Market volatility can be unnerving for even the most seasoned investors. Individual stock prices go up and down within the course of a day. And, the market overall sees its own rises and falls gradually over time. As an investor, you’ll experience ups and downs. At times, it can be a bumpy ride. It’s best not to get raddled over this turbulence – the best thing to do is stay the course.
How to invest amidst market volatility
Having a Wealth Advisor on your side is vital if you want to protect and grow your assets. A trusted advisor, accredited and proven, will walk you through a strategy that suits how much you want to invest and the kinds of returns you can expect to see over time. The period you want to be in the market will also determine the amount of volatility you may be exposed to. Shorter periods of time in the market will have larger spikes of ups and downs. Whereas longer periods in the market will have more gradual ebbs and flows. Let’s take a closer look at some of the recent ups and downs in light of certain world events.
The stock market historically reacts to major world events.
In 2001, the events of 9/11 resulted in a 11.3% dip in the S&P/TSX Composite. 66 days later, it recovered. During SARS in 2003, it ebbed 8.6%. 136 days later, it increased to new heights. And, the most significant low occurred between 2008-2009 during the Financial Crisis when the market decreased by 40.7%. 781 days later, it made a skyrocketing return. Market fluctuations have been on full display in recent weeks amidst the economic impact of the coronavirus. The emotional stress on some investors during this time can be significant. However, stock market volatility is normal, and the market is currently in recovery.
Develop a long-term investment strategy
Your advisor will tailor a plan to make sense out of your financial goals and help you assess your personal ability to manage risk. They will also help you stay focused amidst market ups and downs. The key to investing is establishing a strategy that evens out potential losses in a bear market, a time when the market experiences prolonged price declines, and earns in a bull market, when stocks are rising or are expected to rise. Another key to weathering market ups and downs is diversifying your investment portfolio. Here are some basics your advisor will discuss with you, and can clarify, as you develop a personalized, long-term strategy together.
Play the long game in investments
Don’t get thrown off-balance by volatility and downturns. It’s not about “timing” - when you get in. But, “time” - how long you stay in. Your advisor will explain to you in their own words that investing is a marathon, not a sprint. Think of your market investment as building wealth over a decade — not quarterly.
Set realistic return timelines
During your investment journey, you may see deep declines, such as when the market decreased by 40.7% during the Financial Crisis in 2008-2009. Or, more recently, the 37% dip in February 2020 as a result of the coronavirus. During these times, your wealth advisor will guide you. They will recommend buy-and-hold strategies vs. panic-driven sell decisions. You can review monthly, quarterly and annual statements with your advisor to discuss progress. During this time ask for advice and recommit to your chosen investment plan whether short-term or long-term. Where needed, make small adjustments rather than big changes when you see sudden dips. Just remember, when examining a performance chart of an index like the S&P/TSX Composite you’ll note monthly, quarterly and annual periods of volatility, but overall, you’ll notice that investments nearly tripled over a ten-year period. Plan your return timelines accordingly.
Diversify your portfolio
Don’t put all your eggs in one basket. Diversify into an asset mix you’re comfortable with. Not just between different market sectors, as alluring as tech or minerals can be, but also between different instruments: different funds, bonds, or products with a guaranteed rate of return. You don’t want to rely on gambles, but rational planning across a mix of products, with balance being the key. Your own insights play a role here, and your advisor will listen to your preferences, and help you build a roadmap accordingly.
Build your stake
Treat your portfolio as a long-term strategy and keep contributing regularly. Think of a time machine and having $10,000 to invest twenty years ago. That would show significant gains today. Now think about if that stake wasn’t $10,000, but $100,000. It makes sense that the more you allocate — and keep contributing — to your strategy, the stronger your returns will be over the long term. Your advisor can walk you through strategies like Dollar Cost Averaging, which is a low-stress way to move larger assets into the market, without panicking if you bought on the right day. It’s not about selecting the right moment to start, but how soon.
Rebalance and adjust your investment strategy
Meet regularly with an advisor to set new goals as your circumstances change, and make sure that your investments work for where you are and what you want to achieve. It’s reasonable to take some wins and cover other areas of your asset mix, and your advisor will always have upto-date options for you to explore together.
Get wealth management advice from a trusted advisor
Building a strong and well-diversified portfolio and investment strategy that’s ready for any market takes commitment and planning. When done with an expert, you can ensure your journey to success. As a credit union, we share a common bond and are committed to helping you succeed. Talk to a Wealth Advisor to discover how we can help achieve your goals.
Expand your knowledge
Get more investment tips, strategies and best practices by reading our Wealth Advice articles. Here are some featured articles to lean on for related insight:
- Consolidating Your Investment Accounts with One Advisor
- Diversifying Your Investments
- Creating a Retirement Plan
Mutual funds, other securities and securities related financial planning services are offered through Qtrade Advisor, a division of Credential Qtrade Securities Inc. Financial planning services are available only from advisors who hold financial planning accreditation from applicable regulatory authorities.