So, your investments are tanking, and you’ve had the urge to sell them? Let’s re-think that!
There are a lot of factors contributing to a particularly volatile market right now, which can make for a scary situation. Luckily, I’ve got a few pieces of advice I want to share with you.
Tune into my podcast this week as I discuss why a market decline can be beneficial for your investments and how to wait it out! There’s something to be had for everyone
Hey there, welcome back! Today, I want to talk about a little bit of the market volatility that’s going on. You might be opening up your statements and seeing, you know, some different numbers moving across the board. Hopefully, you’re not watching daily, but if you are, you’re going to see there’s, you know, one step forward, a couple of steps backwards. Right now, we’re just in a little bit of a volatility period. And I mean, you name it, we’ve got inflation, we’ve got Russian Ukraine war. I feel like we’re kind of post-pandemic. But, right now, there’s just a whole level of fear going on.
And so, I wanted to give a little bit of an update, and two things came to mind. Number one, boring is beautiful. And number two, market pain is necessary. So it’s been a bumpy ride this year, and the global economy isn’t looking so great right now. Markets are going up and down, but you know what? The markets are capable of coping. Investing in all-weather portfolios with the potential to withstand a variety of bumps in the road is boring but beautiful.
Dull, dependable companies with cash flow, they’re not in debt, there’s continuing growth. These are companies in your portfolio that are going to be able to weather the storm. And so, continued growth right now might be a little bit slower, but remember, we’re in the long game for this. This isn’t about short-term. That’s a completely different conversation to have. And this is where, when you’re thinking longer term – because you’re going to live a long time, right? – general retirement is, you know, we plan for the next 30 years. That’s still going to have some long-term growth in there.
This is boring but beautiful. Simple companies. You know, a company that comes to mind that is in one of the holdings is Mattel, a toy company. And this is not an advertisement for you to go out and invest in and stock pick. I’m just giving you some examples of things in holdings that are tried, tested and true, and people are still willing to pay for. Uh, right now common one holdings in a couple of portfolios is the Dollar Store. It’s not going anywhere. Sony is one. Now that’s where pricing is really low right now because that’s over in Asia. But, it’s dependable products.
We’re bombarded with noise in the media, trying to get our attention. Boring doesn’t bring watchers and readers in, and it’s not good for ratings. But your portfolios should be meant to tune that out. It’s about staying the course. Remain boring because it works.
Now, there’s another theme that I had said. And the second thing that came to my mind was market pain is necessary. It is unavoidable, and it is vital for long-term growth. Our brain is not helpful with this when we’re up 10%, we feel great. We forget that there’s movement in the markets, cloud nine. But when an account is showing a loss, our moods might get down. We feel it being contagious. When we watch the news, we hear about losses, coffee talk, or water cooler talk – you know, everybody’s kind of feeling it, especially with the other things going on in the world right now. It’s kind of gloomy, and you forget that you know, everything is somewhat temporary, and these temporary downturns provide a really good opportunity and pricing for managers and account managers, fund managers to spend some of the cash they have on hand. Because remember, cash is queen in my book, and you still got to have some cash.
And it’s a great opportunity to buy those strong, boring companies I mentioned, right? Boring is beautiful. But their price is on sale, they’re not going anywhere. They’re great companies, and they’re going to reap the benefits of this boringness taking advantage.
It is volatility. That is the reason that equities have higher returns over the long term. Equity returns have historically been positive on average three years out of four. So if you can ride out a downturn, if you can ride out low pricing, but your portfolio is boring and beautiful – meaning top-notch. Then you just need to get yourself through that downturn because the key to success is not to sell from your investment that is temporarily low. In fact, a temporary decline is the best time to add to your investment.
So, you know, we’re talking about buying and adding, and one of the questions is, “Okay, what about in retirement?” Well, in retirement, you’re going to have a piece of your portfolio is going to be outside of this volatility because no matter what, you have to pay yourself monthly income. You still need your “play-cheque” every month that comes to you. And so that’s that defence mechanism. That’s making sure that you’ve got a laddered approach, and you’ve got different things in different buckets, but you still need to think about these downturns as opportunity. We still need this volatility because the other little tiny piece of the pie in your portfolio is going to have some equity and that equity is going to have to produce you some long-term results to last your 30 years.
So, okay. There are four things I want to leave you with. Number one, keeping a cool head. Tune out the noise, put aside the emotions of your portfolio. It is human nature when things go down to want to sell or run and have fear, but that is actually the time of opportunity. And so, keep a cool head and make sure you have that all-weather portfolio. I mean, this is a great time. Contact your advisor, book a review, go through your financial plan and look at your portfolio. And then you’ll have peace of mind saying, “Oh right, we structured it this way on purpose. Here’s your defence mechanism. And here’s how you’re going to weather it out.” That’s the first thing, keep a cool head.
Second thing, markets will experience periods of short-term pain. But look at the trend. It’s upward. When we look at, and I mean, you can go to Google Finance and pull up a history of one of the stock markets, the SMP 500, the TSX, you name it. Over time by staying the course, after every downturn is that upward. And you can see it moving up. Natural for markets to move up and down.
So, the third thing I want you to remember is that is necessary pain. You can see that gains far exceed the losses. Send me an email. I’ll throw you a slide show. I’m not making this up. This is actual history. You know, we can’t base our forward decisions only solely on history. But, it’s going to help relieve that after a downturn, there are positive gains. And those gains have longer length and higher averages than the downturn.
The fourth thing. Many of the strongest returns in the market occur in the period immediately following a sharp decline. Those who exit the markets, even for a short while thinking they’re going to get back in, are going to, you’re going to miss the opportunities when the markets recover. Five years following a negative return outweighs the drop. And so again, stay the course.
That’s it today. I hope this helped you out. Contact your advisor, book a review if you’re having any of those, you know, that feeling in the pit of your stomach right now – you’re opening up statements, you’re seeing the market’s going down. You should have a plan in place. This should have been talked to you about a defence mechanism about when the markets go down, but you need that reassurance. Make sure you reach out and contact someone and do a review.
That’s it. If you have any questions, send me a note [email protected].