TFSA rate supposedly going down May 1st | Page 2 | Peoples Trust | Discussion forum

1)

Yas said

Yes, if I see one of my funds is not doing well, I get the lower profit and move on to another one. Opportunities are endless we just need to use them.

The trick is to keep watching them and if you feel it is going downward action by replacing it with a better performing fund.

IMHO, if an investor can act proactively to the market changes, s/he will cut the lose before it goes low.

It takes time and a good investor will act before it is too late.

Be careful not to forget you are investing in actual companies. They have intrinsic value beyond what their share price is for a given hour/day. Just because the share price has gone down doesn't mean the value behind it has changed necessarily. You are following the common but misguided behaviour of buying high (when a security has done well and gone up in price) and selling low (when a security has done poorly and gone down in price). You are expecting said security to continue with it's previous trend, whereas it's expected future is probably to normalize in the opposite direction. This is one of the main behaviours that leads to the average investor underperforming the broad market; they sell a security too soon after it has gone down and miss the opportunity to ride it back up to whatever the actual value of the security is (and buy too late after an upswing and have to endure the following correction). Instead, given that the security has some intrinsic value, one would prefer to buy it when it's cheap (done poorly recently) and sell it when it's expensive (done well recently), provided that you don't think the underlying intrinsic value has changed.

Many average investors going through the 2008-2009 market crash became too conservative and got out of the market after a bad experience, only to miss the equally dramatic recovery in the following years. Savvy investors actually doubled-down on their investments anticipating the recovery and were in for a great ride.

"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down." - Warren Buffet

2)

Yas said

Isn't growing our $$, the whole point of investing?

It is important to understand the difference between saving and investing (and speculating).

The main goal of saving is preservation of capital. That is, exposing your money to little or no risk of loss or default (e.g. savings account accruing interest, GIC, putting it in your piggy bank). This is generally used as a means to a short-term goal (e.g. saving for vacation, down payment, etc). The money will be needed in a pre-defined period of time and it is most imperative that you have at least what is required when the time comes. Any growth is a bonus but may lag behind inflation.

Investing on the other hand is a means to generate long-term growth. It uses principles such as compound interest, dividend reinvestment, and tax deferral to generate powerful growth over many years, often decades. More advanced investors (and with more free time) can also apply estimates to the intrinsic value of a given security and compare it to the market price to find discrepancies, but this is beyond most average investors. The goal is to not only beat inflation, but also have some excess growth to be able to attain assets that would not otherwise be attainable through saving alone (saving for 30+ years of retirement through principal saving is near impossible unless you prepare for a very frugal retirement, especially factoring in inflation). There is generally some risk involved in investing such as companies losing market-share and profits or even going bankrupt or companies/governments defaulting on their loans (bonds). This risk is offset by the possibility of higher returns than savings alone. This risk, however, makes investing not ideal as a savings vehicle. Imagine you have worked hard and saved up $50000 for a down payment but when it comes time to pay, the market tumbles and you're left with only $25000. Those extra 3-4% of growth over such a short time horizon don't justify the risk.

Lastly, speculation generally involves some aspects of "timing the market" or trying to predict short-term security prices while ignoring the intrinsic value of the security. Examples include day-trading and trading currency. While it is safe to assume that big companies who have intelligent management and are financially responsible will grow over the span of years/decades, their market price at any given time is dependent on a large number of factors that don't necessarily reflect the intrinsic value (and are hard to quantify). Speculation is not based on sound principles of investing and should not be confused with the latter.

3)

Yas said

A fund doesn't suddenly go from performing 10-20% to -10%

Black Monday

4)

Yas said

Greater China Equity. 3 month is 15.7%
TD Health Sciences - I. YTD is 23.8%
Fidelity China Class Series S8 - YTD 18.0%
Financial Services Equity - YTD 12.4%

Given your research, are you expecting 3-4x those returns on an annualized basis? It is often misleading to take small sample sizes and extrapolate. Any security can have a great/terrible performing month/3-months/year. Unless you can predict when that will happen, looking at the trailing performance gives you only that: past performance. It can be argued that if you take a long enough performance time horizon and assume little change into a very distant future, that you may be able to use those numbers to have an idea of what a certain security or the market will do. Anything else is speculation (see 2)

5) Lastly, I would like to emphasize that I'm not dissuading anyone from investing. I have money in both the Peoples Trust TFSA and securities. My PT TFSA is acting as a down-payment savings account while the securities are for my retirement. It is discouraging to see the interest rate on the PT TFSA drop in the last few months but taken into perspective, the 0.75% rate drop over the span of 1-2 years amounts to little compared to the possibility of losing half my account due a market correction at the wrong time. Based on a $41000 maximum TFSA contribution limit, that drop results in a loss of $309 potential earnings in one year compounded daily (which seems to be what PT does).

Meanwhile, since I don't have the time or desire to enact an intricate investing strategy, my securities are invested in a passive, diversified, low-cost mix of ETFs and mutual funds with an asset mix I am comfortable with. Theoretically, this can be maintained with just a few hours each year with automated contributions/purchases and rebalancing every few months depending on portfolio size. Alternatively, there are several one-fund solutions that take the stress of rebalancing out of your hands if you have even less interest in the intricacies of investing.