Keep your cool as your portfolio recovers

Keeping your cool is just as important an investment strategy when markets are tanking as when they’re booming.

Keeping your cool is just as important an investment strategy when markets are tanking as when they’re booming.

It’s important to remember that what goes down eventually comes up again, just as what goes up eventually comes down. It may be hard to believe now, but history has shown that the economy and markets in times of recession do recover.

Andrew Beer, manager of strategic investment planning with Investors Group, said financial markets tend to start their recovery four to six months before recessions end.

During the 1980 recession, for example, the TSX composite index fell 39.2 per cent in the 12-month period that ended in June 1982. That’s slightly worse than the 38.2 per cent drop in the TSX in the 12 months that just ended in February 2009.

However, in the next 12 months that ended in June 1983, the TSX soared a whopping 86.98 per cent. The same trend has occurred in other recessions as well.

“Typically, markets start their recovery anywhere from four to six months before the end of a recession is announced,” said Beer. “This is promising news for people today. Markets are essentially forward-looking and act on news while recessions are backward looking. Hindsight is a wonderful thing.”

Beer said two main types of psychologies tend to emerge in investors when markets start to recover.

The first is the temptation to jump back into the market with both feet in the hope of making up losses as quickly as possible. While this might seem like a good idea, it actually could expose your portfolio to a great deal of risk because the upturn which is causing you to jump back into the market could be a temporary blip and might not be the real thing.

Other investors might be driven back into the market by fear — the fear of losing out on good bargains and picking up investments at a low.

“In turbulent times there will be good and bad reports,” said Beer. “The trouble is, no one knows for sure which is right. The best thing is to move slowly and surely and see what happens.”

Beer said investors need to stick with investment fundamentals in turbulent times and not get caught up in the emotion of the moment.

“You should look at your portfolio and see how it’s balanced,” he said. “If you have underweighted positions you might want to top them up. But don’t forget the reasons why your portfolio was built the way it was and don’t try to make up your losses all at once.”

Beer also suggested sticking with the basic strategy known as dollar cost averaging — investing regularly through a continuous savings plan regardless of the share price or market value. By doing this, more shares are purchased when prices are low and fewer shares are bought when prices are high.

Dollar cost averaging reduces exposure to risk associated with making a single large purchase and can protect investors from trying to time the market (buying at a low and selling at a high) by spreading investments over a number of purchases over a longer period of time.

Since the market has a positive mean rate of return, dollar cost averaging usually requires the investor to give up some returns for the benefit of reduced risk. It has an added advantage of letting the value of your investment compound over time.

“Stay diversified (with different asset classes),” said Beer. “There’s no place to hide with equities today — they all got beaten up. Financials are typically the first to recover but they caused this mess in the first place.

“Ultimately there are no guarantees. So stick with your plan. If you’re afraid of volatility, move slowly.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Just Posted

Alberta hiring more paramedics and buying new ambulances, none for Red Deer

Red Deer Mayor Tara Veer is not concerned the provincial government didn’t… Continue reading

‘My nightmare began again’: Close call as bus carrying Humboldt crash survivor rear-ended

CALGARY — A terrifying ordeal for Humboldt Broncos survivor Ryan Straschnitzki this… Continue reading

Halifax airport operations normalize after Boeing 747 runway overshoot

HALIFAX — The Halifax Stanfield International Airport has resumed normal operations a… Continue reading

Bentley family left without a home grateful for community support

Central Albertans are coming together to support a Bentley family left homeless… Continue reading

Red Deer RCMP ready for new mandatory alcohol screening law

Red Deer RCMP are ready to enforce a new law intended to… Continue reading

WATCH: Red Deer and District Kennel Club Dog Show at Westerner Park

The Red Deer and District Kennel Club is holding a dog show… Continue reading

Pence aide out of running to be Trump’s next chief of staff

WASHINGTON — President Donald Trump’s top pick to replace chief of staff… Continue reading

Swath of South faces wintry mess: Snow, sleet, freezing rain

CHARLOTTE, N.C. — A massive storm brought snow, sleet, and freezing rain… Continue reading

‘I killed my best friend’: Opioids’ fatal grip on mayor, pal

MOUNT CARBON, Pa. — Janel Firestone found her son — the 24-year-old,… Continue reading

Brothers, 20, face second-degree murder charge in death of teen: police

MISSISSAUGA, Ont. — Police west of Toronto say two brothers have been… Continue reading

A young mayor, his friend, and a fatal attraction to opioids

MOUNT CARBON, Pa. — Janel Firestone found her son — the 24-year-old,… Continue reading

GM fights to retain key tax credit amid plant closing plans

WASHINGTON — General Motors is fighting to retain a valuable tax credit… Continue reading

TTC union asks provincial government to step in on transition to Presto

TORONTO — The union representing transit workers in Canada’s most populous city… Continue reading

Small pot growers find roadblocks on path to microcultivation licences

Yan Boissonneault’s daughter was turning blue. Without warning, his baby had stopped… Continue reading

Most Read