The stock markets have had quite the run to say the least. And we have not even had a 5% correction since the Toronto Maple Leafs won the Stanley Cup. I’m exaggerating, it’s only been a few hundred days since we’ve had a 5% or more U.S. stock market correction. Perhaps the next real market correction will be timed with the next time the Leafs get reacquainted with Lord Stanley? Tormenting Leafs fans aside, the markets have taken a break over the last couple of weeks. And the retail investor who has been supporting the rising markets has pulled back. Will they return to ‘buy the dip’ that is not really a dip? Markets are only down by 2.5%. Investors are taking a breather on the Sunday Reads.
Found on Seeking Alpha, the recent enthusiasm of the U.S. retail investor.
And on the ETF equity side from JP Morgan.
And the recent activity vs the market performance.
A diminishing investor appetite
From the Seeking Alpha post …
“While we have seen a pick-up in ETF buying this week, the magnitude has been a little underwhelming relative to previous selloffs,” Ben Onatibia and Giacomo Pierantoni wrote, according to Bloomberg. “This diminishing appetite to support the equity rally raises the odds of a larger selloff if institutional investors continue to sell.”
Retail investors have been adamant to buy the dip in speculative stocks,” Vanda Research tweeted. “However, excluding meme stocks and infrastructure plays, retail purchases have been well below historical averages this week.”
We’ll see if they show up to buy the dip that is not yet, really a big dip. Of course a stock market correction is usually classified as a 20% ‘dip’ or more.
If we get one of those watch out. Our friend Lance Roberts (no relation) suggests that margin calls might begin at a 20% level, give or take a few points. The current amount of leverage/margin (borrowing to invest) is astounding.
It’s well known that leverage greatly increases the volatility and level of drawdown (decline) in an asset price correction. When a broker senses the financial risk, they make margin calls, forcing investors to sell their stock to pay the tab. That selling puts more pressure on the stock markets to fall, that can beget more margin calls that can create a vicious circle. It might all end when all of the margin debt is taken care of. Nervous retail investors who have been investing outside of their risk tolerance level will also factor in to any real market correction.
Of course we can’t and shouldn’t time the market but we should ensure that we are investing within our risk tolerance level. If you’re a retiree or near retiree is your stock allocation too generous?
More Sunday Reads
We’ll kick things off with Mike’s dividend report …
Mike has some very good returns for a higher quality U.S. and Canadian stock portfolio. He certainly beats the benchmark.
And here’s an interesting Tweet from Rob at Boomer and Echo.
The TD e-Series lockout will apply to the EasyWeb (banking and mutual funds) on TD. You can still purchase the funds on TD Direct Investing and other discount brokerages.
According to GenYMoney you can purchase the TD e-Series funds at no cost on TD Direct. Check first with your discount brokerage if you’re going this route.
On Million Dollar Journey what are some low risk investing options in today’s market?
For our cash we are with EQ. Here’s making your cash work a lot harder at EQ Bank. If you want to take on some risk you might create a very conservative ETF portfolio that will also include some additional portfolio inflation protection.
Mark offered a very good Weekend Reads on My Own Advisor. It’s the most stocks are duds edition. There’s a very interesting post and link in there on that subject. That supports the notion of making sure you get the good stocks too, by way of passive indexing. That said, I’m with Mark that we can also pick sensible stocks that limit the probability of failure over time.
We are 19 for 20 with our U.S. stock portfolio, from 2014/2015.
GenYMoney posted a blog roundup, back to school edition.
Take your pick on the Hub
There’s fresh content every day of the week, Monday to Friday, on Findependence Hub. This week was especially robust, you might start here with can retired boomers afford to be the BOMAD for their kids? BOMAD = Bank of Mom and Dad.
On stocktrades.ca, here’s a nice update on the Canadian Dividend Aristocrats.
Here’s the August dividend update on Tawcan.
Enoch on Savvy New Canadians refereed a discount brokerage battle – Questrade vs RBC.
Many Cut The Crap Investing readers choose Questrade. You can purchase ETFs for free. You might remember Craig with the crappy AGF Mutual funds. He is in the process of opening up a Questrade account. We’ll be updating that process and post series as Craig and his wife get ready to make the move to lower cost ETFs.
My weekly column for MoneySense is a good one. Cathie Wood calls for bitcoin $500,000 and Eric Nuttall warns of a looming energy crisis.
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Consider Justwealth for RESP accounts. That is THE option in Canada.
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 1.25%. You’ll find some higher rates on certain GICs. They now also offer U.S. dollar accounts.
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