Each Saturday, I will be responding to a reader’s specific Money Question. Today’s, from K, is about what to do with mediocre mutual funds – and they were mediocre before the market tumble. I bet a lot of people will relate to her conundrum –
Here’s my question:
Like many people, I have lost a lot of money (at least on paper) in my RSP account.
I don’t think I have a particularly good mix of mutual funds, and I had started the process of rebalancing into an ETF-based “couch potato” mix (by started, I mean I had thought it through, read up, and picked an asset mix but didn’t actually sell and buy) when the market tanked.
What should I do now? I am still saving but currently holding them in an ING savings account. Should I just accept my losses, sell my mutual funds and execute my plan (I hate to lock in the money I’ve lost but….)
Or, should I just wait it out with my current portfolio, and use my new savings to operationalize my couch potato portfolio?
If I wait for my current portfolio to bounce back (at least partway) , how long is reasonable? 1 year? 5 years?
K – I need to be extremely clear on this: I am not a financial planner, or financial advisor, or registered anything. I’ll describe what I’m doing personally, and you can take what you want from that, but please consult a registered professional before making your decisions. In short: massive disclaimer!
Here’s what I personally have chosen regarding my investments:
- I rely on my own decisions and purchase individual stocks and bonds. I’m nerdy, and I take my nest egg seriously, and I actually enjoy the process of researching and selecting companies to buy. I realize not all people want to do the same, and so mutual funds in principle are still a good way to go for many people. It sounds like you are interested in more of a do-it-yourself approach – join the club! It’s exciting.
- I’m your average joe – a history major – with no formal training in investing. I just use a lot of common sense. I do, however, try to inform myself. I muck around on the net a lot on sites like these:
- www.globeinvestor.com (eg., today they have an article about how Lululemon plans to survive the times)
So, if I were in your shoes I would do the following:
- Find out what is in my mutual funds. What companies are in there currently? Using my own judgement, do I think those companies will make a comeback – are still really solid companies, but just went down because the whole market went down? (eg. I’m hanging onto my apple stock despite its tumble – although Steve’s illness concerns me)
- Revisit the ETF plan. Lots of cdn personal finances bloggers have done a lot of research and formed opinions on ETFs – like this by Canadian Capitalist . How do the ETFs you are considering stack up to the mutual funds you currently hold?
- Start investing, using the funds in your ING account (assuming these funds are intended for your long term nest egg). Personally, I’m going to invest aggressively this year. If I can buy a lot of companies at today’s cheap prices, by the time I retire I should be doing very well, thank you very much.
Again, that’s what I would do, personally, but absolutely go have a talk with your financial planner, and continue to do your own research on the net.
Readers: if you have a question about budgets, debt, smart shopping, relationship to money, relationships with others where money is an issue, please e-mail me at Nancy at Your Money by Design dot Com and I’ll answer next Saturday!