All posts by Adrian Mastracci

Taming this week’s market mayhem

Suddenly a raft of market fears have sprung up in the past few days.

All North American markets have been affected: the Dow, S&P500, Nasdaq and TSX. Labels ranged from corrections to market routs. Some indices were shaved in excess of -10%. In reality, this mayhem may not yet be finished.

I recall the October 87 rout when the Dow dropped -22.6% in one day. Ouch! The good news part of the story is that the loss was substantially gone by a year later.

This brings me to dust off a previous commentary dealing with the same topic.

Remember that markets are logical, while investors are emotional. This combination is a non-starter for investors.

Success will come to those who quickly ditch emotional attachments. Don’t waste precious time on strategies that keep failing.

“To conquer fear is the beginning of wisdom.”
—Bertrand Russell (1872–1970), British philosopher

As we noted in this blog on the Hub almost exactly two years ago, investors have been enjoying the fruits of rising markets. A 11-year upside since the March 2009 lows, to be more precise. Conventional wisdom expected that stocks continue to deliver as economic conditions are likely to remain healthy.

Suddenly, everyone is wallowing in fears. Worries about global economies, recurring volatility and market jitters are back on stage. Investors are wondering what to do with the nest egg amid the crazy mayhem.

“Markets can’t be managed, so focus on your interaction with the markets.”

I recommend that you act wisely. Move slowly. Don’t give up. Don’t throw in your towels. The solution is simpler than you think.

Repeat after me: “I am not in control of my nest egg – the stock and bond markets are.” This is your first and most important admission.

Expect market corrections and surprises any time. Market mayhem is a normal occurrence, in both directions. You’ll be afforded little time, if any, to react. Fretting and worrying about the volatility does not help anyone. Your task is to regain as much control as possible.

Recent market haircuts are graphic reminders of the curve balls of investing. Zeroing in on simple practices reduces the hazards of stepping in a sink hole along your investing roadway.

Adopted Wisdom

I have adopted these timeless steps. You should too:

  • What matters most is how the portfolio fares, not the market outcomes.
  • Markets can’t be managed, so focus on your interactions with the markets. Continue Reading…

Apply this 7-point checkup to your portfolio

We keep regular tabs on many factors throughout our lifetime. I submit that a best practice is to apply the same principle to the family nest egg: whether it is the starting portfolio or your retirement fund.

A new year often prompts investors to consider making changes to portfolios. Hopefully, well thought out changes that improve your desired outcomes.

I’ve designed a simple checkup tool and I invite you to adopt it. If you desire to manage family wealth, you should be conversant with each point. I suggest making it high priority.

The 7-point tool is a small bundle of steps that assesses your precious nest egg. A big picture check of family wealth typically delivers more simplicity alongside value.

However, it’s easy to get swamped. Too many investors latch onto walls of worry that cloud decisions. Fears of low returns, rising health care and running short of money come to mind.

My checkup tool helps seal the cracks found in a variety of financial foundations. Particularly for investors who make high demands on the nest egg.

Vital Issues

You need to first identify the cracks, as opposed to the minutia. Then initiate swift, corrective actions for the long run. The resulting analysis is a simple grouping of your “Yes/No” answers.

Let’s probe your portfolio on these vital issues:

Vital Portfolio Issues

Your Replies

1. Are your goals achievable with the current action plan?

Yes: ___ No: ___

2. Are you saving enough to fund the retirement targets?

Yes: ___ No: ___

3. Are your retirement assumptions realistic for today?

Yes: ___ No: ___

4. Are you investing within a comfortable asset mix?

Yes: ___ No: ___

5. Are you aware how the advisor is paid?

Yes: ___ No: ___

6. Are you happy with the direction of the portfolio?

Yes: ___ No: ___

7. Are you receiving objective and unbiased advice?

Yes: ___ No: ___

A fitting portfolio starts at five “Yes” replies. Now to assess your portfolio health:

Number of “Yes” Replies

Your Portfolio Health

6 to 7

Robust nest egg

4 to 5

Needs some tweaks

2 to 3

Urgent attention required

0 to 1

Design new action plan

Apply my concise suite of nest egg checks to establish a sense of your direction. They are also early warnings that highlight portfolio weakness.

Any one of the issues can impact your family’s progress. For some, two or more “No” replies can inflict undesirable outcomes.

These remedies provide you added values:

  • Make certain your game plan is logical and sensible.
  • Revisit your asset mix targets every three to five years.
  • Prune some investments if you own too many.
  • Reduce excess complexity in your nest egg.

