The latest market collapse

[metal_geek]

Reagarding putting money "INTO" the economy..

Esentially, what the central banks did is increase the member banks, accounts so that they had more money to lend out to people who where stuck with assets that people were concearned about buying. Hoping to show that the central banks believed the situation is gonna change. It also puts more money into the system as now the banks have more money to lend out to institutions who might be interested in buying some of the depericiated assets thus increasing lquidity.

Think of it like you a a part of a group of car dealership owners, and noone is buying any cars because of a bad safety record for your group, and they are all pretty junky to begin with but some more then others. You can't give your cars away, nobody is buying cars cause every day people are dieing.. you're in hard shape and wanna offer 0% financing to people to get them to buy your cars again, so you can start making a profit. Problem is you have no money, and the banks won't loan you any, cause esentially your cars are worthless because noone is buying them and the banks have no idea what they are worth, hence what you are worth. Basically the Government steps in and gives the bank some extra money. The banks now have money to risk on your operation knowing that no matter how bad, someone is gonna need a cheap car and will be willing to buy one for the right price. The community looks at you now thinking that the bank must think the cars are gonna be good again, cause they are loaning them money, and hopefully people start buying cars again so you can start making new ones to sell again..

Why would the government step in?.. or "bail out" one of these companies? Think about the car dealership again. While there were no cars selling, factories were gonna shut down, people were gonna be laid off, gas prices were gonna drop, investment was gonna dry up... and so on and so on. It made more sense for the gov to risk money on thiese companies then let them tank and cause trouble to all kinds of other areas and risk the economy moving backwards.
________
Lovely Wendie99

[albertGQ]

Hey, so I'm thinking of purchasing the RBC Canadian Equity Fund. Since the TSX is dropping so much today, there has to be a market correction. You guys think this would be a wise investment?

https://www1.royalbank.com/cgi-bin/r...0Equity%20Fund&

[Cowperson]

Always interesting when speculative excess blown off the top of the beer glass.

A decent discussion of this is happening right now at the Globe & Mail at the link below:

http://www.theglobeandmail.com/servl...ageRequested=1

Cowperson

[nmhen]

Originally Posted by albertGQ

Hey, so I'm thinking of purchasing the RBC Canadian Equity Fund. Since the TSX is dropping so much today, there has to be a market correction. You guys think this would be a wise investment?

https://www1.royalbank.com/cgi-bin/r...Equity%20Fund&

Without knowing anything about that particular fund, there are some other variables that should go into your decision.

*What's your goal for that investment?
*Is it for retirement?
*How long until retirement?
*Is it for a quick profit?
*Do you have other equity investments right now?
*Do you have other fixed income investments right now?
*Do you have other real estate investments right now?
*If the value of that investment went down x-amount (5%? 10%? More??) would you feel you had to sell it just so it didn't go down more or would you be comfortable?
*Of the money you'd invest in it, could you see yourself tapping it for ANY reason before your "goal" was reached? If your car died, if your roof fell in, if you got sick?

The same investment, at the same price, may be "good" for one person and "bad" for another person. But my ten years in the industry has taught me that trying to time the market for a quick profit is a good way to get your butt handed to you sooner or later.

The flip side of that is that if you're just starting out with investing, and your time horizon is long-term, then you're much better off starting when prices are down than when they're up. I talk to investment professionals all day long in my job. It never ceases to amaze me how many of them toss the old maxim of "buy low, sell high" right out the window as soon as the market goes down.

[burn_baby_burn]

Originally Posted by nmhen

Without knowing anything about that particular fund, there are some other variables that should go into your decision.

*What's your goal for that investment?
*Is it for retirement?
*How long until retirement?
*Is it for a quick profit?
*Do you have other equity investments right now?
*Do you have other fixed income investments right now?
*Do you have other real estate investments right now?
*If the value of that investment went down x-amount (5%? 10%? More??) would you feel you had to sell it just so it didn't go down more or would you be comfortable?
*Of the money you'd invest in it, could you see yourself tapping it for ANY reason before your "goal" was reached? If your car died, if your roof fell in, if you got sick?

The same investment, at the same price, may be "good" for one person and "bad" for another person. But my ten years in the industry has taught me that trying to time the market for a quick profit is a good way to get your butt handed to you sooner or later.

