Nobody said the recovery would be easy.
BACK TO SCHOOL: We hope that everyone enjoyed their summer and are wishing those with kids and/or grandkids a safe and happy return to school. It has been several months since most of us were in our regular routines so hopefully along with the fall weather comes some semblance of normal to our daily lives.
MARKET UPDATE: As we are writing this, both the DOW Jones Index and S&P/TSX Index have experienced gains in the 3rd Quarter of 2020 but both markets have turned more volatile in recent weeks. We have written in the past about over-valued stocks, specifically in big tech (Amazon, Google, Netflix, Microsoft, etc.) and the role they played in supporting much of the immediate rebound following the market lows in March. Many experts suggest that those same elevated valuations are now the reason behind the recent volatility.
Aside from the obvious medical crisis, for those investors who feel this correction is significantly different than other past market events, it’s important to understand that volatility has always been a permanent feature of equity investing. Corrections in the order of 5-10% have occurred about 3 times per year throughout history. Larger scale corrections, or those in excess of 20%, have shown up once every 6 years and are most often associated with economic recession. As Chief Investment Strategist at Dynamic Funds, Myles Zyblock, said on a conference call this week “We cannot find any compelling reason to side against 150 years of history right now.”
BREXIT: Brexit is back in the news as Boris Johnson urges Conservative MPs to back his plan to override part of the Brexit Withdrawal Agreement. Meanwhile, the European Parliament has threatened to prevent any UK-EU trade deal if the bill becomes UK law. The two sides have to agree on a deal before Mr. Johnson’s October 15th deadline – after which he says he is prepared to “walk away”. Click Here for all you need to know about the UK leaving the EU.
This quarter we also answered some frequently asked questions.
Q: If I have a chunk of money to invest, should I invest it all at once or space it out over time?
A: The concept of systematically investing money into the market at regular intervals is called “Dollar-cost averaging”. Dollar-cost averaging “smooths” your purchase price over time and helps ensure that you’re not dumping all your money in at one particular time and price.
This strategy is especially powerful during times of market volatility as you will be investing as the market experiences “dips”, and that’s when investors score the best deals.
Q: How much money do I need to have in an emergency fund?
A: The answer will vary depending on what your monthly expenses are. Start by tallying your fixed expenses (mortgage, utilities, etc) and then include room for variable spending as you see fit (dining out, entertainment, etc). Most financial advisors recommend 3-6 times that monthly amount depending on the type of work you do. Also consider protections like critical illness and disability insurance to act as a long-term “emergency fund”.
Q: How do Financial advisors add value during market cycles?
A: Advisors can provide investment education and discipline. They may also promote regular investment; they help bring balance to their client’s portfolios and work to shield them from emotional investing.
Q: When should I start thinking about life insurance?
A: Since the cost of coverage is based on your age, it’s technically never too early. Some parents/grandparents even buy life insurance for their kids when they’re young because of the long-term benefits. For most families, the majority of their life insurance needs are for things like protecting their mortgage and income. Generally speaking, getting your first full time job is a good time to start looking more seriously at your options.
Q: Aside from investment performance, what are other ways Financial Advisors add value?
A: Good financial habits and planning contribute to financial success. Advisors can help to provide the discipline and expertise. They can help you:
- save effectively
- take advantage of company plans and government savings instruments
- factor in tax issues
- avoid bad financial habits
- understand the implications of your financial situation and set goals
- think through estate issues
- make decisions and avoid procrastinating
Financial Considerations by Life Stage – by Conor Gfroerer
Use this guide to identify potential financial obligations based on where you are in your financial life and understand key considerations to prioritize and accomplish your financial objectives. It can also be used as a roadmap to indicate where your financial intentions might take you in the future.
STAGE 1: Getting Started
When you’re young and have just joined the workforce, it’s time to establish financial priorities. You’ll have plenty of decisions to make but at this age you’ll be faced with the balance between spending your income on life’s essentials and saving for future financial intentions.
STAGE 2: The Family Years
In your thirties and forties, you may face the costs of raising a family and moving up in the housing market. But your income will likely be higher, so your planning can start to shift with greater focus on saving and investing.
STAGE 3: The peak earning years
You can focus on maximizing your savings and investments, as your income will likely be close to its peak.
STAGE 4: Retirement
At this stage of life, chances are that you’ll be relying on your retirement savings and pension(s) for income. At the same time, your lifestyle will change significantly and your spending patterns will be altered.
Special Circumstances:
There are a number of events that can take place at any time during your life for which you should revisit your financial objectives and strategy. These may include: Marriage, Birth of children, A new job or career, Relocation, Major change in taxation rules, Divorce, Death of a spouse, Job loss, and Major illness.
Other Resources
Mid Year AGF Outlook
Members of AGF’s Office of the Chief Investment Office recently sat down to discuss the ongoing crisis and what investors should expect over the next six months as it continues to play out.
Why Advice Matters?
What are the benefits of working with an advisor? Click below to see the numbers behind the value of professional advice.
QROPS
Perfect Timing Family Wealth is one of the few investment management firms in Canada with the expertise and resources to facilitate the transfer of your non-government UK pension to a Canadian RRSP.
