Are you ready for the next market crash?
All the advertising on TV for online investing is driving me crazy because none of their services will protect small investors from losing a lot of money in the next big market correction. Even individual financial advisors have a hard time doing this. I mean, they can’t recommend people sell everything, but that’s exactly what you need to do, and you can easily do it now for free with an online trading account.
In the U.S. there are many free trading platforms. In Canada, there is currently only one, Wealthsimple. Questrade charge $4.95 per trade (buy and sell, so $9.90, except ETFs which you can buy for free). The banks charge up to $9.99 per trade, so $20 round trip. That’s a lot!! Wealthsimple is free for all Canadian stocks and ETFs and charges 1.5% on the exchange to USD (buy and sell, so 3%). That’s fair.
Are the banks and Questrade providing a better service to justify the charges? Did any of them do better than the indexes?
This is the performance of SPY, +154% since 2016 doing nothing. It's an ETF that simply follows the S&P 500. This one ETF provides all the diversification you need since it includes 500 of the largest companies in the US. In Canada, HXS is an equivalent ETF that you can buy and sell for free on Wealthsimple.
Did it make sense to sell in 2020 on covid news when you were already up 40.8% in just over a year? I presume you all said ‘yes’ and thus avoided the 33% drop.
If you did sell, then re-buy in March, a simple 2 clicks on your phone, you were then up 109% by the end of 2021, and it was again looking like a good time to be ready to sell. And better yet, sell while it’s up and simply re-buy if it doesn’t drop.
This is Questrade’s best performing fund since 2014. Did they ‘manage’ to avoid the covid drop with this managed fund? No. Did they ‘manage’ to avoid the drop with any of their managed funds? No. And the performance is significantly lower than just buying one ETF on your own. And you easily avoided the covid drop.
If you’re a farmer with 500 cows and you see a tornado on the horizon, how quickly can you get them all to safety? If you have 1 ‘super cow’, tied up and contentedly munching on grass, how quickly can you get her to safety? If you have a ‘cow advisor’ managing your cows and those of all your neighbours, how quickly can he/she get all your cows and your neighbours’ cows to safety? I think you get the picture.
Also, how quickly can the Titanic turn to avoid an iceberg? Most of these investment funds are massive and if they start selling, then that in itself will drop the prices. As an individual investor, you’re a drop of rain in the ocean, and you’re completely able to duck under the waves as they come crashing to shore, then you hop on for a sweet ride.
Here’s a daily chart of SPY showing just how easy it was to see the potential drops in advance. Acting on them avoided a mere 4% drop, but hey, why not? 4% on 100k is $4000.
The ‘ceilings’ are super obvious, as are the upper and lower ‘trend lines’. Obviously, when the upper trend line is reached, there might be a drop coming, similarly with a ‘ceiling’. Once it falls to the lower trend line, it might reverse, so be ready to buy, and especially watch for a Monday drop and reversal.
On Monday, Jan. 24, the S&P dropped to 4218, the very bottom of the chart above and a 12% drop from the ceiling of 4800, which you decided to sell at, but your advisor didn’t recommend. That’s $12,000 on your 100k nest egg, in just 3 weeks. And surprise surprise, after hitting the low, the markets rallied hard to close positive. It was a Monday after all. ;)
So, go open your own online trading account, put some money in, even if it’s only $50 like my friend from Baja, and start taking care of your own money. And I’ll be here to help you along the way.
While you wait for my next article here, you might want to read my recent blog posts on Seeking Alpha. “Here's Proof That You Can Do Better Than Your Financial Advisor.” It’s a short read, similar to this post, written December 26, and following the advise for what to buy when the markets do crash, you could have nabbed a tidy 100% gain this past month with UVXY.
Before that, I wrote a rather long post showing that the simple strategy I’ve presented would have worked remarkably well since 2005 and I encourage people to let others know, "Give The Gift Of Financial Security Next Year." My first post "Are You Ready For The Next Market Crash?" shows how terrible the advice is from the top 10 Google search results and gives a range of analogies to help get you thinking outside the box, along with more details on UVXY that could have had you ready to take a swing. No worries, there will be many more chances, but it is time to change your mindset and start getting ready.