The month of March was the worst month ever for Canadian mutual funds with more than $14.1B in net redemptions. That’s equal to 83% of total net sales for 2019, as reported by Financial Post.1 March 23 was a particularly tough day for the markets. On that day, the S&P 500 was down 35% from its previous record high in February.
April is another story thanks to the U.S. $2 trillion stimulus package and technology and consumer goods companies giving the market a boost.2 On April 6, the S&P was up 7%.3 If the potential bear market was really just a bearish bull market and we’re climbing again, what does this mean for all those investors who took themselves out of the market looking for so-called “safe” investments?
Some are likely now sitting on cash while others may be in or looking at investment products that offer a guarantee–products such as short-term Guaranteed Investment Certificates (GIC) or Segregated Funds, for example.
The problem with the former is the rate of return. At the time of writing, according to Ratehub, the best rate of return for a one-year fixed GIC from one of the Big Five banks was 1.5%. Segregated Funds are sold by insurance companies and invest in underlying assets similar to mutual funds. Unlike mutual funds, most segregated funds promise to protect between 75% and 100% of your principal investment regardless of what the market is doing. But is the cost really worth it? In my opinion, among their key drawbacks: You have to hold them to maturity or risk losing the guarantee and getting hit with a penalty. Plus, the management fees are much higher than those of mutual funds. I’m not a fan.
Those investors who got out of the market because of fear with the intention of getting back in when it is about to rise again are now faced with trying to time the market. History shows this is almost impossible to get just right. In my opinion, the most likely outcome is that you will lose more than if you had stayed invested.
I believe that given current market conditions, if you have money to invest and you want to grow your wealth, there is no alternative than to be in the stock market. If you’re invested, stay. If you’re not, what are you waiting for? Take advantage of the bargains that are now available. That doesn’t mean you have to be fully invested. It all comes down to understanding your risk tolerance, your investment objectives and what’s on sale. To quote Jim Cramer, host of “Mad Money” on CNBC, “There is always a bull market somewhere.” It’s my job as an investment advisor to find it.
And that’s the difference between passive and active investing. Passive investors will turn to exchange traded funds or index funds. In my view, these investments aren’t likely to generate the same gains as top individual stocks. For example, JP Morgan Chase, one of the best performing banks in the U.S., in my opinion, is trading at a bargain right now because of the global impact of the pandemic.4
As an active investor, I take a hands-on approach and buy quality investments at a good price. Active management is especially important in volatile times. When the economy is strong and markets are soaring, it’s easy to make money. It’s when things get tough that strategies are tested and the ability to navigate market fluctuations and spot opportunities is critical. That’s what investors should be doing – not getting out of the market and trying to figure out when to get back in. Not taking a passive approach and buying the index. I think you need to be an active investor upgrading your portfolio. That’s what my clients want of me and that’s exactly what I’m doing.
Call Me or Email Me
My approach to investing is straightforward. I study the markets, global economies and what’s happening within industries to be in a position to best help my clients find good quality investments that will help them meet their goals. I build custom portfolios for each client. I welcome you to call me at 416-332-3863 or email me at allan@allansmall.com.
References
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- March was the worst month in Canadian mutual fund industry’s history with $14.1B in redemptions, Financial Post
- Passing the $2 trillion relief bill was easy. Spending the money will be harder., Washington Post
- Here are the biggest stock-market winners April 6, as major indexes jump at least 7%, Market Watch
- JPMorgan Chase & Co., Market Watch