Global stock markets have experienced unprecedented volatility as a result of COVID-19 and that has a lot of investors asking about the impact this will have on both their short-term and long-term finances.
We’ve received many questions about whether the current market decline means it’s time to cash out, hold, or buy more. Here are our answers:
1. How should I be investing in light of the current uncertainty?
There’s no doubt that this year has brought some emotional highs and lows for investors. It’s normal to feel anxiety and panic when stocks fall and to feel hope and excitement when the markets rise.
Volatility is a normal part of investing. Still, too often those emotions of panic or excitement compel investors to buy and sell at the wrong times.
Instead of reacting to the headlines, here are some strategies you can use to be successful in a fast moving landscape:
-
Stay consistent: Take emotion out of your investing decisions by saving and contributing regularly, despite market ups and downs. You can even set up automatic contributions that line up with when you get paid. Set it and forget it.
-
Stay diversified: Diversification is a proven strategy for reducing volatility in your portfolio. The good news is that as a CI Direct Investing client, your portfolio is diversified by design to help you take advantage of growth when the market is up, and reduce losses when the market is down.
- Reflect on your comfort with risk: You should feel comfortable sticking with your strategy through the highs and lows. Look inward to understand what growth you’re willing to miss out on when things are on the way up, and the losses you’re willing to bear on the way down.
Remember, you started investing with goals in mind. Stay focused on those goals, and you can be successful through the highs and lows.
If your goals have changed, or if you’re unsure that you’re in the right portfolio, don’t worry: our team of financial advisers and portfolio managers are available to answer your questions.
2. Would this be a good time to pull back from stocks to protect myself?
It’s impossible to predict what the market will do in the future. If you pull out of the market, you can miss out on recovery and gains, like what we’ve seen in May and April.
Instead, you should invest according to your goals, and aim to hold a diversified portfolio for the long run. A diversified portfolio with broad exposure to equities still picks up returns from the overall market. For example, even through the recent crash, various industries (such as tech and healthcare) were resilient in driving returns.
However, if you need to use the money in less than a year or are concerned about your job security as result of COVID 19, then keep saving, but keep the money safe in a savings account, ideally one that pays interest.
Our team of experts are available to help you make the best decision for your circumstance. Please book a call with an adviser, and they’ll work with you to find the right solution.
3. Where should I put my money to take advantage of current investment opportunities?
That’s easy! The same place you were before: in a diversified portfolio matched with your investment goals and financial situation.
Typically, your investment strategy shouldn’t change based on volatility in the market. However, if your financial situation has changed, contact a CI Direct Investing Portfolio Manager so we can make sure you are invested in the right portfolio.
4. Would now be a good time to move into a more aggressive portfolio?
We caution against being overzealous right now or taking on more risk than you’re comfortable with. Again, it’s impossible to predict what will happen in the markets. There are some industries that may continue to struggle or regain their footing even as the economy reopens. For example, nearly 80% of consumers in a recent survey said they would be unlikely to attend a sporting game in person until the virus is under control. So, there will be some sectors that will suffer even as things reopen and we haven’t yet seen how that will impact the markets.
5. Should I make small, frequent deposits right now, or wait to make bigger lump-sum deposits?
Regardless of what’s going on in the market, automatically saving money every time you earn money is a great strategy. For example, if you get paid every two weeks, then save and invest every two weeks.
On top of that, when you make a new deposit, we rebalance your portfolio using that new money to buy assets that are underweight in your portfolio. So making frequent (say weekly, or bi-weekly) contributions is a way to take advantage of the current prices in the market.
6. I panicked and cashed out my investments. Now I’m worried about getting back in before another drop. What should I do?
Many studies have found that time in the market beats timing the market. For example, one study found that if an investor held $100,000 in the S&P 500 in 2006 and temporarily exited the market in 2008 for one year in the midst of the downturn, by 2016 their investment would be worth only $113,608, while if they had stayed in the market it would have been worth $195,719.
We do expect volatility to continue into the summer. But if your long-term goals have not changed, we believe staying invested is the right approach. Even if you’ve missed out on a few weeks of recovery, getting back into the market now means you have the opportunity to benefit from growth in the long run. If you're scared of getting back in, book a call with an adviser so they can understand what your goals are and help you make a plan to reach them.
8. Is it a good idea to hold the CI Direct Investing Cleantech add-on in my portfolio right now?
The Cleantech option gives CI Direct Investing clients the opportunity to align their investments with their values. If that’s still important to you as an investor and your goals haven’t changed, then we believe you should continue to have cleantech represented in your portfolio.
A word of caution, however, is that the recent plummet in the price of oil is likely to impact the industry’s outlook in the short-term, simply because it will be cheaper to rely on fossil fuels for our global energy needs, rather than low carbon alternatives.
Still have questions?
See these other articles for frequently asked questions we’ve received in light of the COVID-19 crisis:
