Investing Smart During Uncertain Times
Warren Buffett, one of the world’s most successful investors, follows a classic rule when it comes to market volatility: “Be fearful when others are greedy and be greedy when others are fearful.” In other words, do the opposite of the crowd! This philosophy is called classic contrarian investing.
Investor anxiety normally tends to rise in step with market volatility because most people are concerned about trying to pick the best time to buy or sell. This has been the situation so far in 2020.
For instance, making investment decisions would be infinitely easier if there was complete certainty about when markets were headed for a bear market or a correction. Unfortunately, the best time to buy or sell is obvious only in hindsight.
Because so many different factors simultaneously influence market performance, unpredictability is inevitable. Although interest rates are expected to rise at some point in the future, they will very likely remain at historic lows for the foreseeable future making interest-bearing investments (i.e. fixed income investments) less attractive than other options. Traditionally, equity investments (i.e., stocks, mutual funds, etc.) have out- performed fixed income investments over the long-term, so there is a good case for allocating investment assets into equity investments when creating a well-balanced mutual fund portfolio.
At this time in the markets, mutual funds consisting of companies with long histories of paying regular dividends are often a good choice for a retirement portfolio, as these types of investments have tended to perform better during all types of economic conditions.
Also, remember that the Canadian financial assets only represent approximately 3% of the world’s financial markets. Therefore, any investment strategy would be incomplete without proper exposure to countries beyond North America.
In times of market volatility and sensational news headlines investors are often left wondering, “What are my best options? ”History has shown that “staying the course” during times of temporary volatility has always been the best option for investors with well-diversified portfolios and long- term time horizons. It is Time-in-the-Market that counts NOT Market-Timing! On that same token, periods of market volatility have usually provided excellent opportunities for buying quality investments at discounted prices.
Another risk management strategy for long-term investors is ensuring that a portfolio is properly aligned with an individual’s risk tolerance level. When a present day portfolio allocation does not line up properly with an investor’s risk profile it may lead to hasty decisions that could ultimately turn paper losses into real losses.
In addition, market downturns can also be the right time to consider tax-loss selling to offset capital gains from other investments.
So in times of elevated market volatility the most important thing to do is to NOT watch market news too intently as that usually leads to heightened anxiety and financial decisions that are far too often regretted later. The best course of action is to always seek advice from your financial advisor before making any decisions about your long-term investment strategy. Lastly, remember to take time to enjoy life everyday with your family and friends.
Call me today to book an appointment to review your current investment portfolios and wealth accumulation strategies to take advantage of the changing economic and investment landscape!
Visit myfinancialsolutions.ca, my business website, for additional financial information on insurance, retirement, estate planning, investments and whole host of other financial topics.
