The worried

Several years ago I watched a fellow investment advisor sit on a growing mountain of client cash. “Things are just too expensive,” he kept insisting. “The bond market tells me stocks are overvalued and the economy’s headed for recession.”

Over the course of two years his clients made about 2% holding cash, a mess of bonds and few growth assets. Stock markets steadily added more than 20%. He bet wrong. Naturally he suffered the consequences, abiding by his Old School broker beliefs.

Lately the old guys have been muttering similar dark things. Despite that the S&P 500 is ahead 12% so far in 2019. Bay Street has added 13% this year, and sits just 3% below its all-time high. B&D portfolios have been doing just ducky. Despite Trump. The trade wars. Inverted yield curves. Brexit. Iran. The Raptors.

The why is simple. Global growth continues. Central banks have done a fine job tweaking monetary policy. Not too hot. Not too cold. The US economy is flourishing. Europe is proving bigger than the populists and nationalists. Corporate profits have been fine. Consumer sentiment has bucked up. The fundamentals suggest no imminent recession, although a slowdown could be here in a year or two. But there’s no reason to buy gold, short the banks, wait for a 50% housing crash or move into the school bus buried in your yard.

Emily asked me in a note on Wednesday if she should invest the $50,000 she’s saved in her TFSA all at once or in hunks of ten grand every three or four months. The answer’s simple: when you have money, invest it. Trying to time the market with zero idea what’s coming in weeks or months is nuts. There’s a 50% chance things will cost more, not less. Over the course of decades the entry point is irrelevant, since you risk missing good days as well as bad ones – and the good ones dominate. Especially if you’re young, just buy stuff. Stiffen up.

I see my advisor buddy is calling for the eighty-fourth recession of his 40-year career. He’s back into cash. His clients just gave up a lot of growth they’d want to harvest later. Since fear, not greed, is the predominant investing emotion – and yet markets rise 70% of the time – those who manage other’s money need to be clear-eyed and realistic.

The biggest risk remains running out of money, not losing it. Especially prone are women, who tend to be more risk-averse and live longer lives. Not a good combo. Young Emily needs to get her fifty smacks into the right mix of ETFs, and PDQ.

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How bad’s the mortgage business these days? Crappy enough that a major Ontario lender has brought back the 1.99% home loan in a heroic attempt to snatch business. DUCA credit union now owns the lowest rate in the nation, offering the sub-2% price on a term of two years.

That’s a big reduction over the competition, but only for insured borrowers – less than 20% down, no rentals, no 30-year amortization, no property over a million dollars and no refinancing. Plus you have to pass the stress test.

Is it a risk taking cheap money only for two years?

Nah, not really. Rates are on hold now. Thanks to the Tariff Man central banks might even be cutting the cost of money once or twice in the next year, before they creep back up. So the odds are a 1.99% rate will look just as sweet in 2021.

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“I’ve been a big fan of your blog for a while ow, says Carson who obviously wants something.

I’m a 31 year old male living in Vancouver making over $100K per year. I’ve got close to a $100K in my TFSA, $125K in my RRSP and $110K in non-registered investments. On top of that, I have about $300K in cash and cash equivalents that I’ve reserved for purchasing real estate or investing into equities.

I’m single and don’t plan to start a family soon, but I’ve been looking around some condos in Vancouver and prices are certainly far more reasonable than they were a few years ago (although still not as cheap as I’d want them to be). Mortgage rates are also not that high. I wanted to get your opinion on whether I should continue to deploy my cash towards equities or buy a place. I suppose I could do both, but because I believe that equities are a superior long-term investment, I struggle to find a reason to allocate cash to buy a place. With that said, I do eventually want to own something rather than paying rent all my life.

First, Carson, the Van market is in freefall and there’s more to come. So only buy if you can stomach the thought of cascading equity for a while. Maybe a long while. Last month the year/year benchmark price was down 9%. Values are back to 2017 levels, and gaining downward momentum. Sales in May were the worst in about twenty years. Listings are piling up fast.

Now a research firm (Eitel Insights) says prices will continue to erode for another couple of years, plus: “You’re going to see the cannibalization of the condo market where there’s a flood of new, built properties available to move in today and they’re going to be at relatively attractive prices.” More supply plus weak demand = lower prices.

Besides, Carson, you have more than $600,000 liquid at age 31. Invest it and at 60 you could be sitting on almost $5 million. Or, you can buy a condo now and at 60 you’ll have… an old condo.

Renting rocks, kid. Stay the course. No worries.