Finance Here’s the thing: in a broad-basedmarket downturn, you don’t need to swing for the fences on high-risk, high-return ideas. Aim for singles or doubles instead: if the entire market drops by 20% or more within a year, simply putting your money into a broadly based equity ETF or mutual fund and waiting for a recovery is very likely to get you around the bases just as well, without exposing you to the risk of a strikeout. Keep an eye out for “silly” In every correction, there is always overreaction: otherwise excellent businesses (or specific sectors of the market) would come down dramatically in price for no other reason than that they’ve been caught up in the overall market downturn. Identifying these babies that have been thrown out with the bathwater can be an excellent way to make money. Case in point: U.S. financials. Many U.S. banks, insurance companies and other financial firms were quite rightly identified as the epicentre of the great recession of 2007-2008 – indeed, some of them (Lehman Brothers, Merrill Lynch) either ceased to exist or were taken over by other firms at significant discounts to their previous values. But there came a time when the pessimism surrounding financials shifted from reasonable to silly. If you had put your money into a basket of large, U.S.-based banks (J.P. Morgan, Bank of America, Goldman Sachs and others), you would have seen dramatic gains from the point of maximum pessimism. What will the next “silly” be? Hard to say. But keep your eyes open for it. Being able to identify it could end up generating excellent results when the market recovers. Consider tax-loss harvesting No investor looks forward to losing money. But if there’s a silver lining about an investment loss, it’s the ability to “harvest” that loss, come tax time. It’s a simple strategy: instead of holding onto a losing position in the hopes that it comes back, you sell it for a loss, and then claim that loss on your annual return to offset gains and/or income. Such a strategy can make a lot of sense if you’ve paid taxes on capital gains in the previous three years. Alternatively, you can put the loss aside and use it to offset future gains. No, the strategy can’t “make you whole” on a position that’s considerably under water. But it can certainly reduce the sting. One significant caveat about tax-loss harvesting: taxes are a complex area of personal finance, and there are rules and limits to tax-loss harvesting which you need to be aware of before you enact the strategy. Before you take any investment action that involves your taxes, make sure to consult with a qualified accountant or tax lawyer who can review the applicable tax law, take a look at your personal circumstances and ensure that a given strategy makes sense for you. We Deliver! Wintering in Florida, Arizona or California? By Individual Driver Door to Door or Truck For more information about our services call: We pick up your vehicle from your doorstep and deliver it to your winter destination… and get it safely back home when you’re ready. www.torontodriveaway.com The Premier Driveaway Service in North America! I n t e g r I t y • h o n e s t y • c o u r t e s y 416-225-7754 Toronto Drive-Away Service Nationwide Inc. TrusTed since 1959 CSANews | WINTER 2018 | 35
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