When investing during good times, it’s easy to profess a tolerance for risk and say we’ll hold tight during downturns. But when the reality of a bear market actually presents itself, our natural reaction is to cut our losses and pull our assets out of the markets.
In the face of such events, here is some common sense advice on how you can weather the current financial storm:
- Learn from history. Historically, at least since the end of the Depression, swift declines coming out of bear markets have typically been followed by rapid advances. History also clearly illustrates that bull and bear markets operate in cycles; neither can last forever.
- Take advantage of the sale. A bear market can signal great buying opportunities on quality securities. The lower the market goes, the better the bargains. Experienced investors know this and take advantage of sale prices.
- Stay invested. Buying high and selling low will never result in wealth. By cashing in now, you’re guaranteed losses. By staying the course, you increase your chances of prospering over the long term. Bear markets always end, and with them, so do losses.
- Diversify wisely. While staying invested is the best strategy, recent scandals involving corporate integrity illustrate the importance of being diversified across high-quality companies and stocks. Minimize your exposure to risky sectors and securities and limit them to a small portion of your assets.
- Stick with your plan. Scrambling to reallocate your money into whatever sector or stock is currently being judged attractive by the media is a recipe for failure. Attempting to time the market does not work; no one can predict the future. Allocating your assets carefully and holding them through good and bad times is the only proven formula for success.
- Remember that long-term investing pays off. Although enduring down markets can be difficult, the upswings that follow can be swift, sharp and unpredictable. To illustrate: if you had invested $10,000 in the TSE 300 Composite Index on September 30, 1981 and held it for 20 years, the end value of your investment would have been $63,294. But if you had missed the TSE’s 10 best performing days over that period, the ending value would have been only $39,856. In equity investing, none of us know when those 10 best days will come. But the act of wading in and out of the market increases the likelihood of missing them.
-Is your portfolio working as well as you would like?
-Is it appropriate for you at your stage in life, or is there something with more growth potential, or with less risk?
-Do you enjoy and have time to manage it yourself, or would you rather spend more time doing something else?
Thorne Financial Planning can analyze your portfolio’s content, determine its suitability for you, and suggest alternatives to consider.
Your investment portfolio should not be a miscellaneous basket of stocks, bonds, or mutual funds. When analyzing and building your portfolio, it is critical to consider everything that you own that you hope will appreciate in value. These may include:
- Business ownership
- Investment Funds
- Life Insurance
- GICs, cash, CSB’s, etc.
- Pension Plan Assets
- Real Estate
- Recreational Properties
- Collectables (i.e. coins, stamps, art, etc.)
Please note that I am not licensed to give advice on individual stocks or bonds, and therefore will only comment on your stock portfolio as a whole and as part of your overall asset holdings.
Contact us at Thorne Financial Planning to help you build your financial success today.
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