The Bottom Line

Thanks,

Larry

Dear Larry,

I know it has been scary to watch the markets fall the way they have. It is even harder to watch when you own mutual funds and don’t know what the funds own. My style as an investment adviser has been the old fashioned stock picking. I’ve always liked to know what my clients owned and feel that it is also important for them to know. When you know you own specific companies and you are familiar with them, it can be reassuring that you know that they won’t suddenly become valueless. Now there are always exceptions to the rule of course, but the probability of that happening to large capitalized companies is low.

If you owned a rental property with good tenants who pay their rent, and then the real estate market values go down 10 per cent, would you rush to sell that property? Probably not. As long as the house is in good condition and in a good location, you would hold onto it. That is the way you should view a stock you own. Has there been a fundamental change? Is there a change of management? Is there a risk that the dividend will be cut? These are a few examples of questions you would ask yourself. If the answer is no, then you continue to own and wait to see if the price recovers. If it is a quality company it’s price will indeed recover. It’s a matter of patience not panic.

Everyone’s situation, investment style, investment philosophy is different. I’m certainly not saying mine is the only way. It’s the variety of thoughts, ideas, philosophies that make investing interesting.

Since you own mutual funds you either have your investment adviser provide you with the answers or you do the research yourself. You can go to globefund.com and look up each mutual fund you own and see what the top ten holdings are. You can also look at what the fund’s energy exposure is. Is the fund that you have the one with the type of equity, fixed income or mixed exposure you are looking for based on your overall desired asset mix? If not, is there a more suitable fund within the family of funds that you can switch to either temporarily or for the long term? This will prevent you having to pay for any DSC. If you really want to get out of a particular mutual fund, find out what the maturity date is to sell the fund and not be charged the DSC. You can also sell 10 per cent of the original purchase each calendar year without any penalty.

Before you make the decision to sell any of your funds, re-evaluate your objective, time horizon, asset mix and risk tolerance. Then look at whether or not your present holdings are still in line with your parameters. If they are, then sit tight. Otherwise, modify accordingly; go to your investment advisor for a re-evaluation for suitability or get a second opinion.

You just have to find out which investment style works best for you so you can sleep at night.

Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com . You can send your questions to asknancy@rbc.com as well.