The flip side of that is that if you're just starting out with investing, and your time horizon is long-term, then you're much better off starting when prices are down than when they're up. I talk to investment professionals all day long in my job. It never ceases to amaze me how many of them toss the old maxim of "buy low, sell high" right out the window as soon as the market goes down.

My goal is retirement in about 30 years. I do have an investment adviser. But they sell mutual funds, not stocks. I am leary of MF's because of the fees that are charged regardless of performance. But, I don't know enough about investing to invest in the stock market. How would a person like myself take advantage of the buying opportunity that is presented today?

[Slava]

Originally Posted by burn_baby_burn

My goal is retirement in about 30 years. I do have an investment adviser. But they sell mutual funds, not stocks. I am leary of MF's because of the fees that are charged regardless of performance. But, I don't know enough about investing to invest in the stock market. How would a person like myself take advantage of the buying opportunity that is presented today?

Invest in mutual funds. Stocks are fine and all, but there are fees there as well. The fees on mutual funds are no worse and you get professionally managed money. If you don't know how to pick stocks, its a small price to pay.

If you invest in decent mutual funds while the markets are down you will still have gains to take advantage of the market upswing that will eventually follow.

[RougeUnderoos]

I'm listening to a BBC radio station and every half hour the guy says "bla bla bla down down down based on American mortgage crisis".

How the hell can a bunch of high-risk American mortgages put the whole damn thing on the hook? How much money can be tied up in there, in the grand scheme of things?

[Bobblehead]

Originally Posted by RougeUnderoos

I'm listening to a BBC radio station and every half hour the guy says "bla bla bla down down down based on American mortgage crisis".

How the hell can a bunch of high-risk American mortgages put the whole damn thing on the hook? How much money can be tied up in there, in the grand scheme of things?

The article Cow posted has a pretty good explanation in it.

Primarily, people giving the loans are gun shy.

[Log]

Originally Posted by albertGQ

Hey, so I'm thinking of purchasing the RBC Canadian Equity Fund. Since the TSX is dropping so much today, there has to be a market correction. You guys think this would be a wise investment?

https://www1.royalbank.com/cgi-bin/r...Equity%20Fund&

Last night on the CBC national news, an investment analyst was saying that the TSX going down so much IS the market correction. Mind you, that was before it went down by 400 or so today.

[nmhen]

Originally Posted by burn_baby_burn

My goal is retirement in about 30 years. I do have an investment adviser. But they sell mutual funds, not stocks. I am leary of MF's because of the fees that are charged regardless of performance. But, I don't know enough about investing to invest in the stock market. How would a person like myself take advantage of the buying opportunity that is presented today?

I work at a load fund family. I get that question all the time.

Let's do the math. If you invest $1000 with me today, and pay the full load (5.75%), the actual amount you invest drops to $942.50. Using a nice, conservative ROR of 7% (data shows the S&P 500 has posted an average annual total return of 10%, but we need to factor in the expense ratios, and allow for some underperformance so 7%) that $942.50 grows to $1008.47 in one year. So you made up your sales charge in one year.

What about if you were somehow able to buy shares of a stock, or even a bunch of stocks, without transaction fees? In other words, what if you were able to put your entire $1000 to work right away? Well, 7% of $1000 is $70. So you would finish your first year with $1070.

The question for you is: what do I get for my $61.53?

Well, odds are that if you put together your own portfolio of individual securities that you'll constantly be checking on them, worrying about them and obsessing over them.

And what happens if they go bad? Can you call up the company and get reasonable information? Are you going to pore over the financial statements, projections, budgets, etc and be able to make sense of them in a way that alleviates your fear?

No. And if you tried you'd either go insane or lose your REAL job, or both.

Instead, you can pay all the MBAs and geeks who run mutual funds to do it for you. Is that worth the price of a ticket to a Flames game?

And the key here is that after our hypothetical first year you don't pay the load again (though you will continue to pay the expenses - somewhere on the order of 1-2%...and what about "no-load funds"? Do you REALLY get all the same expertise that the load fund guys offer FOR FREE? No. There is no such thing as a free lunch. You might not have to pay a load, but I guarantee you those dudes aren't working for nothing)!

You mentioned 30 years. The people who oppose load funds use compounding as a rationale. They say that you'll never make up that initial $57.50 over the no-load investment. In other words, if you start with $1000 and $942.50 and they both grow at the same fixed rate every year, the person that starts with $942.50 will always have less than the person that starts with $1000. Fair enough, because they're right.