Ensure that your family nest egg delivers on expectations. Actions that turn “No” into “Yes” replies improve your portfolio pillars. Continue Reading…

Declutter the pesky nest egg

“Decluttering the pesky nest egg ranks high among investors. Now is a great time to snap into action.”

Investment clutter can easily develop from a variety of sources. The number of accounts opened, types of risks incurred, type of advice sought and style of adviser hired are just a few starting points that contribute. Some of the clutter often falls to the back of the closet, never to see the light of day again.

So I ask: “Is your investment closet cluttered with plenty of stuff?”

The stuff was likely purchased over several years and from multiple providers. The passage of time transformed it into a muddle that typically no longer serves its intended purposes. Perhaps, the investment closet has not been purged for longer than anyone cares to remember. If it feels like a mishmash, it probably is.

I keep tabs on portfolio requests seeking fresh opinions. The majority of cases hold 15 to 35 investments, primarily mutual funds and assortments of individual stocks. Keeping track of such selections is not easy for most investors. Overlap often makes its way into portfolios. The good news is that the best time to declutter the jumble is when stock prices are at or near their highs. Like now.

Spot the clutter

Accordingly, I highlight critical signs that recognize “cluttered investing”.If you spot any of these in your investment closet, you have some work to do: Continue Reading…

Smart ways to divvy up your tax refund

Situation: The income tax refund is a welcome sight for many taxpayers.

My View: Park it temporarily to reflect on its best use before allocating it.

Solution: Evaluate family needs and options that provide lasting benefits.

Income tax filing season is under way once again. Accordingly, I examine some smart ways to apply your tax refund. First, a little trivia:

For what year did Canadians last file a 1-page Federal income tax return?
It was the 1949 tax year.

I think of allocating the income tax refund loosely within these categories. For example, you can spend it, save it, invest it, reduce debt and help others.

Start by parking the refund into a saving account to resist impulse, say for 30 to 60 days. That provides you sufficient time to reflect and evaluate your needs and best options that apply.

Try your utmost to arrange lasting usefulness from this source of cash. Many of the allocations you will make are not reversible.

Everyone can reap benefits from these simple best practices. I summarize some sensible ideas in dealing with tax refunds:

Reduce debt

  • Repaying credit card balances are top notch, risk-free allocations.
  • Trimming a line of credit, mortgage or student loan is very desirable.

Invest it

  • Contributing to the RRSP boosts the retirement nest egg.
  • Adding to the TFSA generates tax-free investment income.

Help others

  • Donating to a charity of your choice is a noble cause.
  • Helping out someone less fortunate than you is generous.
  • Making RESP deposits helps pay the rising costs of education.
  • Funding the RDSP for a special needs family member is unselfish.
  • Lending it at the prescribed rate to the lower tax bracket spouse.
  • Assisting an adult child to purchase a vehicle or residence.

Save it

  • Leaving it in your saving account is a worthy choice.
  • Supplementing your family business capital is worthwhile.
  • Adding to your investment plan is productive strategy.
  • Improving your career or education fulfills goals and dreams.
  • Rebuilding the family emergency account is beneficial.
  • Setting funds aside for the next income tax instalment.

Spend it

  • Replacing an aging vehicle and appliance helps.

Investing in IPO excitement

“Don’t let your guard down when investing in the excitement of initial public offerings (IPO).” — Adrian Mastracci, discretionary portfolio manager & financial advisor at Lycos Asset Management.

Levi Strauss is the current IPO euphoria darling. Investing in IPOs can be very exciting, often creating plenty of buzz and fascination. They can also be risky propositions.

Many IPOs are overpriced or priced to perfection

Many IPO stock prices turn out overpriced, or priced to perfection. IPOs are the first sale of stock by private companies to investors. Most IPO companies usually hire a securities firm to manage the stock offering and exchange listing.

It is very difficult to predict how the IPO stock price behaves after it becomes listed. Hype and excitement can overcome all signs of rational thinking.

IPOs allow initial private investors to cash out

Typically, there is limited historical data to analyze. Most IPOs are companies going through growth periods. Many IPOs are vehicles for the initial private investors to cash out or reduce the size of the holding.

Shares of IPOs can be hard to get in quantity when investor demand is high. They are better suited for speculators who have time to follow daily price gyrations. Having an iron clad sell strategy is critical.

Investors need to be convinced that an IPO’s upside potential is real. Not all IPOs have fared well after the buzz of initial excitement. Expect large price swings in both directions and often. Continue Reading…