It’s possible that you haven’t looked at your portfolio. It’s possible as well that you haven’t looked in the mirror. To not look at your portfolio might be a good strategy. I’ve heard from a few readers who offer that they will not look, just yet. But it’s certainly important to be aware. Your portfolio has likely lost some value. Today we’ll frame that for you with a look at the iShares one ticket asset allocation portfolios. How is your portfolio holding up in the recent correction? Let’s have a look at the recent performance of Balanced Portfolios.
If you’ve been awake the last week or two you know that we’ve had a quick and violent market correction. Here’s a wonderful post on the irrelevant investor that frames the market corrections over the last 100 years.
This chart says it’s the fastest correction ever.
That this is, the path to the initial 20% and bear market territory. Hey no worries there. If you’re going to tear off that band-aid, do it quick. And of course the chart is showing US stock market performance.
Don’t worry, markets have recovered quickly.
Of course charts are just flying around the web these days. There’s a stock chart for most everything. Of course, past performance does not guarantee future quick recovery. But …
We usually see these ‘good recovery’ charts after these ‘catastrophic’ stock market events. Why? Because stock markets mostly go up. But they deliver these shocks with regularity. But they haven’t barfed up a good one in quite some time.
Hope you don’t mind the analogy, that’s the first time I’ve used the B word on Cut The Crap Investing. And keep in mind, we have no idea if this correction is over, or just getting warmed up.
And I’ve previously stated that because the stock markets have been quite calm over the last 11 years, our risk tolerance level has drifted out of whack. That was not nice of Mr. Market to lull us into a warm place of relative calm and comfort and then crack us with the fastest correction, ever.
How did that feel?
That’s what risk assessment is all about. Feelings. Nothing more than feelings.
How did if feel to watch your portfolio decline by some 20% or so? I certainly hope that Cut The Crap Investing readers (and anyone who found this article) is OK. And it’s also OK to feel nervous and unsure, even scared. The key is to be aware of possible outcomes. We need a plan. We need the ability to stick to that plan.
Ben Carlson offers some random thoughts on a big down day in the stock markets.
These are the days when you don’t need financial advice, you need a psychologist. This is why managing people is always more important than managing investments when you work in the financial services industry. Anyone can build a portfolio. Not everyone can stick to a plan.Ben Carlson
Ben also offered …
“Waiting for the dust to settle” is not a legitimate investment strategy. “What do I do now?” is not a fun place to be either?More common sense from Ben
Yes investing is 90% psychology and 10% portfolio. It’s not that difficult to create a great portfolio. The other 90% is where too many get tripped up. Don’t get tripped up.
Got a plan – no sweat.
Awareness + Plan = Success
Of course that plan includes a portfolio that is aligned with your risk tolerance level.
You know stock markets can correct violently. That’s all normal and expected stock market (mis)behaviour. After all the stock markets are ridiculous as they proved recently. So you were prepared. The potential of your portfolio value to drop matches the amount you’re prepared to watch, and feel.
Of course we add bonds and other assets to work as shock absorbers. On February 1, before this coronavirus outbreak was really scaring the heck out of the asset managers who price the markets I offered up …
Again, the hope was that you were already prepared. But if not, there were some options outlined in that post. Bonds, gold, long term US Treasuries, inverse ETFs and more.
So how are those traditional shock absorbers working?
We’ll look to the iShares one ticket asset allocation portfolios.
In the top two columns we see the stock to fixed income ratios.
- XEQT down 16.4%
- XGRO down 12.5%
- XBAL down 10%
- XCNS down 5.3%
- XINC is down 0%
Yup, and XINC is up for the year. Bonds are doing their thing. That’s a bond heavy portfolio.
And that rebalancing mechanism will have that fund selling bonds and buying stocks as they go ‘on sale’. If you have a lower risk tolerance level, there’s nothing wrong with a lower risk portfolio IMHO. It’s likely going to outperform cash.
Performance update to end of March 20.
- XEQT down 28.0%
- XGRO down 26.3%
- XBAL down 20.0%
- XCNS down 15.6%
- XINC is down 10.5%
The bond markets froze up and bond prices have been hurt from the original post of March 9 to March 20. The Core Universe Bond ETF XBB is down some 10% over the last month. Corporate bonds have taken a big hit.
Performance update to week ending March 27.
While stocks offered some slight recovery from the previous week, we also see that bonds performed well. There was some nice recovery in the bond heavy portfolios.
- XEQT down 24%
- XGRO down 19.4%
- XBAL down 16%
- XCNS down 12%
- XINC down 8.4%
Pick your risk level. There’s no guarantees on how well those shock absorbers will work, but perhaps take that stock market correction down another 20% or more. Take the above returns and multiply x 2. How will you feel?
Robo risk profiling.
Of course if you are investing with a Canadian Robo Advisor, your tolerance for risk was assessed. I hope you were honest. If so, you should be investing within your risk tolerance level. If you’re not sure, call in to speak with an advisor. You can call in as well if you’re with Tangerine Investments.
I know that our friends at Steadyhand picked up the phones on the first few rings, even in the busiest week of RRSP season. Please have a read of …
And remember if you’re in the accumulation stage these lower prices are attractive. Historically, corrections are great opportunities. A seasoned investor will embrace these lower prices. You’re able to buy more shares, greater earnings and bigger dividends.
Most importantly I hope that you are not scared. This is normal stock market crap. Keep investing.
Please offer your recent experience. How did your portfolio holding up? And as Joey from Friends would ask … How you doing?
See you in the comment section.
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