Staying the Course in Market Volatility

January 31, 2019

The year 2018 was a year of market volatility; it is an undeniable truth. If you tuned into media news throughout the year, there were plenty of things for investors to be concerned about. From global crisis such as Brexit and the U.S.-China trade war to issues closer to home with the plummeting price of Canadian oil, investors had a lot to be concerned about in their investment portfolios. Top that off with a US Federal Reserve continuing to raise interest rates, a US Presidency that is anything but stable, and it is clear why investors were skittish with their outlook. However, it is clear that staying put during volatility is often the best course of action.

If History is Any Guide

The markets are historically cyclical. This means that there have always been periods of upswing and downswings and by the end of 2018 it looked like they might be starting a downswing. Since 1924, bad markets only lasted on average 1.4 years with a downward movement average of 41%, while upswing markets last nine years with a whopping 480% return. Generally considered one of the hardest and worst ideas in investment strategy is trying to time the market cycle. There were concerns over the past few years that signalled the end of the cycle, such as the U.S. general election in 2016 or the Brexit vote, yet neither was an actual signal of the end of the market cycle. Volatility, in and of itself, also does not necessarily mean the end of a market cycle, and 2% moves in the market since 1980 are not all that uncommon.

Do No Let Emotions Rule Your Decision-making Process

It is very easy to get caught up in the fear or uncertainty of the market during such volatility. The plan that you have set up with your financial advisor should be one that has anticipated a fair amount of volatility and even temporary setbacks. Long term goals and value investing have proven to be successful strategies for investors, as long as you stay the course. Rolling annualized returns, which focus on the destination for investors, typically show less volatility over an extended investment horizon and over a 20-year period have always been positive to-date.

Five Critical Things to Remember in Volatile Markets for Investors

  1. Markets go up more than they go down
  2. Your portfolio’s diversification gives it stability, enhancing the risk/return tradeoff
  3. Never make an emotional investment decision, instead ‘change the channel’
  4. Timing the market often leads to poorer results than staying invested
  5. Before a hasty decision, contact your financial advisor

Just keeping these five important tips in mind during times of market volatility can set your mind at ease and ensure your investments stay on track according to your original long-term plan. Volatility is not unexpected, in fact, many investment advisors plan for volatility during the building phase of each client’s portfolio based on their risk profile.

Feel free to contact Steve McBride, Investment Advisor, Echelon Wealth Partners regarding any questions you may have on this content.

 

Disclaimers

This blog is solely the work of Steve McBride for the private information of his clients. Although this author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and this author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of this author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

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The opinions expressed in this report are the opinions of this author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute this author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.

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Source: 

 https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/market-insights/get-invested-stay-invested-navigating-volatile-market

https://www.investopedia.com/advisor-network/articles/how-stay-course-during-volatile-markets/