Markets are Falling: When Should I Buy Now or Later? When Will Prices Reach the Bottom?

Buy low, sell high, right? Ah, if only we knew exactly when the market was at an all time high and about to go down, or at an all-time low and about to power up, we’d all be billionaires. Unfortunately, while it is dead easy to see you should have sold around May 2008 and bought around February 2009, there’s no “future performance” chart to look at to know what to do over the next few months. Given that markets are in retreat right now and prices are falling some of us are left trying to decide should I buy now or wait a bit longer? Have prices reached the bottom yet?

Market Timing Isn’t Possible

Ok everyone has agreed on that right?

But if, like me, you have some money sitting in cash ready for your next round of investing, you still have to pick a moment to click Buy.

And while the detached analytical types will just say “I always buy on the 15th of the month” or something similar, many of us will stare at the day’s chart and dither. Now? Tomorrow? What if the TSX rebounds 200 points in the next hour? I’ll be mad I didn’t buy now. But what if it drops another 500 over the next 2 days? What’s the rush to lock in if it’s going down?

Let’s be clear about this: There is NO WAY to know when is the best time to buy.

Wishy Washy Investors Suffer GREATLY from Buyer’s Remorse

Unlike the detached analytical types, who admittedly are most likely to end up with the highest overall portfolio value for the same number of dollars invested, Wishy Washy Investors spend a lot of time agonizing about their mistakes. They beat themselves up for buying when the TSX is at 14 900 if the next day it drops to 14 700.

They also end up waffling a lot trying to avoid Buyer’s Remorse by procrastinating. Obviously, that can have an even worse impact on their investing decisions.

So they need a strategy to buy (and sell) that lets them blame the strategy, not themselves.

(Yes, I know at least one reader is screaming: the strategy is buy immediately when you have money to invest and you have reached the efficient point at which to buy based on commissions. However, many of us just don’t live our lives that way. Yes, some of us are also fat.)

A Wishy-Washy Investor’s Guide to Buying Low

So what do I intend to do?

Do You Have Enough Capital to Invest More than Once?

Well, I’m in the enviable position of having a tidy sum to invest, should I want to. My fixed income has grown higher than I need so I can re-balance by taking the profits of a few recently matured GICs and popping them into the equity market.

Normally, though, you have to consider the size of the trading commission versus the amount you have to invest as part of your decision process. Michael James on Money, for example, did the math to figure out how often to invest if you are a small investor.

If you only have a small amount to invest, say, $500, just use a “jumping into cold water” rhyme, hold your nose, and click on Buy. At least you’re buying when the market is somewhat down, which should feel a bit good.

If you have a large amount to invest, you can probably split it into 2 or more parts and invest each separately.

How Much Do You Have to Pay Per Trade?

I have another blessing: right now I have free trades available at both CIBC in my unregistered account and at RBC Direct Investing in my RRSP account.

If you don’t, take a look at the amount you have to invest and the trading commission you would have to pay each time you click Buy. If the market is down, say 5%, but you would have to pay 9% of your investment as a commission, that’s not really a good choice. Even 1% of your investment seems a bit steep. Do the math and think about how many commissions you can reasonably accept.

Then divide your capital into that many chunks (up to some reasonable number like 4. If you’re dividing your money into 3500 pieces it’s getting a bit bizarre.)

Execute one Buy immediately with the first chunk.

So for me, the Wishy Washy Buy Low Strategy says: invest 25% of the money now. The TSX composite is already down about 1500 points (over  9%) from its 52-week high.

Then, if the market retreats another 250 points, I’ll buy in another tranche of 25%. And repeat till all 100% is invested.

What if the Market Starts to Climb Again and I Still Have Uninvested Capital?

Well, you’d better think about that from the start, because it’s bound to happen. Look at the way the Dow bounced (in the week of October 6-10, 2014.)

Just because it goes up a bit doesn’t mean it won’t come down again, either.

So you should set yourself limits and stick to them. Perhaps you’ll pick, buy each time the market drops 1%. If the market climbs 2%, invest all the rest immediately.

The percentages don’t actually matter as much as having a clear plan. You need to have a plan, even if you’re Wishy Washy and can’t stomach just putting all of the money in the market at once and hoping for the best.

What Should You Do After the Money Is In the Market?

Walk away from your computer.

Turn off your stock alerts.

Flip the channel if the radio or TV starts reporting on the equity markets.

Don’t look again until it’s time for your annual re-balance.

I dare you!

Related Reading

Join In
Do you approach investing in a cold, mechanical manner to optimize your long-term portfolio? Or do you spend a huge amount of time second guessing yourself, berating yourself, applauding yourself and generally being emotional about investing? Please share a glimpse of your investing personality with a comment.

Do I Have to Pay a Fee to Take Money Out of My Online Non Registered Self Directed Brokerage Account?

We’ve never had a non-registered brokerage account. Between the mortgage, RRSPs, RESPs and TFSAs we haven’t had that much extra cash punting around. We did occasionally buy GICs and we have a few shares we bought directly from the companies themselves, but we’ve had no need for a broker or a “non-registered” trading account. Now I’m considering opening one but I’m suspicious about any fees the brokerage may charge: I especially don’t want to have to pay a fee to take any money out of the non-registered account.

I want to check this detail because all brokerages charge a fee (in addition to withholding taxes) for withdrawing money from a RRSP. Most do not charge a fee for a withdrawal from a TFSA brokerage account but some seem to be considering doing so. I don’t like fees but I absolutely hate unexpected fees, so I’ll check the details first before I open an account.

I’ll check the situation at

  • BMO InvestorLine
  • CIBC Investor’s Edge
  • RBC Direct Investing
  • Scotia iTrade
  • TD Direct Investing

(And now I’ve done checking, I’m glad I did. There’s quite a variation between brokerages!)

Does BMO InvestorLine Charge a Fee for a Non-Registered Account Withdrawal?

If you aren’t a BMO bank customer, InvestorLine actually sets you up with a BMO bank chequing account and a bank card when you open your brokerage account. This bank account permits you to make 2 free withdrawals or transfers a month.

I needed to check whether it cost anything to transfer cash from a non-registered InvestorLine account into this free bank account though. Rats: no online live chat….I hate brachiating along telephone trees.

No fee! I suspected as much but it never hurts to double check—especially since BMO is the bank that now charges a $10 annual fee for buying mutual funds at their bank branches.

It turns out that this is the only brokerage that offers this service. I think it earns InvestorLine a Bonus Point. Having a (free) connected bank account makes moving money around much easier.

As with CIBC IE, if you have a minimum balance of $10 000 in the account or if you also have a RRSP account with them, there is no annual fee or inactivity fee.

Does CIBC Investor’s Edge Charge a Fee for a Non-Registered Account Withdrawal?

I used Investor’s Edge online live chat to ask.

The agent advised me that so long as I am transferring cash from my non-registered account to my CIBC bank account there is no fee.

She warned me that there is the usual commission fee if I have to sell some stocks or other investments to create the cash to withdraw.

If you didn’t already have a CIBC account and if you didn’t have free withdrawals from that account you would end up having to pay to actually get your hands on your money. We have a no-fee CIBC account though, so for us that would not be a problem.

In fact, to electronically transfer money from an Investor’s Edge account to another financial institution you have to pay a fee of $25! (Source: https://www.investorsedge.cibc.com/ie/benefits/fees-and-commission/fees.html)

I guess this means if you don’t bank with CIBC and if you plan to make regular withdrawals from your non-registered account, you might end up paying quite a large amount in fees. If I was in one of those situations, I would phone Investor’s Edge and discuss any options to get at the money for a lower cost *before* I opened an account.

If you keep a minimum balance of $10 000 or more in an Investor’s Edge brokerage account, there is no annual or inactivity fee. You can also get the annual fee waived if your balance is below $10 000 if you also have a RRSP account at Investor’s Edge.

Does RBC Direct Investing Charge a Fee for a Non-Registered Account Withdrawal?

RBC Direct Investing does not charge a fee for a withdrawal *IF* you have a RBC bank account.

But if you don’t, you have to pay a $10 fee to get a cheque issued to make a withdrawal!

Ouch!

I asked it there was some way to make an electronic transfer to another bank, but was told generally no, not for a one-time withdrawal.

It is possible to set up a regular automatic withdrawal and transfer, called an Automatic Funds Transfer, AFT. So if I wanted to transfer out, say, the money generated each month by a regular dividend payment, I could do that. That transfer can send the money to any Canadian financial institution.

