I can’t recall when it started, but for many, many years I have heard every year in December about how mercantile Christmas has become. We have lost the spirit of Christmas with all the gifts and decorations and parties. Get back to basics, the True Meaning Of Christmas, they have been saying. I have even been told to my face that I spend too much money on Christmas. (And I loved every minute of it!)
So, now that the Season is over (are we still allowed to call it the Christmas Season without offending someone?) I’ve been reading numerous reports about how disappointed retailers are that we didn’t spend more money at Christmas in 2007. And even worse, this lack of effort on our part is partly to blame for this current (pending?) recession and hightened fears we are going to have a depression.
I might be wrong but generally advertising works. So if we are bombarded for weeks every year with how evil we are spending money at Christmas time, then should anyone, least of all retailers, be surprised if we spend less than they like?
For the record, I didn’t spend less this year. but I did budget better for it and had most of it done before Remembrance Day. So, yes, I am guilty. I spent less at Christmas time and enjoyed myself more at my retailers’ expense. I am sorry if I have caused a recession.
Yesterday I wrote about a Globe and Mail article by Rob Carrick. I should have pointed out it appeared in their on-line edition. Today’s print edition carries a revised copy of the article.
After reading the article yesterday I emailed the author who was kind enough to reply that my comments were fair. In my email I objected to speaking about Seg Funds as if they were the same thing as Principal Protected Notes. You know, of course, they resemble mutual funds, not PPN’s.
I am pleased to be able to say today the print edition of Mr. Carrick’s column was revised to delete the incorrect information about Seg Funds. You can read the print edition by following this link.
http://www.theglobeandmail.com/servlet/story/LAC.20080122.RCARRICK22/TPStory/TPBusiness/?query=
Rob Carrick wrote today in the Globe and Mail that “This is no time to sell quality”. In fact, that is the headline of his piece.
He says: “Selling quality right now is probably the worst error you can get fooled into making by a plunging stock market.” I totally agree with him. Selling now is locking in your losses, and what’s worse, probably locking them in for a long time if you switch into guaranteed funds. The market has plunged deeply in only a few days. History shows it can recover with the same speed. Getting back into the market is usually done after the recover has started and you have missed the opportunity to make a significant gain in value. It’s a good example of locking the barn doors after the horses have left.
Unfortunately he also says: ”
Another mistake is to give up on the risks of the stock market and instead buy guaranteed investments like principal-protected notes or segregated funds. The appeal of these investments is obvious – you get exposure to stocks with no risk of losing money in down markets like we’re seeing today. The problem is with the cost of the guarantee – it cuts into returns so deeply that it’s simply not a good value.”
How could he get the main point so right, and then make so many errors in a following paragraph?
Segregated Funds resemble mutual funds and are not the same as Principal Protected Funds.
Although Segregated Funds have guarantees at maturity and death, there is no doubt that you could lose money in a down market, which is what would happen if you withdrew your funds from a Seg Fund right now.
The cost of the guarantee is an old maid’s tale as far as I am concerned. It reminds me of the banks saying their car insurance is cheaper because they don’t pay commissions. While it is true they don’t (usually), they pay salaries instead. Many Seg Funds expenses are lower than those of mutual funds which do not have any guarantees, but he does not say they are ‘bad value’.
Perhaps he is speaking from the point of view of a stock investor, rather than a mutual fund investor. He obviously has strong – but misguided in my opinion - thoughts about Seg Funds.
But I certainly agree with his view that a wise investor who is in it for the long haul would do themselves a lot of financial damage if they withdrew from the market at this point.
Almost everyone who invests in a market fund knows the markets ( and therefore their fund value) will go up and down. But it seems that almost everyone, when the market goes down, is gripped with the fear of loss. Their reaction is to ‘get out’ even though they know the market will go back up. Getting out is a certain way of locking in your losses. Getting out does not protect your money. The only way to protect your money is to wait for the value to return. I’ve never had anyone tell me “I have gained so much money I should get out now.” They only want out after they have had a loss.
Most, but not all, market downturns is simply the method the market the market has to correct over-priced stocks, to bring their price in line with their value. This is normal and happens all the time, sometimes in a very dramatic manner, but usually it is an ongoing process that alarms no one.
People who exit the market when their funds are low will always lose money. The market has always come back, some time very quickly. Even one day can produce dramatic gains. A recent survey I saw showed that if you were to miss the best day of a market gain you could lose 20-30% of the value of your funds. Just as losses can happen very quickly, in a day or in a very few days, so the market gains can happen in just a few days of the year. The only way to catch these, is to be there before they happen.
People like to chase winners and drop losers. History shows this is the perfect way to lose money because it means you are judging the winners and losers based on yesterday’s data. The fact is that by the time you see that data, it is too late to make a decision on what you should have done the day before yesterday.
Sometimes the market jitters can be unnerving. If this is more than you can handle, then you have to be satisfied with the returns on guaranteed funds. But the switch from the market funds to guaranteed funds should be made when the market has produced a satisfactory return for you. It should not be made when the market has just dipped.