Weekend Reading: When Investors Lose Their Nerve Edition
It was a rough end to the week for markets, with a sharp sell-off on Friday reminding investors just how quickly sentiment can turn. For anyone who sold in late summer anticipating a correction and then bought back in at the start of October, that one-day drop might have felt like confirmation that they can’t win.
This is the market-timer’s dilemma in real time – trying to outguess short-term moves instead of sticking with a long-term, risk-appropriate plan.
This week’s post dives into that very topic. Several reader comments landed in my inbox recently, and they all highlight the same challenge: the temptation to jump in and out of the market entirely, or to change strategies based on short-term noise.
Here’s why that approach is so dangerous, and why staying invested through the ups and downs is almost always the smarter move.
Honestly, I worry whenever I receive a bunch of emails from nervous investors. Worried that investors are going to abandon their sensible index funds at the faintest threat or whisper of adversity.
Here’s what a few of them said:
“We sold 70% of our (global equity) holdings in early September, since September tends to be a negative month for markets. We put the cash into a short-term GIC and now that it’s matured, we’re wondering if we should dollar-cost average back in or go lump sum. FOMO is starting to creep in since the market has been soaring higher.”
And they’re not alone. Another reader recently shared:
“With the unknowns surrounding Trump and tariffs I converted our savings to cash around the end of May and am currently earning 2.75%.”
Then came an email that struck a similar chord:
“I am wondering if one should add some gold ETFs to their portfolio to hedge off any downturn in the market? I read an article from Ray Dalio concerning having some gold—15% or so—in your portfolio.”
These are all versions of the same worry: maybe diversification isn’t enough. Maybe this time is different. Maybe a tweak or two will protect me from the next downturn.
Look, investing is hard. When markets are roaring, it’s tempting to chase the hottest stocks or indexes. Tech stocks, the Nasdaq, even the S&P 500 all look shiny when they’re leading the pack. Meanwhile, holding a global index portfolio feels boring and vanilla, even though returns have been strong and diversification quietly spreads risk across thousands of companies and dozens of countries.
I worry too. I worry that investors chase returns in rising markets. But I’m even more worried that they’ll abandon their risk-appropriate portfolio when markets fall.
And markets will fall. That’s not a flaw, it’s a feature of investing. It’s the very reason stocks offer higher long-term returns than cash, GICs, or bonds. The “risk premium” exists because investors have to stomach temporary declines along the way.
That’s also why I recommend asset allocation ETFs. You get globally diversified growth during good times, and that same diversification cushions (not eliminates) losses during downturns. Index funds aren’t magic. When markets fall, your portfolio will fall. That’s how it works.
The key is staying the course. It’s painful to watch your portfolio drop, but history shows that trying to time the market, selling and then figuring out when to buy back in, almost always leads to worse results than just holding your risk-appropriate mix and riding it out.
We saw this in 2022 when investors fled to 5% GICs, only to miss the sharp rebound from 2023 through 2025. Markets can recover faster than most people expect, and missing just a handful of strong days can derail long-term returns.
So yes, we’ve had a good run lately. The “Liberation Day” tariff scare from the spring feels like ancient history now. But eventually markets will drop 10, 20, maybe even 30%. Long-term investors in global index funds know this will happen and should not be surprised. Those drops are temporary. Over time, the line still moves up and to the right.
For retirees or near-retirees who’ve been flying a little too close to the sun with their equity exposure, now’s a good time to set up your 10% cash wedge to help facilitate future withdrawal needs. You can do that in a few ways:
- Sell a small slice of your ETF holdings while markets are high.
- Turn off dividend reinvestment and direct those distributions into a HISA ETF.
- Put new contributions into that HISA ETF until you reach about 10% of your portfolio in cash by the time you retire.
That small cushion will give you peace of mind when the next correction hits so you don’t feel tempted to abandon your plan.
Stay diversified. Stay invested. And most importantly, stay the course.
