Diversify Your Investment Portfolio
During volatile times, financial uncertainty can be an added stressor. This year we are experiencing significant volatility as a result of the global health pandemic. This event has created uncertainty, and during uncertain times the world’s stock markets tend to decline in the short term. That’s why it’s so important to have a diversified investment portfolio. When you diversify globally as well as by asset class, it creates stability in the portfolio during times like we’re experiencing today.
Focus on the Long Term
All investors love the prospect of a rising stock market. However, once the market declines and prices approach historical lows, many investors become defensive and retreat to the perceived security of cash or money market instruments. While nobody enjoys watching markets decline over the short term, the investors who can focus on the long term and stay invested will stand to gain.
Many of the strongest market returns occur in the period immediately following a sharp decline.
Since 1950, following the worst 12-month periods of performance, the market made solid gains just 12 months later, with only one exception. And, within five years, the markets were up significantly — meeting and exceeding long-term return expectations. In order to take advantage of those returns, it’s important for investors to continue focusing on a long-term plan, stay the course and remain invested. Those who panic and exit the markets, even for a short while, risk missing great opportunities when the markets recover. It’s impossible to accurately time the market over the long haul, so staying invested is key. As market volatility increases, investors typically want to move into safer investments, hoping to avoid further losses. Reacting to short-term market “noise” by making emotion-based portfolio changes can interfere with achieving your long-term goals. History shows that by maintaining discipline and perspective during market downturns, a patient investor is often rewarded when markets return to an upward path.
Discipline and Perspective
A combination of discipline and perspective is the key to reaching your long-term investment goals. In contrast, obsessing over daily market fluctuations and short-term “noise” can be a sure-fire way to fall short of your goals. One way to achieve this fine balance is by having a long-term plan and then — most importantly — sticking to it through all market conditions. While this may sound simple, recent market conditions have put investors to the test. Veering off course from a carefully-thought-out plan can turn a temporary loss of confidence into a realized loss on an investment portfolio if you panic and lose your focus.
Your regular investment statements serve as a snapshot at a moment in time. For example, most will have received their investment statement for the end of March, and it will show you the value of your portfolio on that day. During market downturns, it’s natural to feel nervous or unhappy if you see a financial loss on your statement. That loss exists on paper only and is not realized until a decision to sell is made. A loss is not a reality until you actually sell.
For younger people building their wealth, this is typically a good time to put money into the market with a long term goal in mind. If you have time on your side, investing right now is a great opportunity.
For retirees, it is extremely important that you are taking your monthly income from the proper asset class. For example, your fixed income asset class should hold a few years of income in it so you have the luxury to weather a volatile market.
Stay the Course
As we go through this difficult experience of COVID-19 and its profound impact on the global economy, things may seem overwhelming from time to time. We can help alleviate some of that stress for you by sharing how we build a personalized IG Living Plan to include strategies that address risk to long-term goals. We can’t control what happens in markets over the short term, but if you understand how your plan is managed to meet your long-term objectives, you can face the future with confidence and stay the course instead of panicking.
As legendary investor Warren Buffett has been known to say, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” Quite often, when markets appear at their bleakest and everyone is panicking, a focused long-term investor stands to benefit the most.
Trademarks, including IG Wealth Management and IG Private Wealth Management, are owned by IGM Financial Inc. and licensed to subsidiary corporations. This commentary is published by IG Wealth Management. It represents the views of our Portfolio Managers, and is provided as a general source of information. It is not intended to provide investment advice or as an endorsement of any investment. Some of the securities mentioned may be owned by IG Wealth Management or its mutual funds, or by portfolios managed by our external advisors. Every effort has been made to ensure that the material contained in the commentary is accurate at the time of publication, however, IG Wealth Management cannot guarantee the accuracy or the completeness of such material and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Investment products and services are offered through Investors Group Financial Services Inc. (in Québec, a Financial Services firm) and Investors Group Securities Inc. (in Québec, a firm in Financial Planning). Investors Group Securities Inc. is a member of the Canadian Investor Protection Fund.
Amanda Roest & Nadege Koskamp
Senior Financial Consultants
IG Wealth Management
As Senior Financial Consultants, it is our goal to ensure all of our clients have the necessary tools and information they need to meet their financial needs. Our team supports high income earners accumulate and protect their wealth by helping them responsibly control the resources available to them. We strive on creating an environment for our clients that gives them the systems and habits necessary to make their wealth sustainable. We help educate and uncover strategies for each client in various aspects of financial planning. We realize that everyone has a different goal in mind for what they want their money to do for them. It is our job to uncover those goals and find realistic ways to help them get there.
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