Over the last year, we’ve seen volatility in the markets that has never been seen before in history. Governments across the globe have injected money into their economies to help jump start the markets and lessen the impact of the recession. We’re hearing a lot of things in the media and don’t know how to make sense of it all. What are investors and savers to do?
You may want to consider some of the following questions and answers with regard to your future investments and savings.
Are we better off in money markets like Guaranteed Investment Certificates(GIC)?
Members need to ask themselves if they are investing for the long term (five years or more), or saving for the short term. You also need to determine what amount of volatility is acceptable to you. What is your “sleeping point?” At what point are your investments keeping you up at night? These types of questions need to be asked to determine what your investment strategy should be. Money market mutual funds might be less volatile, but if you’re in it for the long term, there are some good reasons to stay invested in equities and eventually make higher returns than in the money markets or fixed income products. What’s important is to do a risk-return tradeoff review with one of our investment specialists. Risk-return tradeoffs can determine your personal risk tolerance when choosing investments for your portfolio.
What are other people doing with their portfolios?
Approximately 75 per cent of the people are leaving their money where it is. They are not planning on retiring in the next 10 years, so are going to ride out the current conditions and wait for the markets to recover. About 5 per cent moved out of the stock market. They have hit their sleeping point and are moving their investments to guaranteed investments, like GIC’s. Then there are the 20 per cent who are investing right now while the prices of equities are low. For growth-oriented investors with a long-term outlook and available cash, the current market environment has created a window of opportunity to increase or buy into the equity markets. Some are using the investment strategy of dollar cost averaging where investors buy into the market on a regular basis. This lessens the risk of investing a large amount in a single investment at the wrong time.
What should members do?
First thing to remember is to be realistic and not to panic. Downturns are inevitable and a normal part of the business cycle. Feel free to enter into a discussion with one of Cambrian’s investment specialists to determine what your strategy should be during this current environment. If your investments are at another institution, we’d be happy to provide you with a second opinion and a portfolio analysis to ensure that your investment portfolio is on track to help you achieve financial independence.
Remember, newspaper headlines don’t reflect your investment returns. We need to be reminded that when the stock markets decline in any given day -- by say 10% -- that doesn’t mean that your individual portfolio will also decline by 10%. Well diversified portfolios should fare better during market volatility. This is a good time to contact your investment specialist to review how the changes in the markets have affected your portfolio.