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Investing in difficult times

Investing in difficult times

Has the COVID-19 crisis impacted your investment portfolio? Here’s how to reduce anxiety and make sure you have the knowledge you need to move forward with greater confidence.

Due to the global pandemic, we’ve seen tremendous volatility in the markets, with historic drops and rebounds, particularly in March. There’s also the side-effect of North American oil prices seeing record-setting lows in the face of collapsing demand as factories are idled and thousands of flights cancelled around the globe.

To be sure, it’s stressful to log into your investment accounts and see what may be significant drops in your portfolio value. But a few shifts in your thinking can help ease some of your anxiety in this very difficult time.

Panic selling is usually a mistake

In times like this, the temptation to sell and preserve your nest egg can be overwhelming. Selling now would bring stability to your portfolio and, for a time, ease worries about future losses. But there are two problems with this approach. First, holding too much cash exposes your wealth to erosion from inflation. Second, once you’ve left the market, it’s nearly impossible to predict when to re-enter because market bottoms only appear in hindsight.

On top of that, there will be the missed dividend payments, which can be significant. The role dividends play in the average equity investor’s long-term return is considerable. Over the past 40 years, Canadian stocks’ regular dividend payouts have supplied about one-third of the TSX Composite Index’s total return.

Now is the time to reassess risk

Instead of giving in to panic selling, this is a good time to contact your advisor and do a careful risk appraisal of your portfolio to ensure your holdings line up with your age, risk tolerance and need for income. Your advisor will also work with you to make sure your investments are properly diversified.

If you’ve purchased an investment that you’re not comfortable holding onto, you might consider selling it and reinvesting your money in an option that better suits your risk tolerance. The current volatility will likely remain for several months to come, and more market swings will certainly test your resolve.

Three strategies for a turbulent market

  1. Rebalancing: Here’s a scenario you might find yourself in today: suppose you hold a corporate bond that has fallen 40% to 50% in the last few weeks. If you decide you must sell, a smart move would be to wait for an upward move in that security’s specific market to do so. Then you can redeploy the cash into something more suitable for you.
  2. Dividends: In times of heightened volatility, income investments also serve another purpose by helping tide you over until the recovery eventually kicks in. Dividend payments can be used to pay bills or meet other expenses, reducing your need to sell any shares at today’s low prices. If you decide to reinvest your dividends, the market pullback means you’re automatically buying more shares now than you would have been able to a few months ago.
  3. TFSAs: Another way to maximize your dividends is to hold investments in a tax-free savings account (TFSA). You can take out any dividends (and gains) accrued in the account without paying tax on them.

Rates of return have never been linear

Finally, bear in mind that when it comes to the stock market, rates of return have never been linear: witness 2019, when the TSX rose 19%, and 2018, when the index dropped 12%. There will also be some really difficult years, like 2008, when the TSX fell 35%. But over time, your yearly return averages out.

Talk to your advisor

No matter what your age or risk tolerance, periods of market turbulence are a good time to get in touch with your Credential Asset Management Inc. or Credential Securities advisor and make sure your portfolio is suited to your individual needs. That’s the best way to resolve worry and confidently move forward.

Market Monitor and Weekly Market Pulse

Interested in keeping up to date on market and economic conditions? Our investment partner, Aviso Wealth produces both a monthly Market Monitor and a weekly Market Pulse with all the latest news and developments. Bookmark this web page to easily find both.

Comments or suggestions? Please email us.

Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.

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