16°c Clear
28°c Isolated showers
Winnipeg Free Press - PRINT EDITION
Focus on the right mix for you
Last week we talked about price to earnings (PE) ratios and what they can tell you about the "mood" -- optimism or pessimism -- of the stock market as a whole.
Thank you to those readers who turned their homework in on time. We asked you to compare the current PE ratio to the long-term average PE ratio and say if now is a good time to invest.
Most folks who examined the Toronto exchange (S&P TSX composite index) suggested that yes, now is a good time to invest. The current PE is about 15.6, compared to a 10-year average of 18.5. That makes the market a little cheaper than recent averages.
Several readers, including one we will call Jack, commented it was "not a slam dunk" and pointed out there are a lot of other factors. Very true.
I now have to also admit it was a bit of a trick question.
While I was trying to make the point a pessimistic market outlook should not deter you from investing, the real answer to the question "Is now a good time to invest?" has nothing to do with the market, or the economy or even stock valuations. None of those factors are consistent, accurate predictors of the future market direction.
The right time to invest in the markets is always when it's right for your situation. This is from a financial planning and strategic investment approach perspective.
When your portfolio has fallen below your target equity allocation, as defined by your investment policy statement, then it is time for you to invest in stocks.
This means that you, personally, have your affairs arranged such that your long-term investments can be left invested through a full market cycle, your income needs are met and you will not need to sell any equities before their time.
In one of my first Dollars and Sense columns in 1993 (yes, Virginia, it will be 20 years this fall), I pointed out there may be storm clouds on the investment horizon. That did not mean to cash out of all equity investments, but rather to make sure your affairs were arranged so you would not have to cash out if it became a bad time to sell due to a market correction.
This is the message we have consistently delivered over the 19 years since and following that advice has generally paid off.
So, are the markets going up or down this month?
The answer is that I have no idea.
What I do know is if your allocation between cash reserves, short-term guaranteed investments, longer-term fixed-income investments and equities is right for your personal time horizon, your need for liquidity, your need for income and your risk tolerance, you can have a successful investment experience over time.
The ongoing requirement is to rebalance -- either quarterly, semi-annually or even annually -- back to your target asset allocation.
This will help the market fluctuations work in your favour. You will automatically be selling high and buying low, to the extent of your rebalances.
Here's one more thing that drives me crazy and costs investors money. We constantly hear people say "The markets are doing poorly" or, occasionally, "The markets are doing well."
Here's the problem:
1. The markets are not "doing," the markets have only "done." Unless you are talking about the movements during an actual trading day, you are only talking about the past, not the present.
2. People usually assume, incorrectly, that when the markets have done poorly, it's a bad time to invest. Often it's the opposite, as we've shown.
3. To top it all off, these people are usually wrong in their perceptions about how the markets "are doing." It's amazing how often people say "The markets are doing poorly..." -- I guess based on headlines, the pessimism of the CBC or the sensationalism of Maclean's -- when in fact the markets have done well in the previous three months or six months or longer.
While it's true short-term trends sometimes tend to persist ("the trend is your friend"), every trend reverses. The cycle may be days, months or even years and the problem is that you don't know, until you get to use your 20-20 hindsight to tell everyone, "See, I told you so."
Focus on your own situation and the right investment mix for you. It's a lot simpler.
"ô "ô "ô
It's Will Week! The Winnipeg Foundation, the Public Trustee and local lawyers are teaming up again to provide a series of seminars on estate planning. Go to www.wpgfdn.org/programsprojects-willweek.php for a full schedule.
David Christianson is a fee-for-service financial planner with Wellington West Total Wealth Management Inc., a portfolio manager (restricted).
dchristianson@wellwest.ca
Republished from the Winnipeg Free Press print edition April 20, 2012 B5
More Personal Finance
- Back to Top
- Return to Personal Finance
More Personal Finance
(1 of 7 articles for this week)
Parents unsure how to teach children about money
06/18/2013 9:00 AM 0(Special) - Parents generally seem to be in a quandary about how to teach their children about money and investing, ...
Poll
Most Popular Personal Finance
- Parents unsure how to teach children about money
- Some Canadians still slow to learn rules of tax-free savings accounts
- Warren Buffett -- Winnipeg-style
- If parents die in debt, children don't necessarily inherit the bills: experts
- Canadian real estate industry says 2013 sales off to better start than expected
- Bridging the gap
- Overbuilt, overpriced condo market a risk to households, economy, says BoC
- The cautious grandma
- Arizona bound: Canadians snapping up homes, but they need to be careful
- Fee advice
- If parents die in debt, children don't necessarily inherit the bills: experts
- Warren Buffett -- Winnipeg-style
- Some Canadians still slow to learn rules of tax-free savings accounts
- Overbuilt, overpriced condo market a risk to households, economy, says BoC
- The cautious grandma
- Financial education improving: not there yet
- With OAS, 'bird in the hand' is often best
- Bridging the gap
- The $2-million question
- Fee advice
- Canadians ask Bank of Canada about maple syrup smell on new bank notes
- Bridging the gap
- Canadian non-mortgage debt shows biggest quarterly decline since 2004
- Pension plan and problem-free?
- Housing slowdown to worsen, cost 150,000 jobs, says mortgage group
- The $2-million question
- Women not satisfied with financial services
- To buy or to keep renting? Costs go beyond just the mortgage payments
- Scotiabank sees risk of single-digit cut in real estate prices by mid-decade
- Snowbirds: It's that time of year again
- Warren Buffett -- Winnipeg-style
- What recovery? For young Canadians, labour market as bad as during the recession
- The $2-million question
- Snowbirds: It's that time of year again
- With OAS, 'bird in the hand' is often best
- Bridging the gap
- Pension plan and problem-free?
- Warren Buffett -- Winnipeg-style
- Canadians ask Bank of Canada about maple syrup smell on new bank notes
- Can signing a roommate agreement protect your finances if things go sour?
- New lease in life
- Canadian non-mortgage debt shows biggest quarterly decline since 2004
- Women not satisfied with financial services
Ads by Google
You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.
You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.
Have Your Say
New to commenting? Check out our Frequently Asked Questions.
Have Your Say
Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?
Login SubscribeHave Your Say
Comments are open to Winnipeg Free Press Subscribers only. why?
SubscribeThe Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.