The time to buy a segregated fund might – might – have been one month ago.
Now? Forget it. Why buy a product that protects you from losing money in the stock market after stocks have crashed?
Seg funds are an insurance-industry spin on mutual funds that guarantee you will at least get 75 or 100 per cent of your principal back after 10 years. This is an appealing feature right now, as you can see in this e-mail from a reader: “Are segregated funds a wiser alternative when closer to retirement, and during market crisis, such as the one we are living today?”
The best way to lower the risk posed by stock market declines in a portfolio for someone approaching retirement is to lower the allocation to stocks and increase exposure to bonds, guaranteed investment certificates and cash. Seg funds do have some important attributes – you can name a beneficiary for your seg fund and have the assets go to that person after you die without probate fees. As a type of insurance policy, seg funds also offer a degree of protection from creditors.
But as a conservative investment, seg funds don’t make the cut. First off, their guarantee to return 75 or 100 per cent of your invested capital after 10 years is close to meaningless. Stock markets could easily have a five-year stretch of negative returns, but 10 years is highly unlikely. Second, seg funds charge higher fees than traditional mutual funds. In buying a seg fund, you’re essentially agreeing to give up returns as a result of these higher fees to protect yourself from a highly improbable event – 10 years of negative stock market returns.
Highly improbable, but not impossible. In hindsight, the all-time highs reached by the stock markets earlier this year might have been a time to buy seg funds. The recession caused by the coronavirus could be nasty – maybe even enough to keep stocks below their 2020 peak for 10 years. It seems unlikely, but who knows?
Now, with stocks down something like 30 per cent from peak levels, the likelihood of a 10-year loss in stocks is greatly reduced. In that context, seg funds should be considered on their estate-planning attributes and creditor protection alone.
— Rob Carrick
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The Rundown
Is the selloff nearly over?
Stocks surged for three days this past week. Not everyone is convinced that stocks are in the clear, though, and that we won’t be seeing fresh lows. David Berman reports
Amid dividend cuts, income investors can still find safety
First, the coronavirus slashed share prices. Now, it’s triggering dividend cuts, prompting investors to look for sectors that offer reliable income streams in times of trouble. John Heinzl has suggestions on where to look.
How traders are using the VIX as a buy and sell signal in volatile markets
For some investors, deciding when to get in and out of the market has less to do with central bank announcements, interest-rate moves or the size of government bailouts, and more to do with investor emotion as measured by the CBOE Volatility Index. The VIX, a real-time measure of expected market volatility in S&P 500 index options in the next 30 days, has been living up to its reputation lately as Wall Street’s preferred fear gauge. Brenda Bouw reports
Fund rebalancing could help buoy U.S. stock rebound
Money managers rebalancing their portfolios to boost equity exposure into the end of the quarter may support the nascent stock rally that has followed the steep coronavirus-fuelled market drop. With the S&P 500 having lost around a third of its value in the recent selloff, investors may need to step up their equity purchases and sell bonds in order to maintain allocation targets. Lewis Krauskopf of Reuters explains
Asia’s stockbrokers swamped as retail investors dive in, bet on post-virus bounce
Crashing markets are driving the biggest rush from Asian retail investors into stocks in a decade or more, brokers say, as bargain-hunting and a fear of missing out prompts a scramble to “buy the dip”. Even as global coronavirus infections and deaths continue to mount and more companies issue profit warnings, stockbroker switchboards from Sydney to Singapore have lit up with calls from erstwhile punters wanting to invest. Abhirup Roy and Joori Roh of Reuters report
Others (for subscribers)
The week’s most oversold and overbought stocks on the TSX
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Friday’s Insider Report: Trades CEOs and presidents have made during the market turbulence
Number Cruncher: Twelve top-quality dividend stocks trading at a discount
Number Cruncher: These 20 TSX dividend stocks have not cut their payout this century
Others (for everyone)
U.S. investors turn the most bearish since February 2009: survey
‘Most photographed’ NYSE trader contracts coronavirus
Time to buy stocks again, market mavens say
Borrowing to invest makes sense for few people amid market volatility: experts
Globe Advisor
Financial advisors filling unlikely role during health crisis
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What’s up in the days ahead
Ian McGugan looks at what indicators to watch for as the crisis unfolds and opportunities arise for battered investors.
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Compiled by Globe Investor Staff