The Problems With Over Analyzing
I'll level with you for a moment. I don't follow what is happening with my portfolio on a daily basis. As a long term investor, I know that what happens tomorrow is unlikely to affect me 10+ years from now.
However, I was in the Personal Finance Canada subreddit when I saw a post about some form of doom and gloom occurring in the bond market.
Doom and gloom?
That certainly piqued my interest. I opened up Google Finance and looked at the value of my bond holdings... Aside from a per ETF price drop of 25 cents, the value of my bond holdings (VAB.TO) didn't plummet as much as the Reddit post hinted at.
I mean, just looking at the difference from Friday afternoon to Tuesday morning, that is quite the cliff. But really, despite the initial drop, it appears the price stabilized during the day.
If we expand our view to the past 5 days, you see a different picture.
It appears that bond prices were chugging along when something happened on Friday that caused the prices to go up. If I had to guess, it was probably the news of some central bank, somewhere around the world, that was considering lowering their interest rates in the future to deal with the economic uncertainty. I mean, we've heard this before. We know that if the interest rates go down, bond prices generally go up. But how does a central bank on the other side of the world affect Canadian bonds? According to the Vanguard Canada website, VAB "seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad Canadian bond index. Currently, this Vanguard ETF seeks to track the Barclays Capital Global Aggregate Canadian Float Adjusted Bond Index (or any successor thereto). It invests primarily in public, investment-grade fixed income securities issued in Canada."
Just out of curiosity, I looked at the price of this ETF for 2015.
The current price appears to be in line with where it began at the beginning of the year. There was that jump in price when the Bank of Canada announced the surprising interest rate cut. After that the price remained up until the mid-April when prices returned to the levels that began the year.
Finally, I wanted to look at prices for the last year.
Despite the recent "tumble", prices are 3.25% higher than they were a year ago.
Frankly, I don't know what this means.
However, on that same subreddit post, we have "experts" trying to explain it all.
The Fed is expected to increase rates.
Bond traders are smart, they aren't prone to panic.
Oil prices have recovered.
Frankly, I'm getting a headache trying to figure out these responses.
Despite all the ups and downs. The price of this VAB.TO ETF have been relatively consistent. If you purchased or sold in reaction to these changes or analysts' jibber-jabber, you likely would be kicking yourself.
Even in July 2014, with the uptrend between July and August, people might have even held off on purchasing bonds because they were becoming "over-valued" and interest rates could only go up!
The problem with over analyzing is that you're modifying your investing plan on the fly. If you're constantly changing your plan, you may find yourself poorer in the long run.
The top rated comment in that subreddit post was someone calling people bozos and telling the OP to ignore what was happening.
As an index investor, my investment plan is simple. Invest periodically (every paycheque), purchase ETFs/mutual funds to bring my target allocations (currently, 30% of my holdings are bonds) back in line, and hold.
So far, I haven't been required to sell any of my units. This is despite the 10% correction that occurred in September 2014.
So while I'm not 100% ignoring the prices of the ETFs in my portfolio, with such a simple plan, I don't need to follow the prices daily. I simple need to look at the prices the days my contributions arrive in the investment accounts and figure out which and how many ETFs I need to purchase.
If any plummeting occurs, I won't know about it until I contribute new money. At that time, I'll likely need to purchase more of the plummeting ETF. This strategy ensures I buy low.
However, I was in the Personal Finance Canada subreddit when I saw a post about some form of doom and gloom occurring in the bond market.
Doom and gloom?
That certainly piqued my interest. I opened up Google Finance and looked at the value of my bond holdings... Aside from a per ETF price drop of 25 cents, the value of my bond holdings (VAB.TO) didn't plummet as much as the Reddit post hinted at.
I mean, just looking at the difference from Friday afternoon to Tuesday morning, that is quite the cliff. But really, despite the initial drop, it appears the price stabilized during the day.
If we expand our view to the past 5 days, you see a different picture.
Just out of curiosity, I looked at the price of this ETF for 2015.
The current price appears to be in line with where it began at the beginning of the year. There was that jump in price when the Bank of Canada announced the surprising interest rate cut. After that the price remained up until the mid-April when prices returned to the levels that began the year.
Finally, I wanted to look at prices for the last year.
Despite the recent "tumble", prices are 3.25% higher than they were a year ago.
Frankly, I don't know what this means.
However, on that same subreddit post, we have "experts" trying to explain it all.
The Fed is expected to increase rates.
Bond traders are smart, they aren't prone to panic.
Oil prices have recovered.
Frankly, I'm getting a headache trying to figure out these responses.
Despite all the ups and downs. The price of this VAB.TO ETF have been relatively consistent. If you purchased or sold in reaction to these changes or analysts' jibber-jabber, you likely would be kicking yourself.
Even in July 2014, with the uptrend between July and August, people might have even held off on purchasing bonds because they were becoming "over-valued" and interest rates could only go up!
The problem with over analyzing is that you're modifying your investing plan on the fly. If you're constantly changing your plan, you may find yourself poorer in the long run.
The top rated comment in that subreddit post was someone calling people bozos and telling the OP to ignore what was happening.
As an index investor, my investment plan is simple. Invest periodically (every paycheque), purchase ETFs/mutual funds to bring my target allocations (currently, 30% of my holdings are bonds) back in line, and hold.
So far, I haven't been required to sell any of my units. This is despite the 10% correction that occurred in September 2014.
So while I'm not 100% ignoring the prices of the ETFs in my portfolio, with such a simple plan, I don't need to follow the prices daily. I simple need to look at the prices the days my contributions arrive in the investment accounts and figure out which and how many ETFs I need to purchase.
If any plummeting occurs, I won't know about it until I contribute new money. At that time, I'll likely need to purchase more of the plummeting ETF. This strategy ensures I buy low.
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