RRSP Investing and Tips On How To Handle Stock Market Volatility

On March 1st Mark Ting discussed how he invested his 2017 Registered Retirement Savings Plan (RRSP) contribution.  Below are the highlights of his interview with CBC’s “On the Coast” host Gloria Macarenko.

So how did you invest your RRSP contribution this year?

This year, like most years, I invested in stocks since I’m not planning on retiring for at least 15 years and will hopefully live until at least 90.  My goal is to have my portfolio grow faster than inflation and be able to fund 30 years’ worth of retirement. Which means I need to hold good quality stocks, some of which pay dividends, because in today’s low-interest rate environment—cash or bonds won’t cut it.

If I had to recommend an investment for the average retail investor, I’d go with a good global balance or global growth fund.

Is it prudent to be investing in stocks when the stock markets are so close to their peaks—wouldn’t it be better to wait until they get cheaper?

I would wait until stocks became cheaper if only I knew when that would be. They are on a bit a slide now, so things are cheaper than they were a month ago but it isn’t like retail where we can count on a Boxing Day or Black Friday sale.  Unfortunately, stocks are a lot less predictable.

That said, historically for every negative year, there are about three positive years.  Based on that statistic, ignoring all the noise, politics, biases and/or opinions, the odds favour stocks over the long term.  There are no guarantees, and 2018 could be the negative year out of the four-year cycle but for a long-term investor like me, staying invested in the markets throughout the highs and the lows has proven to be a good strategy.

I know you are a fan of Warren Buffett who is one the most successful investor in the world, what are his thoughts on the current state of the stock markets?

He currently sees stocks valuations as “fair”.  So far in 2018, he hasn’t bought anything substantial, but he has about $120 billion waiting in the bank for the right opportunity.

His advice to the average person is to buy the US stock market, more specifically the S&P 500, and hold it forever.   He believes, as I do, that the stock market will continue to make new all-time highs over time just as it has been doing for decades.   There will be crashes (that’s a given) which we won’t see coming, but that’s not the time to panic rather that’s the stock market’s version of Boxing day sale and is time to stock up—no pun intended.

So the fact that the stock market made all-time highs in 2017 shouldn’t dissuade people from buying stocks?

Not in good quality and profitable stocks.  The DOW, which comprises of 30 large cap stocks representing a cross-section of the US economy, hit an “all-time high” back in January of 2017. If you had sold thinking that you would “sell at a high and buy back at a low,” it wouldn’t have worked out.   After the DOW hit the all-time high in January, it kept on climbing. In fact, it made a total of 70 new “all time” highs in 2017. So the lesson is; don’t try to outsmart the market as it rarely ends well.

The crash of 2008/9, despite being nine years ago, is still fresh in many people’s mind as it took an emotional toll on people.  What is your advice on how best to deal with crashes because, as you said, they are inevitable?

Because I believe that over the long term stock markets will rise, in my mind, any market drop is temporary and an opportunity to buy my favourite businesses on sale.  During a crash, people’s flight instinct kicks in, and they feel compelled to greatly reduce the risk in their portfolio or sell everything fearing their investments will go to zero.  To counter their panicky feelings, I tell them not to think of their portfolio as numbers going up and down, rather think of it as a group of well-run businesses.

Next, I ask them to visit some of the companies they are invested in.  Go to Starbucks or Costco during a market crash to see if they notice anything different. They likely won’t, the parking lots will be still packed and the check-out lines long.

In 2008, even as the stock prices were down by 50%, the Canadian banks, which all of us hold in some form or another, were still making billions every quarter and increasing their dividend payouts to investors. So while their emotional response was “flight,” when given some perspective (50% discount from the peak, earning billions every quarter and getting paid dividends while you wait) it alleviates a lot of the anxiety of comes along with investing so they are less likely to sell at a time when they should be buying.

Listen to the full interview here with CBC’s On the Coast. The interview with Mark Ting starts at the 1-hour 27-minute mark.