I’m not sure if you can “game” the system by initiating a regular automatic withdrawal and transfer and then cancelling it after one withdrawal or not. If you accidentally opened an account not knowing about the $10 cheque fee, you might want to experiment and find out: if you do, please let us know how it goes with a comment.

Anyway, this does *not* sound like a good place to set up my account given that I don’t bank with RBC.

RBC Direct Investing requires you to have $15 000 in your non-registered account or in a combination of brokerage accounts to avoid paying any annual or inactivity fees. There are some other ways around the annual fee too, if you check their website.

Does Scotia iTrade Charge a Fee for a Non-Registered Account Withdrawal?

Well their ‘fee’ list is full of ambiguities. It says “cheque withdrawal fee: NO FEE” but it also says partial account transfer out “$150.” I believe that means when you try to transfer part of your account to another brokerage, but I’m not sure. I’d better check.

Yay! Another site with Live Chat.

This is interesting!

“There is no fee to move funds out of your account.”

Once you open a non-registered account at iTrade you can submit a completed “Easy Transfer” form along with a cheque from the bank account you wish to link with your iTrade account. They will then electronically link the bank account to the trading account. The bank account can be at any banking institution.

That’s better than any of the other brokerages so far.

Scotia iTrade also requires a minimum balance of $10 000 in the account to avoid an account inactivity fee. There are some other ways to get the fee reduced: see the website for details.

Does TD Direct Investing Charge a Fee for a Non-Registered Account Withdrawal?

It looks like TD charges $6.50 if you want them to issue a cheque from your non-registered account for you to pick up at a TD branch. (Source: http://www.tdwaterhouse.ca/document/PDF/forms/521778.pdf)

It looks like you can also transfer money out using an Electronic Fund Transfer service. I need to check whether that’s just to TD accounts, or to any account, and whether there is a fee.

OK, I had to go with verbal information from an Agent. He said there is no fee to make an electronic transfer out to another bank. However, he did warn me that it’s a bit “complex” to set up the transfer link. It sounded like there may be some aggravation getting it first set up but after that it should be fine.

He also said, though, that it’s free to get a cheque and it’s not, so I’m not sure how accurate his information is. If I (or you) was going to open an account, I’d try for written confirmation of this before proceeding.

He did mention that if you transfer part of your account to another brokerage there is a major fee. That’s the same for all brokerages though and not a surprise.

Scanning to the TD fees brochure, there’s another fee I would check into before opening a non-registered account. It says
“Summary of Annual Trading Activity Fee $50” This fee is waived for President’s Account members, accounts which generated at least $150 in trading commissions and accounts which earned $50 in interest. So it sounds like a Couch Potato investor might get stuck with this fee. Be wary and check before opening an account.

I don’t think I’m interested in an account at TD Direct Investing, so I won’t pursue these fee issues any further.

IF you have $15 000 or more if you combine the amounts in all of your TD Direct Investing accounts you do not have to pay their quarterly “custody” fee. The minimum is removed if you also have a RRSP account at TD Direct Investing. There are various other ways to reduce this fee: see their website for details.

Which Brokerages Are the Best (Well, Cheapest) for Withdrawing Cash from a Non-Registered Account?

So to recap

All will let you transfer money out to your bank account with the same bank for free.

  • BMO InvestorLine gives you a free BMO bank account and 2 free withdrawals or transfers a month.
  • Scotia iTrade lets you transfer cash out electronically for free.
  • TD Direct Investing should be free for electronic transfers out but charges $6.50 for you to pickup a cheque.
  • RBC Direct Investing charges $10 for a cheque and does not support electronic transfers out.
  • CIBC Investor’s Edge appears to charge $25 to electronically transfer money out.

Which Brokerage Will I Choose?

Based on this part I’m leaning towards InvestorLine or Investor’s Edge. Frankly I was surprised there was so much difference between the 5 brokerages. I guess they all intend to get you to open a bank account with them. Only BMO seems to realize you might not be interested in doing that.

Related Reading

Join In
Have you ever been zinged with an unexpected fee just for taking your own money out of your own investment account? Did you have to open a new bank account just to manage your brokerage account? Please share any insights with a comment.