growth company in the business of building technology to reduce crime.”
“Knightscope has received countless inquiries from our northern neighbors wanting to invest in our technologies,” said William Santana Li, chairman and CEO, Knightscope. “It is with great pleasure that we are able to finally announce the ability for retail Canadian investors to purchase shares online with our new friends at FrontFundr.”
PURCHASE SHARES IN KNIGHTSCOPE TODAY
Knightscope is currently accepting accredited and unaccredited investors from $1,000 to $10M completely online. Click here to invest today.
Knightscope is an advanced security technology company based in Silicon Valley that builds fully autonomous security robots that deter, detect and report. Our long-term ambition is to make the United States of America the safest country in the world. Learn more about us at www.knightscope.com. Follow Knightscope on Facebook, Twitter, LinkedIn and Instagram.
FrontFundr is Canada’s leading online private markets investing platform and an exempt market dealer. It provides startups and growth companies access to capital and gives investors access to private companies they believe in and want to support. It provides a community of over 16,000 retail investors with the ability to review and complete private placements on one digital platform. The company’s revolutionary technology allows users across Canada to invest in innovative growth businesses in under 12 minutes, starting from as little as $250. To date it has helped more than 43 companies raise over $35 million.
Knightscope and www.knightscope.com are operated by Knightscope, Inc. Investment opportunities in the Reg A+ offering are not a public offering, are private placements, are subject to long hold periods, are illiquid investments and investors must be able to afford the loss of their entire principal. There is no guarantee that Knightscope will register its shares with the SEC or any stock exchange. Offers to buy or sell any security can only be made through official offering and subscription documents that contain important information about risks, fees and expenses. You should conduct your own due diligence including reviewing in detail the Offering Circular and consultation with a financial advisor, attorney, accountant, or other professional that can help you to understand the risks associated with the investment opportunity.
This release may contain forward-looking statements regarding Knightscope’s proposed public listing of its securities and the timing thereof, projected business performance, operating results, financial condition and other aspects of the company, expressed by such language as “expected,” “anticipated,” “projected” and “forecasted.” These statements also include estimates of the pace of customer adoption of the company’s products, engineering developments and prototype capabilities. Please be advised that such statements are intentions or estimates only and there is no assurance that the results stated or implied by forward-looking statements will actually be realized by the company, or that the company will be able to consummate its planned goals (including without limitation, a public listing of its securities). Forward-looking statements may be based on management assumptions that prove to be wrong. The Company’s predictions may not be realized for a variety of reasons, including due to inability to raise a sufficient amount of funds, a lack of marketability for the company’s securities, failure of business operations, competition, customer sales cycles, and engineering or technical issues, among others. The Company and its business are subject to substantial risks and potential events beyond its control that would cause material differences between predicted results and actual results, including the company incurring operating losses and experiencing unexpected material adverse events.
John Hills +1 289 962 1708
'Should we invest our 2020 TFSA now, or wait a few months?' – The Globe and Mail
Here’s how I handle my TFSA contributions – I divide the total amount for the year, currently $6,000, by 26 and then have that amount electronically transferred when I get paid every two weeks into a TFSA investment account.
A reader recently asked about TFSA contribution strategies for this year: “We have yet to invest in our TFSA for 2020. Should we go ahead and invest now, or should we wait for another few months when the economy will hopefully begin to pick up again?”
I have no idea at the best of times about when the best time to invest is. Now, I’m more baffled than ever. The economy has been damaged and prospects for a comprehensive reopening seem uncertain at best, given the differing medical outlooks across the provinces. Will companies bring back all the workers they laid off? How many businesses won’t reopen? How much will economic activity be down overall six to 12 months from now? What about all the debt deferrals people arranged – what happens when they have to resume their usual payments?
Our world today is so much different than it was in early February, before pandemic fears hammered the stock markets. And yet, the U.S. stock market has charged back to the point where it was off only about 10 per cent in late May from its 52-week high and well above its level of May 2019.
I don’t get it, and I won’t fight it. My biweekly TFSA contributions continue, just as they did when the markets plunged in March.
As to that reader question, I can only suggest the gradual approach to TFSA investing. Academic studies have shown that lump-sum investments outperform the gradual approach, known as dollar-cost averaging. But this year is off the charts – why guess what’s going to happen?
Subscribe to Carrick on Money
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Rob’s personal finance reading list…
Never refrigerate bread
Tips from Consumer Reports on how to extend food expiration dates. Cut waste, and visit the supermarket less. By the way, coffee shouldn’t go in the fridge, either. Flour should, though.
Inflation: How big a problem will it be?
