BUY – SELL – What to Do?

We have had enough market volatility during 2008 to last a lifetime. As stock markets began a swift decline investors started to make panicked decisions, switching investments, changing advisors and altering their investment objectives. They may have become their own worst enemy. For many, discipline was overcome by fear. Thus, while thinking they were in control, they were actually losing control. These emotionally charged decisions might end up costing a bundle over the long-term.

We know that not everyone was panicking. Warren Buffett, touted as the most successful investor of our time, invested billions into distressed companies during the market set back. Is he crazy? Has he lost his touch? We don’t think so. Mr. Buffett did what he does best. He saw an opportunity and capitalized on it. He will no doubt multiply his investment multi-fold over the next few years.

You’ve heard it before and we’ll say it again. The path to investment success is to buy low and sell high. However, although this concept seems relatively simple to comprehend, putting it into practice can be quite difficult for some investors during a volatile market. Redemption rates are typically at their highest levels when markets are on the extreme negative side. The result is that frightened investors receive a very low price for their shares. Once the market is back on the up swing, money tends to resurface as investors are buying back at higher prices. Does this make sense? You pay $10 a share and sell at $5 a share, and then buy back at $10 a share. As markets improve it becomes clear that the anxious investor may have been better served by inaction alone.

For instance, during 2001 to 2003, the Canadian market fell 43%. Investors who fled during this period missed out on the profits of the market returning at 163% over the next few years. A key factor to consider is that the markets tend to go up more often then they go down.

All this is not to say hang in at any, and all costs. If your time horizon for needing your money is short, less than a year, then you probably should not be in the market at all. Typically you need at least three to four years at a minimum with the ability to buy during times of market weakness in order to have success with your investment strategy.

Investors must accept the reality that markets go down as well as up. You must be prepared for this at all times. This current financial crisis will eventually end and more normal markets will return. The best course of action is to review your investment strategy, time horizon and objectives. Confirm that your current asset allocation is consistent with your investment strategy. If not, then make adjustments. If it is, then stay the course and consider making further investments at these low prices.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca.

Auto Insurance Secrets

I want to relate a personal experience that has opened my eyes to the auto insurance industry. Back in 2005 my wife had a slight “fender bender” with a young driver. After exchanging information the other driver made mention that he was going to get a “whole new car” out of this event. Not exactly, but he said he would require the insurance company to give him a complete new paint job. My wife’s car had a minimal scratch that was buffed out in a mater of seconds and his damage was not much more.

Knowing very little about auto insurance and due to the fact that the other driver was adamant that he would make a claim we informed our insurance company about the incident. Our insurance advisor said we did the right thing and notified the insurance company of a pending claim. We never heard anything further but saw our premiums increase for the next three renewal years. We only assumed that the other driver had made a claim, our insurance company had determined my wife to be at fault and they had made a settled the claim with a payment.

As the years went by, our premiums seemed to be getting out of hand so we decided to shop around this year only to discover the “paid claim” notation on our policy was a black eye on our record. No competing insurance company would come even close to our premiums. It was all because of this claim on her record.

I could not believe the other driver had actually made a claim so began to make enquiries. I wanted to have details about the claim and how much was actually paid to the other driver in 2005. Our insurance company was not much help, but then we stumbled upon Autoplus reports. By signing an authorization, Autoplus was able to send a complete record of any and all insurance claims made by my wife. There was no cost to receive the report and it came to us by mail within two weeks. It went back to the mid 1980’s. To our amazement there was never a claim paid, not one.

We confronted our insurance company with this information and demanded an explanation on their justification for charging extra premiums and noting a paid claim on our insurance record. After a number of months we finally had this paid claim notation removed from our 2008-renewal document. We made a request that they reverse the extra premiums charged for the past three years. After almost four months from the beginning of our initial enquiry we received a refund cheque for more than $750. That refund represented a return of the extra premium that was collected in 2006, 2007 and 2008.

I did not take this incident personally. We were caught up in a “systems” problem. We needed human intervention to have the problem resolved. As long as the paid claim was on our record we would continue to have extra premiums charged and competing companies would have a difficult time giving us a competitive quote.

If you have a questionable claim on your insurance record you can go through the same process and determine if indeed the extra premium you are paying is justified. Ask your insurance company for proof that they actually paid a claim. If they cannot, or they will not supply this information, you can contact CGI Insurance Business Services and request your Consumer Autoplus Report. It will show the history of paid insurance claims made against you. You can then confirm if the extra premium you are paying is justified.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 613-798-2421 or E-mail at rick@invested-interest.ca.