This Week’s Recap:
Don’t forget to grab your free ticket to the Canadian Financial Summit and catch sessions with David Chilton, Preet Banerjee, Shannon Lee Simmons, Rob Carrick, along with yours truly and many more.
Earlier this week I explained the nuances left unreported or exaggerated in that CTV article about an unfortunate $660,000 tax bill.
Finally, I was able to transfer our corporate investing account over to Wealthsimple this week. The transfer, initiated ‘in-kind’ on Tuesday, already arrived at Wealthsimple on Friday. This is similar to how long it took to transfer my LIRA in-kind from TD Direct Investing to Wealthsimple.
The ~$560,000 account transfer will net us $5,600 in cash back paid over 12 months thanks to the current 1% match offer (still open until October 15th).
Hey, as someone who just contributes regularly to a single ETF, Questrade wasn’t doing anything special to retain our business. I’ll take the $5,600, thank you very much. Besides, it’s nice to finally have all of our accounts in one place after years of using 2-3 different platforms.
Weekend Reading:
Are we in a new normal for stock market concentration? Don’t be surprised if we are, says Ben Carlson.
US stocks suffered a lost decade in the 2000s. They’ve crushed everything else since then. But now are we about to enter another era when investors won’t want US stocks?
If AI is a bubble, and bubbles eventually pop, then how should we invest during a bubble?
“Obviously, life would be easier if you could just ride the AI wave higher and step off right when it’s about to crest but that’s not a realistic strategy.
Experience has taught me nobody has the ability to predict the turns in these cycles consistently.
So I’m not going to try.”
Here’s Jason Heath on why late-career savers need to be careful with RRSPs.
Investors have long been infatuated with investments that churn out monthly cash-flow. Dan Hallett digs into this unhealthy obsession with covered call ETFs.
Ben Felix also believes these products are likely to be detrimental to long-term investors, including those who need income – saying, “I did not realize how widespread this financial bullshit had become.”
Everything costs $1,000. Here’s Heather Boneparth on big birthdays, parenting, and the power of expectations.
Finally, Adam Chapman shares a heart-warming story about a 75-year-old mother who made her three grown sons cry in a restaurant.
Happy Thanksgiving weekend, everyone!
Always appreciate your weekend blogs Robb.
I hope you write a great book one day.
Long term indexing forever!
Thanks Ravi, it means a lot!
I don’t have the patience to write a book – who knows, maybe one day when the right inspiration strikes 🙂
Hi Robb,
Great info as always. What would be a suggested way to use a HISA ETF within Wealthsimple for near retirees ? I noticed they are offering alternatives like their cash account, bond investing and so on for options to create a cash wedge, but not sure how these all compare.
Hi Duncan, so my idea of the cash wedge is to put 10% of your portfolio into a HISA ETF like CASH or CSAV or PSA and then keep the remaining 90% invested in your risk appropriate equity fund.
Note this is just to facilitate expected withdrawals, so you might do this in your RRSP/RRIF, LIRA/LIF, and a non-registered investment account (if you have one), but leave your TFSA fully invested in your risk appropriate equity fund.
Any other cash on hand in a savings account is completely separate from this approach, and should be for emergencies, home repair, other short-term goals, etc.
The point of using the HISA ETFs is so you don’t have to open a separate “RRSP Savings Account” somewhere else.
Thanks Robb! Think I know exactly who one of those comments came from lol.
I think every now and then investors novice and expert likewise need to trip and fall so wounds like that serve as reminders.
Actually we did jump back into the markets on Friday (over 80% back in now!) so although still short of September sell values didn’t feel too bad. Lesson learnt.
Hi Robb,
I didn’t think WS had an investment account for Corps with 2 or more owners? Did you find something that worked?
Thanks for your great articles.
Hi Tammy, I wrote about it in the last weekend reading update. I saw the alert on the app that they now have multi-owner self directed corporate accounts.
I opened the account just fine but was unable to initiate the account transfer on my own – it said to contact support.
