So you want to take advantage of the “buy low” opportunity presented by falling markets – will it be stocks or bonds?
Both have fun in 2022 – the S&P/TSX Composite Index is down 10.9% year-to-date, while the FTSE Canada Universe Bond Index is down 11.8%. A simple and effective way to start profiting from falling stock and bond prices is to buy an asset allocation ETF.
Asset allocation ETFs are a diversified portfolio of global bonds and stocks rolled into a single exchange-traded fund that you buy through any online broker. Asset allocation ETFs come in a variety of stock and bond combinations suitable for conservative, balanced and growth investors. For example, a growth version might have 20% of its assets in bonds and 80% in Canadian, US and international stocks.
You can see the benefit of buying in a falling market with a fund like this – exposure to global stock markets diversifies the risk of focusing on a particular market or group of stocks that are underperforming. Bond exposure provides benefits when inflation peaks, allowing interest rates to stabilize and then decline.
Undoubtedly, there is downside potential for stocks and bonds. Expect extreme volatility until we know if inflation can be brought under control without triggering a recession. Beware of the pitfalls of being too picky as an investor in taking advantage of falling markets.
For example, there is the risk of trying to time a market bottom and missing a rebound that comes out of nowhere. There is also the risk of thinking that you can choose the sectors best suited to the investment environment that will emerge in the months and years to come. Finally, there is the risk of being overly influenced by recent trends and ignoring bonds in long-term portfolios. Don’t guess what will and won’t work for years to come – buy it all.
Market entry in the coming months is strictly for people who can wait at least 10 years before they need their money. Specifically, consider making a series of purchases of an asset allocation ETF that suits your needs and risk preference. You can buy bi-weekly, monthly or quarterly. Another idea is to buy after a particularly bad day for the markets, say a drop of 2-3% or more.
The goal is to average the market so you don’t commit a large sum that will be trashed in the market dips just ahead. In the long term, the direction is bullish. It’s always like that.
— Rob Carrick, personal finance columnist
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actions to ponder
DRI Healthcare Trust (DHT-UN-T) Year-to-date, DRI is the second best performing stock in the S&P/TSX Small Cap Health Care sector with a 22% gain. The unit price is still trading well below its IPO price. But Jennifer Dowty explains why recent positive price momentum may continue.
The Case of Canada: A BlackRock Senior Strategist on Energy, Banks, Bonds and Why Our Market Rules in 2022
There are still nearly six months to go in this remarkably bad year for investment. Stocks and bonds have already fallen by double digits. Inflation is raging, interest rates are rising and economists are assessing the risk of a coming recession. To help you navigate the twists and turns yet to come in 2022, Rob Carrick talks with Kurt Reiman, BlackRock’s Senior Strategist for North America.
Stocks are cheaper, but that doesn’t mean they’re cheap
The one thing we know for sure about stocks is that they are much cheaper than they were at the start of the year. Unfortunately, that doesn’t mean they’re actually cheap. Based on long-term averages, equities appear to offer decent but unattractive value if economic growth continues to pick up. But in the increasingly likely event that a recession hits, they are a risky bet on a rose-tinted view of the future. Ian McGugan explains.
See also: Recession fears hang over value stocks
No, it’s not the time to buy bonds yet – but here’s an ETF you need to know for now
Gordon Pape gets questions he rarely sees. Like this one: Is it time to dive back into bonds (talking about a recession)? In his view, the time has come when bond investments will offer the potential for significant capital gains. But it’s not there yet. Here he explains why and tells us about an ETF to put on our watch list for when that day comes.
Where a $7.1 billion fixed-income fund manager places his bets
Hanif Mamdani, the lead manager of Royal Bank of Canada’s giant PH&N High Yield Bond Fund, offers a high-profile example of an investor looking to take advantage of eye-popping bond yields. As David Berman told us, he’s now prowling for corporate bonds which he believes could generate double-digit annualized returns – jaw-dropping gains in the normally stuffy world of bonds – within a few years.
See also: Credit investors see more risk ahead as recession fears rise
Why young ETF investors should be partying in the streets right now
New investors with diversified ETF portfolios should be pleased to see stocks fall. This is an opportunity for them to buy funds at lower prices. When investors store these assets at a discount, these assets skyrocket as markets recover. Andrew Hallam has calculations that show just how well it works.
Watch These Two Things Before You Bet Stock Markets Have Bottomed
Stock markets are anticipatory and, as they often do, have already reacted negatively to fears of the economy cratering. Investors are wondering how much worse the downturn will get or if the worst is already behind us. Either way, the stock market should turn around before the economy starts to recover. Investors would be wise to look for the deployment of economic parachutes before stocking up. Norman Rothery tells us about a few of them after looking at what bond yields and history suggest.
Why This Fund Manager Has the Confidence to Advise Investors to “Keep Calm”
John Zechner has had his share of market downturns in his nearly 40 years of financial management. It’s that experience that gives him the confidence to recommend that investors “stay calm” during the latest market rout – and start buying if they have the stomach for more volatility. The chairman and chief equity manager of J. Zechner Associates, which oversees more than $1 billion in assets, tells Brenda Bouw what he’s been buying and selling lately.
Others (for subscribers)
The most oversold and overbought stocks on the Toronto Stock Exchange
Monday analyst upgrades and downgrades
Monday’s Insider Report: CEOs Are Buying These Stocks on Price Weakness
My First Stocks: How Buying Royal Bank Stock Taught This Investor the Value of Patience
What’s up in the coming days
Dr. George Athanassakos explains why he thinks the price of oil will stay high for years.
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Compiled by Globe Investor staff