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Blame it on the coronavirus

Well, it’s been quite a week in the financial markets! I’m writing this Friday afternoon before the close of trading but it appears as if it’s another day of panic.

In 2019 the prices that investors were willing to pay for shares (ownership in a company) continued to rise at an above-average clip. At the same time, the earnings (profits) that the companies were reporting were not showing the same growth. The rise in stock prices was disconnected from what investors could expect to receive as their share in the profits (dividends).

In 2020, this DISCONNECT, the spread between the price per share and the profits, continued to widen… until the potential economic impact of the coronavirus sent investors into a panic. I believe that if it hadn’t been the coronavirus, it would have been some other trigger.

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When this has happened in the past, my approach has been to look for opportunities to improve our clients’ portfolios. In 1987, when I was just starting in finance, I observed the 23% one-day drop in the primary Industrial Index, the Dow Jones. Since then, there have been numerous opportunities to watch investor psychology in action.

Things to keep in mind:

  • It’s usually best to stay invested
  • Diversification doesn’t necessarily prevent short-term declines but it does stabilize your portfolio
  • When fear is at its peak in the financial markets you can be strategic and use the opportunity to strengthen your investment portfolio

On our agenda for the next few days/weeks:

  • Looking for ways to reallocate tax-efficiently by transferring in-kind from Non-Registered cash accounts into Tax-Free Savings Accounts (TFSAs)
  • Looking for ways to reallocate tax-efficiently by transferring cash from RIF/LIF accounts into Tax-Free Savings Accounts (TFSAs)
  • Investing cash currently held within accounts
  • Reviewing source of monthly withdrawals for retirement income payments

On days like this, history can offer some helpful reminders.

The source for the following is PlanPlus Global using as an example a portfolio that is allocated 30% defensive (cash and fixed income) to 70% growth (equities), for the period January 1, 1973, to December 31, 2019,

There were a total of 73 rises but 79% of these, 58 in all, were less than 10%.

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There were 72 falls of one month or longer but nearly all were less than 10% and about two-thirds of these lasted only a month.

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The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

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