A lot of readers have told me lately they worry about inflation being ignited by all the money the government is pumping into the economy to offset the effects of the pandemic. This guide to inflation, deflation and disinflation should set minds at ease, at least until the good times resume.
How to avoid retirement myopia
Way too much retirement advice is tossed out in a general way, even if the needs and priorities of each generation are different. Here’s a different take – retirement guidance for people 25 to 40, 41 to 55 and 56+.
Make your own Starbucks drinks at home
A personal finance blog shares some cheap and cheerful versions of tea, lemonade and coffee drinks.
Q: Why you haven’t recommended five-year GICs as a possible safe vehicle for a portion of retiree funds? I have $50,000 in one earning 3.25 per cent, a higher rate than one- or two-year GICs or a savings account. It’s true I purchased when GIC rates were higher, but the principle remains the same.
A: I have written a lot over the years about how GICs make a good substitute for bonds or bond funds in diversified portfolio – they’re not as liquid as bonds in that there are stiff fees if you sell early, but they don’t jump around in price like bonds can. GIC rates are also quite competitive with bonds. The best rate on a five-year guaranteed investment certificate in late May was 2.3 to 2.4 per cent, while the yield on the five-year Government of Canada bond was just 0.4 per cent.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
How to report wrongdoing by an investment adviser.
Tweet of the week
Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., takes on those who insist real estate prices can keep going up despite the economic damage caused by the pandemic.
In case you missed these Globe and Mail personal finance-related stories
- How advisers can help jobless Canadians avoid financial pitfalls
- Day-to-day banking proving to be a struggle for some isolated seniors
- A cottage agreement can make sharing a summer home simple
More Carrick and money coverage For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group. Send us an e-mail to let us know what you think of my newsletter. Want to subscribe? Click here to sign up.
Just How Good An Investment Is Renewable Energy? New Study Reveals All – Forbes
Renewable energy investments are delivering massively better returns than fossil fuels in the U.S., the U.K. and Europe, but despite this the total volume of investment is still nowhere near that required to mitigate climate change.
Those are some of the findings of new research released today by Imperial College London and the International Energy Agency, which analyzed stock market data to determine the rate of return on energy investments over a five- and 10-year period.
The study found renewables investments in Germany and France yielded returns of 178.2% over a five year period, compared with -20.7% for fossil fuel investments. In the U.K., also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the U.S., renewables yielded 200.3% returns versus 97.2% for fossil fuels.
Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while oil and gas collapsed. Yet in the U.S., which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89 billion for the hydrocarbons versus $2.42 billion for renewables.
Speaking to Forbes.com, Charles Donovan, director of the Centre for Climate Finance and Investment at Imperial College and the report’s lead author, said: “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”
In spite of the chaos seen in the fossil fuel markets in recent years and months, Donovan said that many investors were finding it hard to let go of hydrocarbons. “Many investors are sleepwalking through a technological disruption of the energy industry, preferring to believe in a fairyland where upstream oil and gas projects earn big risk-adjusted returns,” Donovan warned. “Those days are gone.”
Donovan also warned that, despite the impressive returns from renewables, such figures had “not triggered anywhere near the level of investment required” to decarbonize the economy and mitigate climate change.
This was a point addressed yesterday in a separate report from the IEA, which showed total global investment in energy down 20%—almost $400 billion—compared with last year, largely as a result of the coronavirus crisis. The IEA characterized the drop as “staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions.”
The IEA laid the blame for the collapse on lower demand for energy, lower prices and a rise in non-payment of bills, which were side effects of the pandemic.
“The crisis has brought lower emissions but for all the wrong reasons,” said Fatih Birol, IEA’s executive director. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment.”
Indeed, even before the coronavirus, global investment in green energy was falling well short of that necessary to hit the Paris Agreement target of limiting global warming to within 2 degrees Celsius by 2100. In order to achieve that, countries will need to at least double their annual investment in renewables compared to current levels, from around $310 billion to more than $660 billion, according to the International Renewable Energy Agency.
In answer to why investment in renewables remains relatively low despite apparently stellar returns, the Imperial College report noted that large asset managers and institutional investors such as pension funds required deeper liquidity than the renewables market currently held. “It is easier to allocate a meaningful percentage of their assets under management to renewables if the market is deep and liquid,” the report stated. “Currently, that is not the case.”
The authors attributed much of the uncertainty around renewables to the market being relatively young. “It is not surprising that many investors still consider the renewable power sector as a nascent area,” they wrote. “There are too few pure-play companies, too little information about those companies, and relatively short trading histories. While there is a body of literature developing on the specific investment risk factors associated with renewable energy, the body of empirical evidence remains limited.”
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