Hi,
I'm sorry I seem to keep repeating myself and doubting about a CA PP.
Is a Canadian pp still working? When gold is tanking, one of the 4 assets are supposed to shoot up to reduce the loss, but not the case this week- stocks tanked, CAD is down, LTT is up but not enough. How to make of this? Is gold going to do what it is supposed to do in pp? The reason why I keep checking my pp is that I have quite a bit of cash to do DCA. I find it very stressful. I really get it when craigs said DCA is very hard for most people. I am falling into the trap that I am again trying to time the market. I think it might be because I already have more than 5% loss since the start of pp two months ago so I'm still skeptical of a CA pp if it is going to work out. Maybe I should just buy everything at once and not check for a year or I just give into GIC at 3%, which is certainly better than loosing the principle....Can someone give me some assurance or should I expect a lot of volatility for a pp this year?
CAD PP when gold is tanking
Moderator: Global Moderator
CAD PP when gold is tanking
Last edited by metta2006 on Wed May 09, 2012 3:50 pm, edited 1 time in total.
-
MachineGhost
- Executive Member
- Posts: 10054
- Joined: Sat Nov 12, 2011 9:31 am
Re: CAD PP when gold is tanking
The PP won't outperform in the short term. If we go into a double dip recession this year and you only have 10-year Canadian bonds, then it is very unlikely that you will come out ahead. So from that perspective, DCA makes sense to do. Just buy a little bit of the PP every month as long as it continues down.metta2006 wrote: Hi,
Is a Canadian pp still working? When gold is tanking, one of the 4 assets are supposed to shoot up to reduce the loss, but not the case this week- stocks tanked, CAD is down, LTT is up but not enough. How to make of this? Is gold going to do what it is supposed to do in pp? The reason why I keep checking my pp is that I have quite a bit of cash to do DCA. I find it very stressful. I really get it when craigs said DCA is very hard for most people. I am falling into the trap that I am again trying to time the market. I think it might be because I already have more than 5% loss since the start of pp two months ago so I'm still skeptical of a CA pp if it is going to work out. Maybe I should just buy everything at once and not check for a year or I just give into GIC at 3%, which is certainly better than loosing the principle....Can someone give me some assurance or should I expect a lot of volatility for a pp this year?
MG
Last edited by MachineGhost on Wed May 09, 2012 6:04 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: CAD PP when gold is tanking
Please understand that *nothing* is guaranteed in life, and especially investing. All you can do is reasonable research and take reasonable precautions to diversify as best you can. Normally it will work out OK in the long run, but in the short-stretch you will get ups and downs.
The best thing, and I say this seriously even though it sounds flip, is to just not look at your portfolio that often if it bothers you. And for most people, it's going to bother them. So just try to get into the habit checking infrequently.
If you are DCA'ing in, this is the problem that you are seeing about second guessing yourself. Just remember though that when you buy an asset that has fallen in price you are getting more of it and that's a *good thing* long term. I like buying stuff on sale, don't you?
But over time it is expected the portfolio will grow. You have capital appreciation, interest and dividends to latch onto. When you drag it out or delay making a choice you lose out on those ways to capture gains. But if you continue to be nervous you can simply keep DCA'ing in each month mechanically and over time you will probably find that the money is growing and with the diversification it is likely safer than concentrating everything into one asset (even cash). This is just my opinion, but again nobody can promise you anything and you should be very careful of any investment that is offering guaranteed returns. There is always a risk with any investment, even if you (or the person hocking it) doesn't know about it (or isn't telling you).
The best thing, and I say this seriously even though it sounds flip, is to just not look at your portfolio that often if it bothers you. And for most people, it's going to bother them. So just try to get into the habit checking infrequently.
If you are DCA'ing in, this is the problem that you are seeing about second guessing yourself. Just remember though that when you buy an asset that has fallen in price you are getting more of it and that's a *good thing* long term. I like buying stuff on sale, don't you?
But over time it is expected the portfolio will grow. You have capital appreciation, interest and dividends to latch onto. When you drag it out or delay making a choice you lose out on those ways to capture gains. But if you continue to be nervous you can simply keep DCA'ing in each month mechanically and over time you will probably find that the money is growing and with the diversification it is likely safer than concentrating everything into one asset (even cash). This is just my opinion, but again nobody can promise you anything and you should be very careful of any investment that is offering guaranteed returns. There is always a risk with any investment, even if you (or the person hocking it) doesn't know about it (or isn't telling you).
Last edited by craigr on Wed May 09, 2012 5:33 pm, edited 1 time in total.
Re: CAD PP when gold is tanking
To add to craig's comments above, all four of the PP assets tend to rise in value over time, so time is really on your side with the PP.
It's interesting to look at the long term returns of the individual PP assets (40+ years) and compare it to the overall PP returns. In some ways the PP is more of a volatility dampening tool than anything else, since you can get similar returns in other assets, but it's often at the expense of more volatility.
It's interesting to look at the long term returns of the individual PP assets (40+ years) and compare it to the overall PP returns. In some ways the PP is more of a volatility dampening tool than anything else, since you can get similar returns in other assets, but it's often at the expense of more volatility.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: CAD PP when gold is tanking
Also, HB expected the PP to return 3-5% above inflation, which it has historically done. If we're in a deflationary environment, that would mean that inflation is negative. If you think about a 2% annual return, that's a 0.17% gain each month, including dividends and interest. I had a similar issue of watching my PP get smaller the first couple of months; then I got a dividend payment. Now it's been fluctuating around a little bit bigger number; I would expect that trend to continue. What I like to do is imagine that I was 100% in whatever asset is losing at the time; sure makes me glad I have all four.
