Staying true to a long-term financial plan in the midst of volatility can be challenging – you may find yourself questioning your strategy and second-guessing your decisions. With this in mind, here are a few ideas to help you trust your plan:
1. Start with Your Destination in Mind - What are you saving for? What is
your time horizon? Having a financial plan with specific objectives and
time frames is key to helping investors stay the course when volatility strikes.
2. Don’t Avoid Risk - The key to improving returns is understanding risk,
deciding on the level of risk you are comfortable with, and learning to manage it. Risk and return are time dependant. As time progresses, low-yielding
investments become more risky because of inflation. The returns associated with higher-risk investments become more stable and predictable over the
long term, thereby reducing the level of risk.
3. Don’t React Emotionally to Headlines - Remember that headlines are meant to catch your attention. When we look at headlines over the past 25 years we can find striking similarities to those of today; yet the S&P TSX during that period has experienced an average annual return in excess of 10%. Relying
on our emotions to make investment decisions will often result in a "buy high,
sell low” outcome.
4. Market timing can be costly - To be successful at market timing, you must be right twice – when to get out and when to get back in. Too often people will
get out of the market after a significant decline and miss the upturn which eventually follows. A better approach is to stay invested so that you are in the market when it turns around – often very suddenly.
5. Expect volatility - like death and taxes, market fluctuations are guaranteed. Markets move in two directions – up and down – and it is impossible to predict with any certainty which direction they will take in the short term. In the long term, however, history has shown us that markets have always recovered to reach new highs. If you anticipate the un predictability of the markets in the short term, you will be more inclined to see the opportunities that present themselves when declines occur.
6. Invest in a Diversified Portfolio – a well-diversified portfolio geared toward your financial goals and risk tolerance is still the best defence against market volatility. Historically, stock market downturns have been followed by even greater recoveries, and those who stayed invested have been rewarded.
To see if your portfolios are equipped to act in the face of volatility, please contact us to set up a review.
Lee Fournier, Wealth Advisor
Jodie Harrison, Investment Advisor
The Fournier-Harrison Wealth Advisory Group
BMO Nesbitt Burns