No, this is not a doom and gloom prediction, nor is it even intended to be cautionary. Simply put, we have been in a bull (rising) market for eight straight years, as of March, 2017. That makes it the second longest running upward market in history. The first quarter of 2017 ended with the DOW up 5% as the “Trump rally” saw the DOW surged 13.5% since election day last November 8.
Can this go on? Are we poised for a pullback? Well, while no one can say for sure, both are possible and both can happen together. Regular pullbacks are a normal occurrence. Should we pull our invested dollars out and wait for a crash? Rarely can one be lucky enough with the timing. Markets could go up 15% before retreating 10%. And what would one do in the meantime? With interest rates at historic lows and bonds presenting far more risk than most investors realize as interest rates start to rise, there is no better place to have your money than in solid, well managed companies that represent good value.
However, we can still capitalize on market declines. If one is fully invested in equities (stocks, or stock-based mutual funds) and markets retreat, the best thing to do is nothing at all. As Sir John Templeton said, it’s time in the markets not timing of the markets that counts. But, if you hold any fixed income (bonds or bond mutual funds) or even balanced funds (in which a portion is invested in bonds), that would be a great time to increase your equity exposure. That’s one way to buy when the markets are “on sale”. Another is to leverage your way into the markets using borrowed funds (although not suitable for many investors – certain qualifying criteria must be met).
The interest carrying costs may be tax deductible if borrowed money is used to invest in a non-registered account, so depending on your marginal tax bracket, the after-tax cost of borrowing could be as low as 1.5%. We know the greatest gains typically come off a bottom when markets recover once again – as they always have since the beginning of all markets!
My point is we need not be worried about if or when the markets go into a decline. In fact it is only a matter of when, not if. But it isn’t something to be feared. Rather, let’s plan to take advantage of the opportunity it presents and has always presented in the past.
It has been said that the four most dangerous words in the English language are “This time it’s different”. The circumstances are different, but the result is always the same: something gets investors spooked, there’s a sell-off, markets decline, which spooks more investors to sell. Then markets recover and once everyone calms down and looks back at how well the markets have done, they buy back in at higher prices than when they got out. Folks, let’s not join the ignorant masses! Successful investing is a lonely endeavour, as joining the crowd is most certainly not a path to uncommon wealth.
We all love sales! Whether shopping for clothes, groceries, home appliances, or cars. Investments are no different. Technically, a decline of 10% or more is referred to as a “correction”. A decline of 20% or more is what’s labeled a “crash”. However, more modest retreats of 5 to 7% typically happen two to three times a year. They can be brief and barely noticed, or more drawn out.
If you like sales, join our subscriber’s list to be notified of the next sale. If you have money parked in GICs, savings, or chequing accounts that you can mobilize as these opportunities arise, we’ll be sure to let you know when and how to capitalize on the opportunity.
Just call our office at 519-432-2361 or email us at email@example.com to sign onto our “Market Sale” notification list.
There’s always something to look forward to: either markets go up and we make money, or markets are on sale and we’re about to make even more!
Robert Lewkowitz is a veteran investor in stocks, options, mutual funds, and real estate. He is the founder and President of Lewkowitz Financial Inc. and a Partner in Equity Associates, Inc., an MFDA (Mutual Funds Dealer Association) member firm. With over 28 years of industry experience, Mr. Lewkowitz has one of South-Western Ontario’s largest Financial Planning practices, managing in excess of $100 Million on behalf of his firm’s clients.
Mutual funds are provided through Equity Associates Inc., a Mutual Fund Dealer. All other products and services offered are not supervised or the responsibility of the dealer.