Extreme market volatility is often coupled with a global issue such as political unrest, trade concern, economic distress, or growing global health concerns. During these times of increased market volatility, it is so easy to focus on the panic-fuelled headlines. Nevertheless, putting events that affect the markets into perspective is an important responsibility – in good times and bad.
Difficult as it may be, it is important to draw our focus away from the onslaught of catastrophic headlines, and put it where it belongs: (a) on your goals, (b) on your long-term plan for the achievement of your goals, and (c) on your portfolio as the long-term funding medium for that plan. Keep in mind that individuals who are part of large pension plans like OMERS, CPP, HOOPP, or the Ontario Teachers’ Pension Plan, don’t have the ability to call and sell out of stocks at these times of panic. Throughout history, emotional selling and knee-jerk reactions typically do more harm than good.
We must be diligent to maintain perspective. Volatility is a normal part of investing. Since January 1, 1998 the S&P has been down more than 2% an average of 10 days per year. In 2008, there were 41 occurrences. Investors often redeem at the worst times. The S&P 500 has fallen 10% from a high 38 times since 1988. After a 10% market decline, the subsequent return is historically positive.
History has shown that no matter the severity of the pullback, on average, the subsequent returns are positive. It is important to remain committed to a disciplined investment approach. This means: focusing on long-term objectives and ensuring portfolios are properly structured to deliver your required long-term outcomes. Responses to this volatility might involve rebalancing positions, harvesting tax losses where appropriate and undertaking due diligence by reviewing all holdings to ensure quality.
It is a natural human reaction to experience some degree of fear at the direction of current events. The greatest achievement, at times like this, is not to give in to the fear.
For more information on the benefits of comprehensive wealth management and the importance of asset allocation, contact Elizabeth de Groot of RBC Dominion Securities at email@example.com or 705-444-4742.
This article is supplied by Elizabeth de Groot, CFP, FCSI, CIWM, FMA, Vice-President, Investment & Wealth Advisor with RBC Dominion Securities Inc. Member–Canadian Investor Protection Fund. This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy.