Six Ways to Keep your Cool when Markets Don't
Erica Szczech - Mar 25, 2020
When the Dow Jones Industrial Average (DJIA) and Toronto Stock Exchange (TSX) drop due to uncertainty and news of a world pandemic, it's a reality check for investors who spent much of 2019 enjoying indexes at all-time highs. But a timely reminder that markets can go down as well as up does little to ease the anxiety we can all feel when the markets are behaving erratically. If you sometimes fall prey to a little investing anxiety, these six “coping mechanisms” may help.
1. Ignore the noise. In a competitive media environment, the 24- hour news cycle delivers the news full of drama and hyperbole. It makes for good ratings, but don’t get drawn into it when it comes to your own portfolio. Investment decisions are best made in a less emotional environment. Panic selling, for instance, simply locks in any losses and takes you out of the market should an upturn be around the corner.
2. Steer clear of predictions. Of all the media voices during volatile markets, the least helpful are those predicting the future. It’s a skill few possess and not the basis for sound financial decisions. None of us has a crystal ball, so ignore someone in the media offering advice about the likely performance of tomorrow’s markets.
3. Focus on goals, not investments. It’s easy to become obsessed about an investment: what about that stock, what about this fund? Instead, turn your focus to your goals. Remind yourself why you are investing in the first place. For most of us, that’s a long-term proposition. If your goal is to retire successfully in 20 years, for instance, chances are the performance or activity of any one investment this week is not putting your goals at risk. Keep a long-term perspective.
4. Keep performance in perspective. The performance of an investment should always be viewed in its proper context. A high-flying growth stock that puts up big gains may have equally big downturns. Government bonds will rarely offer eye-popping returns. A poor quarterly performance in one of your mutual funds may be a blip in an impressive five- or 10-year return. Don’t let just one number tell the whole story — keep your perspective.
5. Talk to your advisor. A research study has shown that Canadians who work with a financial advisor acquire a greater savings discipline, accumulate more assets, and the longer they get advice, the more their wealth grows.1 In times of market turmoil, we can provide the “hand-holding” to help you focus on your goals and keep perspective. And if action is required, we can help to take it carefully and prudently.
6. Consider a portfolio review. Not because you need a change but maybe to remind yourself that you don’t. In a portfolio review, we will revisit your goals and risk tolerance as well as determine where you stand in relation to your goals. In light of all this information, we can make any necessary adjustments. Knowing where you stand and that you are still on track can help relieve that investment anxiety.
In times like these, it's natural to have concerns or questions. Contact us to find out how we can help.
1 Montmarquette, Claude. An econometric analysis of the value of advice in Canada. Montreal: CIRANO, 2012.