If you extrapolate those numbers over 30 years, the initial investment of $1000 finishes at $7612.25 and the initial investment of $942.50 finishes at $7174.55. That's not an insignificant amount of money. So the argument for load funds over no-load funds is weakened.

But if the decision is between a mutual fund - even with a load - versus doing it yourself I still think you're going to be willing to pay for someone else to manage your money.

If you're dead set against paying a load, index funds offer very low to non-existent fees (even versus the no-load funds) and wide exposure to the market represented by the index (which helps reduce overall volatility).

These are a good catch-all type investment, but you'll see slower, steadier growth.

[Slava]

Originally Posted by nmhen

I work at a load fund family. I get that question all the time.

Let's do the math. If you invest $1000 with me today, and pay the full load (5.75%), the actual amount you invest drops to $942.50. Using a nice, conservative ROR of 7% (data shows the S&P 500 has posted an average annual total return of 10%, but we need to factor in the expense ratios, and allow for some underperformance so 7%) that $942.50 grows to $1008.47 in one year. So you made up your sales charge in one year.

What about if you were somehow able to buy shares of a stock, or even a bunch of stocks, without transaction fees? In other words, what if you were able to put your entire $1000 to work right away? Well, 7% of $1000 is $70. So you would finish your first year with $1070.

The question for you is: what do I get for my $61.53?

Well, odds are that if you put together your own portfolio of individual securities that you'll constantly be checking on them, worrying about them and obsessing over them.

And what happens if they go bad? Can you call up the company and get reasonable information? Are you going to pore over the financial statements, projections, budgets, etc and be able to make sense of them in a way that alleviates your fear?

No. And if you tried you'd either go insane or lose your REAL job, or both.

Instead, you can pay all the MBAs and geeks who run mutual funds to do it for you. Is that worth the price of a ticket to a Flames game?

And the key here is that after our hypothetical first year you don't pay the load again (though you will continue to pay the expenses - somewhere on the order of 1-2%...and what about "no-load funds"? Do you REALLY get all the same expertise that the load fund guys offer FOR FREE? No. There is no such thing as a free lunch. You might not have to pay a load, but I guarantee you those dudes aren't working for nothing)!

You mentioned 30 years. The people who oppose load funds use compounding as a rationale. They say that you'll never make up that initial $57.50 over the no-load investment. In other words, if you start with $1000 and $942.50 and they both grow at the same fixed rate every year, the person that starts with $942.50 will always have less than the person that starts with $1000. Fair enough, because they're right.

If you extrapolate those numbers over 30 years, the initial investment of $1000 finishes at $7612.25 and the initial investment of $942.50 finishes at $7174.55. That's not an insignificant amount of money. So the argument for load funds over no-load funds is weakened.

But if the decision is between a mutual fund - even with a load - versus doing it yourself I still think you're going to be willing to pay for someone else to manage your money.

If you're dead set against paying a load, index funds offer very low to non-existent fees (even versus the no-load funds) and wide exposure to the market represented by the index (which helps reduce overall volatility).

These are a good catch-all type investment, but you'll see slower, steadier growth.

This is a good summary, but you could always buy a deferred charge fund...the money will be sitting for 30 years anyway, so why pay the upfront fee? You will get the same management and same expertise, but also have your full initial investment.

[albertGQ]

Originally Posted by fotze

Weird, The market just made almost all of it back in the last hour and a half.

That sux. Those funds I just bought are at today's closing price

[nmhen]

Originally Posted by Slava

This is a good summary, but you could always buy a deferred charge fund...the money will be sitting for 30 years anyway, so why pay the upfront fee? You will get the same management and same expertise, but also have your full initial investment.

Here's the thing with CDSCs in lieu of up-front loads.

With a share class where you pay the load, I'm getting paid right up front.

With a share class where you don't pay an up-front load, but there is a CDSC in place, I may never get paid (typically if you hold one of those share classes for long enough the CDSC expires).

Again, I am not running a charity. So I'm going to get paid one way or another in every situation.

The x-factor here is expenses. A fund charges shareholders essentially a management fee every year. But we are allowed to tier it differently for different share classes. So on the share classes where we get paid up front in the form of a load, we charge the smallest expense fees. But on the share classes where we don't charge an up-front load - even if there's a CDSC in place - we charge much higher expense fees.

