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September Newsletter
Personal Wealth and Finance
July 1, 2024
If you are an investor who remembers the mortgage debt crisis of 2008-9, you know that the market lost significant value. From an investment standpoint, the real downside occurred when some investors sold off their equity holdings due to fear mid-way or near the end of the market devaluation.
Hindsight is 20-20. The people who financially survived this market anomaly were the ones who did not sell their good stocks and equities held by investment funds. Many risk-averse investors who may have been tempted to sell but did not, in the long run, found that their patience paid off. They had an opportunity to hold on and watch their funds’ unit values increase again in one of the most extended bull market periods.
Investor risk is part of life in this world. Massive debt held collectively by individuals, companies or sovereign nations can indirectly affect currencies, bond markets, and interest rates. Geopolitics, macro and microeconomics, corporate banking and national solvency pose a significant financial risk to the world’s capital markets. And high inflation influences rising interest rates.
Bull and Bear markets are cyclic. If there is a hurricane warning, you know it is coming, and you don’t pitch your tent near the beach. Yet, with the stock market, you rarely know when a correction or a bear market is coming (when the stock markets decline 15-20% in value for some time). Investment fund managers will work to retain your value while looking forward to the markets’ recovery in these periods. The nature of the market is cyclic. The intelligent investor who is well-studied and cautious is nevertheless a risk-taker, realizing that one must hold on to investments patiently until the stocks in the fund portfolio regain any lost value and enter a rising bull market period. Balanced portfolios can take advantage of rising interest and bond rates.
Moving money in a family of funds Most funds allow you to move a portion or all of your money into the money market, bond and balanced funds amidst an investment fund family (those offered by the same company), or your advisor may be able to move them into an alternate investment vehicle.
Buy more fund units when prices drop. Consider seeking opportunities among bargain-priced investment fund units. In this way, wealth can be created when buying stocks of many companies held by investment funds when they are priced lower. If you take this strategy, you must be ready to stay invested over the long haul.
An effective strategy, Dollar cost averaging (DCA), involves buying fund units at regular intervals and investing the same amount of money each time. Thus, you buy more fund units when the value is lower and fewer when it is higher. DCA is an investment strategy many investors utilize during a long-term bear market because you increasingly purchase more fund units at lower prices. If you need to get more familiar with the benefits of that concept, please feel free to talk to your investment fund representative.
Insofar as you realize the risk of investing to produce long-term gain and beat inflation, you can make bear markets work for you if you are patient. This is because a bear market paves the way to the next bull market when rising prices may take your investment funds higher in value.
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investment funds, including segregated fund investments. Please read the fund summary information folder prospectus before investing. Mutual Funds and/or Segregated Funds may not be guaranteed, their market value changes daily and past performance is not indicative of future results. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision. Talk to your advisor before making any financial decision. A description of the key features of the applicable individual variable annuity contract or segregated fund is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.
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Mutual Funds and Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc., sponsoring mutual fund dealer. Other Products and Services are offered through Stuart Rowles and Rowles Financial.
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will be able to maintain its net asset value per security at a constant
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Risk of Borrowing to Invest
Here are some risks and factors that you should consider before borrowing to invest:
Is it Right for You?
- Borrowing money to invest is risky. You should only consider borrowing to invest if:
- You are comfortable with taking high risk.
- You are comfortable taking on debt to buy investments that may go up or down in value.
- You are investing for the long-term.
- You have a stable income.
You should not borrow to invest if:
- You have a low tolerance for risk
- You are investing for a short period of time.
-
You intend to rely on fund distributions / income from the investments
to pay living expenses.
-
You intend to rely on fund distributions / income from the investments to
repay the loan. If this income stops or decreases you may not be able to
pay back the loan.
You Can End Up Losing Money
-
If the investments go down in value and you have borrowed money, your
losses would be larger than had you invested using your own money.
-
Whether your investments make money or not you will still have to pay back
the loan plus interest. You may have to sell other assets or use money you
had set aside for other purposes to pay back the loan.
- If you used your home as security for the loan, you may lose your home.
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If the investments go up in value, you may still not make enough money to
cover the costs of borrowing.
Tax Considerations
- You should not borrow to invest just to receive a tax deduction.
-
Interest costs are not always tax deductible. You may not be entitled to a
tax deduction and may be reassessed for past deductions. You may want to
consult a tax professional to determine whether your interest costs will be
deductible before borrowing to invest. Your advisor should discuss with you
the risks of borrowing to invest.