Re: CAD PP when gold is tanking
I thought we are not supposed to count on dividends. In fact, HB was against using dividend stocks, which I still quite don't get.
Re: CAD PP when gold is tanking
Dividends go up and down on a number of factors. So they are not the reliable income stream that many may think they are. They are just one other way to make money:
1) Dividends
2) Interest
3) Capital Appreciation
All things being equal, as a taxable investor, I don't like dividends. I'd prefer it all to be capital gains. That way I can decide when to take gains and the tax rates are lower. When you get dividends from a stock fund you are not really gaining anything. Money comes out of one pocket, is taxed, and then put into the other pocket. So that is another negative strick at least for dividends from mutual funds.
1) Dividends
2) Interest
3) Capital Appreciation
All things being equal, as a taxable investor, I don't like dividends. I'd prefer it all to be capital gains. That way I can decide when to take gains and the tax rates are lower. When you get dividends from a stock fund you are not really gaining anything. Money comes out of one pocket, is taxed, and then put into the other pocket. So that is another negative strick at least for dividends from mutual funds.
Re: CAD PP when gold is tanking
My comment was not to say whether or not dividends are good, but rather an observation that the 25% stock portion of the portfolio pays dividends. The 25% bond portion pays interest. If the stock is paying a 2% annual dividend, and the bonds are paying 3% while the other two asset classes are paying virtually nothing, that's a 1.25% gain from dividends and interest, which leaves you with an expected 0.75% gain (which should occur over 12 months) from capital appreciation if you assume you might get a 2% gain on the year. Theoretically the cash would pay dividends but they're pretty negligible right now.
My whole point is that I wouldn't worry too much; it will take time to see a statistically significant gain in the current economic environment, and there will still be some fluctuation day-to-day and week-to-week.
With regards to dividends, I agree with Craig that in the current tax system dividends are unfairly penalized. This gives companies the incentive to retain earnings and reinvest them into the business. I think this system encourages malinvestment in unproductive businesses and encourages often unwise mergers and acquisitions. It also encourages excessive executive compensation, because the shareholders don't want the money coming out of the business for tax purposes, so they're not overly concerned with where it goes as long as they don't have to pay extra taxes. If the taxation was the same, I would prefer that companies pay out earnings to me so that I can decide where to reinvest them. However, the taxation is not the same and under the current scenario from a tax standpoint I'd prefer capital gains to dividends as well.
From an investment standpoint, what is the value of a company that doesn't pay dividends? A bond gets it's value from the interest payments (t-bills are still bonds). If you bought a private business, you would value it based on how much money it put in your pocket at the end of the year; likewise with real estate. Gold has value because it's still seen by most people as money, and it has a mostly fixed supply. That being said I don't really consider gold to be an investment, but instead another form of money that the government prohibitively taxes so that we won't use it as money. I think gold certainly has a place in a balanced portfolio, but I don't look at it as an "investment" per-se.
Again, my whole reason for posting in the first place was to share my experiences so far with the PP (after about 3 months). I tend to watch it daily because I enjoy observing it work its magic. There is still some amount of fluctuation, and it looks like I'm down 0.35% after the market dipped this week, but I've been up as much as 5-6% at times and down that much, but whenever one asset is dropping the other starts to come up and eventually pull the whole thing up even more. If you can't stand to watch it then don't watch it; it will take care of itself.
My whole point is that I wouldn't worry too much; it will take time to see a statistically significant gain in the current economic environment, and there will still be some fluctuation day-to-day and week-to-week.
With regards to dividends, I agree with Craig that in the current tax system dividends are unfairly penalized. This gives companies the incentive to retain earnings and reinvest them into the business. I think this system encourages malinvestment in unproductive businesses and encourages often unwise mergers and acquisitions. It also encourages excessive executive compensation, because the shareholders don't want the money coming out of the business for tax purposes, so they're not overly concerned with where it goes as long as they don't have to pay extra taxes. If the taxation was the same, I would prefer that companies pay out earnings to me so that I can decide where to reinvest them. However, the taxation is not the same and under the current scenario from a tax standpoint I'd prefer capital gains to dividends as well.
From an investment standpoint, what is the value of a company that doesn't pay dividends? A bond gets it's value from the interest payments (t-bills are still bonds). If you bought a private business, you would value it based on how much money it put in your pocket at the end of the year; likewise with real estate. Gold has value because it's still seen by most people as money, and it has a mostly fixed supply. That being said I don't really consider gold to be an investment, but instead another form of money that the government prohibitively taxes so that we won't use it as money. I think gold certainly has a place in a balanced portfolio, but I don't look at it as an "investment" per-se.
Again, my whole reason for posting in the first place was to share my experiences so far with the PP (after about 3 months). I tend to watch it daily because I enjoy observing it work its magic. There is still some amount of fluctuation, and it looks like I'm down 0.35% after the market dipped this week, but I've been up as much as 5-6% at times and down that much, but whenever one asset is dropping the other starts to come up and eventually pull the whole thing up even more. If you can't stand to watch it then don't watch it; it will take care of itself.