To wit:

The Oppenheimer Global fund's A-share (up-front load, no CDSC) expense ratio is 1.08% The C-share's (no up-front load, CDSC in place) expense ratio is: 1.84%.

The 5-year average annual total return (as of 6/30/07) for the A-share is: 15.65%. For the C-share it is: 14.77%.

It may still be better for you than paying the load, but there is a misconception out there that deferred charge classes/funds are free.

[Slava]

nhmen, I understand where you are coming from. I'm a commision based (largely) financial planner. I get paid on these funds in either case. Fact is though, that if the money will stay there long enough for the fee schedule to run out before withdrawal then its in the clients best interest.

[nmhen]

Originally Posted by nmhen

Here's the thing with CDSCs in lieu of up-front loads.

With a share class where you pay the load, I'm getting paid right up front.

With a share class where you don't pay an up-front load, but there is a CDSC in place, I may never get paid (typically if you hold one of those share classes for long enough the CDSC expires).

Again, I am not running a charity. So I'm going to get paid one way or another in every situation.

The x-factor here is expenses. A fund charges shareholders essentially a management fee every year. But we are allowed to tier it differently for different share classes. So on the share classes where we get paid up front in the form of a load, we charge the smallest expense fees. But on the share classes where we don't charge an up-front load - even if there's a CDSC in place - we charge much higher expense fees.

To wit:

The Oppenheimer Global fund's A-share (up-front load, no CDSC) expense ratio is 1.08% The C-share's (no up-front load, CDSC in place) expense ratio is: 1.84%.

The 5-year average annual total return (as of 6/30/07) for the A-share is: 15.65%. For the C-share it is: 14.77%.

It may still be better for you than paying the load, but there is a misconception out there that deferred charge classes/funds are free.

As an addendum: the power of compounding favors the up-front load share classes over a long time frame. Let's say the no up-front load class ends up costing you 50 bps more than the up-front load class.

So if you grow the $942.50 part at 7% a year, and the $1000 part at 6.5% a year, the cumulative totals start to favor the $942.50 part after 13 years.

After 13 years, the $942.50 part growing at 7% a year has become $2271.28. After 13 years, the $1000 part growing at 6.5% a year has become $2267.49.

After 30 years, the $942.50 part has grown to $7174.55 while the $1000 part has grown to $6614.37.

[nmhen]

Originally Posted by Slava

nhmen, I understand where you are coming from. I'm a commision based (largely) financial planner. I get paid on these funds in either case. Fact is though, that if the money will stay there long enough for the fee schedule to run out before withdrawal then its in the clients best interest.

slava: here's my "work" on the above example. Again, the thinking is that, since expenses are higher on C-shares (no upfront load, CDSC for at least 1 year) than A-shares (upfront load), you can effectively reduce the assumed ROR from 7% (A-shrs) to 6.5% (C-shrs).

**the numbers didn't come out** I'll figure out a way to get them in here.

[TheCommodoreAfro]

Originally Posted by FLAMESRULE

This is INSANE!!! I'm getting ready to jump off my building!! I am down 15% today on average.

Dollar cost averaging - time to buy!!

[albertGQ]

I just bought $4,000 worth of RBC Canadian Equity Fund inside my RSP account. I hope I make some $$$

[Slava]

Originally Posted by albertGQ

I just bought $4,000 worth of RBC Canadian Equity Fund inside my RSP account. I hope I make some $$$

You will for sure. The market meltdown/correction is a temporary period. As long as you hold that for a longer term though it will rebound and make you some money.

[Lurch]

Originally Posted by Slava

This is a good summary, but you could always buy a deferred charge fund...the money will be sitting for 30 years anyway, so why pay the upfront fee? You will get the same management and same expertise, but also have your full initial investment.

Or you buy an ETF and pay about 1/10 the management fee without a charge (other than $20 to buy through your brokerage account). There are now ETF's that track just about every sub-index or commodity worldwide, and they have tiny management fees (typically about 0.2% for the ones I own). It is very hard for a fund to outperform an ETF over the long term, and the flexibility an ETF provides is also nice IMO. I personally find them very handy to get exposure to markets where I don't have the time/inclination to investigate individual stocks, as opposed to mutual funds which I have purged entirely from my portfolio.