The Stock Market Yo-Yo

I sort of laughed at some of the media stories on Monday based the the sharp drop off of many stock markets…reading the articles you would swear the world had just shifted on its axis a few degrees.  Yet then on Tuesday the markets spiked back up and the media then sounds all positive about everything.  Do you know what I did during all of this….nothing.

Yes, I didn’t sell anything and I didn’t buy anything since I had already moved around $10,000 into the markets last week.  I noticed the market was down a bit and we needed to shift over some cash into ETF’s (Exchange Traded Funds) in our RRSP accounts.  I bought some US stock index ETF and my wife had a bit more cash so she did the same US ETF and also picked up some Canadian index ETF.  So we missed the bottom…so what?  We aren’t stock market timers anyway.

I think the problem most people have with this big swings down is they feel the need to do something…when in fact when you are down the answer is usually to buy something rather than sell anything.  Selling just locks in your losses while buying can provided an option to load up on some good investments on the cheap.  Yet if you don’t have cash handy the right answer should be chanting to yourself: this too shall pass.  Because in fact, in the stock market on a whole, just about everything does pass at some point or another.

I’m not saying this isn’t easy to do the first few times.  Being active in managing my own investments does make you want to do something when these big things occur, but in fact a lot of the time the right way to approach things is doing nothing.  Sit on your hands if you have to but don’t login to your trading accounts…that just gets way to tempting to do something.  Instead, pick up a good book and distract yourself for a while.  See if the one day drop or spike is turning into a longer term trend and then decide if you need to make any adjustments according to your plan.

Yes, your plan.  You know your highly emotional at this point and perhaps you already planned for this by writing out your investment objects and plan.  Pardon…objective and plan?  Yes you know that one page document you know you really should have written out ages ago that outlines when you buy and sell things when were rational rather than your current emotional state.  See if you put in anything for drops of less than 5%…likely you didn’t which means you previous rational self is reminding you to keep sitting on your hands.  No trading for you.

In my case it would look something like this:

“Invest the money into your trading accounts approximately once a month…do not let it build up in the chequing account (you may get delusions that you are rich otherwise).  Our investments are broken into three buckets: pension, RRSP and TFSA.  Pension is the long term money and invested in the second most conservative option available from my plan provider.  The RRSPs are in index based ETFs.  The current ideal ratio is about 40% in bonds, the rest even split between Canada, US and world. Only rebalance about once or perhaps twice a year.  TFSAs are the high risk investments in individual stocks.  Seek out mature companies providing monthly billing services that pay dividends (ideally Canadian -remember that the US doesn’t recognize TFSA yet as a tax shelter and you will pay tax on US dividends).  Target average payout from TFSA accounts is 5%.  So some high risk ones are allowed if they are balanced off by lower risk ones. When you max out contribution room in all RRSP and TFSA then consider adding taxable accounts. You may only borrow to invest from the Line of Credit if you have put the money back in less than three months.”

That’s it…notice I have nothing about market drops in there.  It doesn’t prevent me from shopping a downturn, I just need to have the money into the accounts to do it or be able to put there in a short period of time.

So how do you handle these downturns or upswings?

7 thoughts on “The Stock Market Yo-Yo”

  1. You asked “So how do you handle these downturns or upswings?”
    Ans: I stand there like a deer caught in high beam headlights

  2. I did some mild rebalancing in my IRA because my targeted AA went a little out of whack. I bought some shares of the IRA’s stock fund and sold some shares of the IRA’s bond fund. With a second hit in the stock fund, I was tempted to do more rebalancing. But with the market’s rebound the AA got straightened out so there no need to rebalance some more.

  3. Even in ER I like to keep a cash stash handy for market opportunities that may arise… I put some money (20k) to work this week. Market timing, even though it gets a lot of flak, has a place in my investment strategy.

  4. Dropped almost #30K on Monday. But I did not lose anything as I did not sell.
    I had to laugh a little bit about that as I read an article about someone dropping $100.00 on Monday in their TFSA and they were wondering what to do.
    What is unfortunate about this is that I did not have any loose funds available to buy in (average down.
    I am 100% invested in equities.
    I do not like to see drops like Monday but my reasoning is that as long as the divs keep coming in then it will just give me more room to purchase a larger qty of shares which in turn will pay me even more divs. I did managed to re-invest $2K today as some divs came in this week.
    Still on track to increase my year to year dividend stream by 10%. As of the end of August I will have attained 80% of last years total dividends with four months left to go.
    Thia is probably the last year I will be able to accomplish this as I will be retired next year and therefore no contributions to the RRSP. I will keep contributing to the TFSA however.


  5. I am laid off, but could technically retire instead of getting another job at the age of 41 – with a stay at home wife and 3 kids. 700k invested, paid off 300k house, and 20k cash with 10 months of EI just starting.
    My wife an/or I could get a fun part time job.

    For some reason I can’t get around the fact that I can actually retire and not keep my job search up. I had a really unstable childhood and wonder if that is part of it. Feeling anxious about the whole thing – wondering if we will run out of money. We can get our spending to about 30k. If we include monthly child benefits of $400 plus – we are under 4% SWR while the kids are at home for the next 9 years.

  6. Hey Tim, I tried to comment on your garage sale post but there was no option to leave a comment. Perhaps I would have found some treasure there and flipped it! Ha!
    Eh shut off the news, I think the media feels it would be a sin if they allowed the public to have one second of rest or quiet time… where they just said welp, nothing to report today. They are constantly looking for answers and reasons for every single stock move. I cut my cable cord a few years ago and never looked back. Finance blogs and select articles seem to offer the most value. I picked up some shares here and there and my wife also moved 1k of cash from her 401k money market into VFINX, so not too much as I am expecting further downside.

    All the best

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