Posted by Tim Stobbs on August 10, 2011
As this latest slide in the markets I keep reminding myself of what happened in 2008. I got nervous and I was really pushing the limits of my comfort zone with the losses in my equity part of my portfolio. Yet I still recall the one real benefit of 2008: I bought all the way down and made a nice profit in 2009 from it.
So this time around I significantly more at ease with the entire ‘panic selloff’ that recently occured. I ask myself the following questions:
- Has the fundamentals of any of the companies I own changed that much from last week? No.
- Has the debt downgrade of the US really going to gut all growth around the world for the next decade? Likely not.
- Is the market then likely reacting more out of emotion rather than real issues? Almost certainty.
So I have changed my plans a little bit for this year. It was looking like I might exceed my mortgage goal by a bit, but I decided to instead leverage the amount of money and borrow some money from my line of credit to invest. So I’m just waiting to finish moving $5000 over to our TFSA accounts and pick up some more shares of companies that we already own. Yes I know this means I can’t write off the interest as a tax expense. I’m ok with that as I can easily make more than the 4% that I can borrow the money at.
While I’m not ignoring the risks to the global economy, I do think people are significantly over reacting. Yes there is debt issues with many countries and I do expect a lot of volatility over the next few years from it. So while this sucks to live through you should consider the fact that drops like this might get a bit more common over the next decade.
Perhaps the only advice I have for anyone who is near retirement is…don’t keep so much in equities if you are now thinking about pushing off your retirement now. I keep saying it, but perhaps it will sink in this time. You don’t need 50% or more of equities when you are within five years of retirement. In fact you should consider keeping the number closer to 25%. I know it goes again the advice of a lot of people, but I keep saying people grossly over estimate what they need for returns and keep way to much risk of losing their capital when entering retirement when you have no means of replacing it.
So how have you handled the last week or so on the markets?