“Historically, markets tend to rebound from short-term losses, offering gains from rallies when they recover and move higher. By staying fully invested, you can take advantage of all periods of positive market performance.”
Source: CIBC Time-Tested Strategies for Long-Term Success
There’s no doubt this is a worrisome time for investors and that it’s more important than ever to remain calm so that you can make clear and informed decisions about your portfolio.
The COVID-19 pandemic has brought into sharp focus the importance of a diversified, balanced approach to investing because there is always something happening in the world to affect markets –downturns due to trade wars, the price of oil, and now, COVID-19 – as well as growth through new breakthroughs and opportunities.
Although current conditions might make you want to buy or sell impulsively, it’s more important than ever to stick to your plan. Otherwise, you could end up selling when the market returns are low and buying when the markets are high.
When you’re younger it’s easier to withstand market ups and downs. But for those who are close to retiring, or have already retired, the downs can be downright scary. Here are my tips to manage your portfolio during turbulent times:
Stay the course
Downturns are normal and usually short-lived. I tell my clients that, as professional advisors, we expect and prepare for market drops. This isn’t the first market drop, and it won’t be the last. Your best strategy is to take a deep breath, keep an even keel, follow your investment plan, and ride it out.
- Refrain from panic selling.
- Avoid trying to time the market and instead consider averaging in and out of positions, rather than buy or selling all at once. That is, rather than buying or selling 100% of a stock at one time, consider doing this over three purchases (1/3 at a time) to reduce timing risk.
Hold your equities
The worst time to sell equities is when the market is down significantly. Make sure you own quality stocks with a history of paying dividends, and trust that they will recover.
"If you had invested $10,000 in the S&P 500 index at the start of 1999, it would have grown to nearly $30,000 by the end of 2018, provided you hadn’t touched it.
By comparison, missing out on the 10 best-performing days during that 20-year period would have cut your returns in half."
Economic fundamentals rule
Headlines may move the stock market in the short term, but in the long run it is driven by economic fundamentals.
This table compares the one-month return of MSCI World Index, since the start of an epidemic with its six-month return.
On average, clients who stayed invested during a short-term sell-off in the stock market came out as winners in the end.
Diversify your portfolio
Diversifying your portfolio will help ensure you are mitigating exaggerated drops in the market. Depending on your stage in life, keep an appropriate asset allocation (between stocks, bonds, and cash) and rebalance periodically.
- Make sure you have cash reserves to get you through any market downturn, in order to give your investments time to recover.
Delay major expenses unless you have preplanned for them, and pay attention to your budget.
Meet with your advisor
This is a great time to meet with a professional financial planner to review your portfolio, talk about your risk tolerance (now that you understand how volatility feels), and make any adjustments to stay on track with your future objectives.
- Finding your retirement investing strategy
- Plan in advance: Leave a lasting legacy
- Retiring? Evaluate these five investment risks first
Prepare yourself to navigate the modern boardroom. The Governing with IntentionTM workshop guides current and future directors in shifting the dialogue to issues that matter and fostering positive board cultures. The next session will be held October 26-28 in Vancouver. Register by July 26 for early bird pricing. Part of CPABC’s executive program offerings.
Bryan Sommer, CPA, CA, CFP, CIM, is a Portfolio Manager with CIBC Wood Gundy and holds the Chartered Professional Accountant designation.
- CIBC Time-Tested Strategies for Long-Term Success 235E 03/2020
- Why you shouldn’t go to cash now — in one chart
- Coronavirus stock crash impact on your retirement & financial planning
“CIBC Private Wealth Management” consists of services provided by CIBC and certain of its subsidiaries, through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC World Markets Inc. and ISI are both Members of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. CIBC Private Wealth Management services are available to qualified individuals. The CIBC logo and “CIBC Private Wealth Management” are registered trademarks of CIBC.
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2020.
If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.
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