After a couple of messages back and forth they were able to initiate the transfer for me on Tuesday and it was completed on Friday. They said it was the first one they’ve completed!
Thank you always for the reminders to “just chill” and stick with the long-term plan.
My investment portfolio was hit hard by the sub prime mortgage market sell off frenzy. I was fortunate I didn’t lose much in total lifetime dollars, but it was crushing emotionally because I had only just put together my first few thousand dollars to invest in equities. Even slight market jitters cause the part of my brain branded by that experience to want to “sell everything before it is too late”. It helps to have level headed writers and advisers like yourself continually putting things into perspective.
Thanks Jon! We all need these reminders every few months (seemingly!) because markets don’t just move in a straight line and the noise around these events are often pretty scary.
It’s tough to be an emotionless robot but that’s what we need to do to stay in our seats.
Hi Robb, thanks, good article.
Like many others, I also moved a few accounts from QT to WS.
Like the kickback, but one thing really annoys me….that is, a missing feature….Can’t download a CSV file of activities in an account. Everytime I need this, I need to request it through customer care, who are only available M-F business hours. Wonder if you/others may have noted similar things post this transfer. and Would you care to write about this if there is any meat in this topic. Thanks. Cheers !
Hi Vikas, thanks. Wealthsimple certainly has its drawbacks for investors who are used to full feature platforms with research, screens, better performance reporting, and activity tracking (this is the first I’ve heard about wanting a CVS file).
To be clear, I think Wealthsimple is great for investors like me who use one or two Canadian listed ETFs and who aren’t trading frequently and don’t need a ton of other data.
If you like data and information, and you’re turning over your portfolio more regularly, I don’t think it’s a great platform.
Wealthsimple investors should also avoid any activity that makes Wealthsimple money (trading in USD, using margin, trading options, trading crypto, using private credit or private equity, etc.
If Wealthsimple is making money, you’re probably losing money.
Hi, Robb. I always greatly appreciate your posts. Thanks!
I have something of an aside question re Wealthsimple transfer bonus payments.
Earlier this year I moved my TFSA to WS, and am receiving monthly payments of my 1% cash bonus.
WS says it will not be issuing T-slips for these and seems unwilling to provide a definitive answer as to whether they’re taxable.
There is some discussion about the tax implications, and some folks seem to think the payments are not taxable. My own layperson opinion is that they’re income and should be entered into the “other income” line on one’s tax return.
You seem to be in a similar boat with the transfer of your corporate investing account, so I’m wondering if you have an opinion on the tax implications of the bonus payments?
FWIW, you referred to the payments as a cash back. And if they were in fact the case, I’d expect they’d be non-taxable (similar to credit card cash backs). Perhaps it’s different for a corporate investing account transfer, but when I transferred my TFSA, I didn’t pay anything to WS to do so. Consequently, I can’t regard the payments I receive as (non-taxable) cash back, and they really do seem to be taxable income. So, that’s my reasoning.
TIA
Hi Jim, thanks for your comment. I also find that WS is unusually vague about the tax implications other than the fact that they will not be issuing tax slips.
However, last year someone from WS said the bonuses were considered “rebates of future fees paid” and therefore not taxable – similar to credit card cash back or welcome bonuses.
We shall see!
Hi Robb,
Thanks for the column, I enjoyed it a lot. I have a question regarding the 10% cash wedge recommendation. Do you feel there is a maximum amount you would allow in the 10% cash wedge, i.e 2-3 years spending amount max? For example if you had a $5,000,000 portfolio would you feel comfortable having 90% in equities and $500,000 in a HISA as the cash wedge?
Thanks,
Eric
Hi Eric, I base the cash wedge off of expected withdrawals in a particular account. So if you had a $5M RRIF then, yes, you’d hold $500k in cash to support withdrawals over the next 18-30 months.
Meanwhile, you might not have any expected withdrawals in your TFSA and so that account would stay fully invested with no cash wedge at all.