June 22, 2020

What to do when the markets tumble

Every once in a while, the financial markets will throw you a curve ball. That’s the nature of investing – what goes up can come down. But what should one do during a downturn?

A recent article in the Financial Post  says the “days of turbulence” this year may have some folks thinking of giving up on stocks altogether, and stuffing “money into a shoebox under your bed” instead.

But, the article advises, that would be the wrong approach. Markets tend to bounce back after setbacks – they are resilient.

Quoted in the article, investment professional Dan Tersigni says staying the course, rather than bailing on stocks, is the wisest approach. “The odds are overwhelmingly in your favour,” he tells the Post. But patience is a must, the article says, as it can take four or five years for markets to fully recover from a slide.

The next tip from the Post is to remember what your investment goals are. If it’s retirement down the road you’re saving for, “the worst thing is to go off track by ditching investments when stocks take a dive,” the article notes.

“You still have time on your side, and you really don’t want to be making short-term decisions,” Tersigni tells the Post. Retirement can be a multi-decade journey with time to make up short-term losses, the article states. If you are up at night fretting about volatility in your investments, perhaps should look at a more diversified portfolio, the Post reports.

Finally, remember that down markets can often be a good time to buy, the Post tells us.

“Normally when the stock market takes a pounding, you shouldn’t focus on what you’re losing but instead on what you could be buying. A market plunge or `correction, makes stocks cheaper,” the article notes. However, the Post says, getting it exactly right on timing – buying at the lowest point – is extremely difficult. A better plan is to automate the process, and buy a set amount of investments every month, the article says.

“That way, you’ll get the best performance from your money – even during the worst of times,” the Post concludes.

So to recap – don’t panic and sell everything at a loss. Focus on the longer term goals – you may have more time than you think until you are actually dipping into those savings as income. And making regular investments, a practice called “dollar cost averaging,” lets you take advantage of dips without getting into the risky business of timing the market.

A nice feature of the Saskatchewan Pension Plan is that you can automate your savings by setting up a periodic direct withdrawal from your bank to SPP. This accomplishes two goals – as discussed, you are now doing dollar cost averaging. And as well, you are paying yourself first, and directing money into your savings before you start paying the bills. Win win.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

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