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Article-Stockhouse "Swimming Naked" PDF Print E-mail

Kevin's article on the market volatility, published in

RRSPs should be invested like pensions.

“You only find out who is swimming naked when the tide goes out.” -- Warren Buffet, Chairman’s Letter to Shareholders, 2001

Ok. In case you didn’t notice, stock markets around the world are finally going crazy again. It has been over five years since that has last happened and it was long overdue. Here are the latest “Proclamations of Doom” (summarized in order of Increasing Fretfulness).

  • Oil prices are too high.
  • Oil prices are too low.
  • The Canadian dollar is too strong.
  • The US dollar is too weak.
  • Interest rates are too high.
  • Interest rates are too low.
  • The banking sector is going to collapse.
  • The housing market is going to collapse.
  • The American economy is going to collapse.
  • Sub-prime mortgages will end Civilization as we know it.
  • Eddie Murphy’s marriage to Tracey Edmonds collapsed.

This last one was the most distressing because if only oil prices had been higher (or lower) and the dollar had been stronger (or weaker) and interest rates lower (or higher) and the banking sector/housing market/economy had not collapsed then the sub-prime mortgage fallout would not have ended civilization and Tracey would have felt more financially secure and would have agreed to sign the pre-nup and would now still be married for at least another week. (A 50% increase)

Whether Eddie Murphy remains married or not is about as important to your RRSP and retirement as current oil prices, today’s exchanges rates and sub-prime mortgages.

Unless you ARE Eddie Murphy in which case you probably don’t even have an RRSP you have an IRA or 401K and hey, thanks for reading this and I, personally, believe you did really really good work in “I Spy” and were underappreciated there….but then you did Norbit so …anyway good luck with NowhereLand and Shrek Goes Fourth….but I digress.

The investment pornography channels must have rating sweeps coming because of the amount of pure and scary, but meaningless pap they have trumpeted in the last couple of weeks. The impending, mythic “American Recession” which seems to have to ripped the unwilling heart out of the average investor has, to pop your apocalyptic bubble… HAPPENED BEFORE… every few years as a matter of fact. It may or may not be caused by sub-prime mortgages, interest rates, oils prices, currency or Norbit and it may or may not be happening EVEN AS WE SPEAK… or as I write and you read or whatever.

It doesn’t matter…

Sometime between now and when you no longer need money -because you are dead, there will be another recession in America, there will be problems with debt, oil prices, gold prices, trade deficits, currency problems, terrorist attacks, tech stock meltdowns, cancers, environmental catastrophes, the end of VCRs, electric cars and possible alien invasion.

None of this matters either…

Because between now and when you never needed money –because you were not yet born, there was a recession in America, there were problems with debt, oil prices, gold prices, trade deficits, currency problems, terrorist attacks, tech stock meltdowns, cancers, environmental catastrophes, the end of 78s, horse-less carriages and possible alien invasion.

And stocks are still the highest returning asset class in five hundred-plus years. So let’s review some basic questions you may have:

Is this the end of civilization?

Probably not. And, either way you may as well do an RRSP deposit since if it isn’t you will need an RRSP and if it is money will be worthless anyway so why NOT get that very last tax deduction before the Mongol hordes arrive?

What should I invest my RRSP funds into?

Whatever you liked a lot last year. If you loved it when it was going up 350% a year you should love it better “on sale” when it has dropped in value and you can get more of it for your investment dollar. Unlike last year when you could get less of it -since it had gone up. (This assumes the investment was not crap in the first place and it was only luck that made it go up the previous year.)

Is my investment crap?

This may be true. The secret is to compare it to similar investments and see how it has performed in comparison to its peers in similar times of volatility both UP volatility (which seems good but isn’t) and DOWN volatility (which seems bad and often is but sometimes isn’t).

Is my December statement going to be lower than my June statement?

If you owned stocks or stock-based mutual funds, it probably will.

Is my December statement going to be lower than my September statement?

See above one question.

Is there ANY good news about my December statement?

Yes, since it was printed, the stock markets have dropped much farther so many more savvy and “with-it” investors DREAM of the December statement and refer to December 31st, 2007 as “back in the good ol’ days”…

How should we be responding to all the doom and gloom we see in the media?

Does the phrase “suck it up, princess” resonate at all? If not, then you should go grip your advisor by the lapels and whine and moan and threaten to get your money back. Or at least, have her explain again why you are invested the way you are and go back to the basics to review the big picture.

I am retiring this year, what shall I do?

Well assuming you sensibly had moved a lot of your money to bonds, GICs and other fixed income investments as you neared retirement, just grit your teeth and repeat this magic calming phrase: “GICs are guaranteed, GICs are guaranteed….etc” til you feel better.

I am retiring this year, but bond and GIC returns sucked last year so I bought bank and resource stocks instead, what shall I do?

Grit your teeth harder and practice this magic income-producing phrase: “Hi. Welcome to Wal-Mart”

OK, seriously, hang on, don’t panic and take out the little bit you need to live and wait for the stocks to recover and THEN get some GICs or something and don’t be greedy any more.

Your RRSP needs to be invested like a pension. Pensions don’t read the papers, they don’t listen to their friends at the coffee bar and they don’t bolt from long term investments based on short term events. Pensions are dull and methodical and are worth billions. Your RRSP should be the same.

Buck up little buckaroos, turn off the TV, put your Christmas lights away and go handwrite a letter to your most distant relative. And keep investing.