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Investing during times of market instability

The state of the Canadian economy may be uncertain, especially with COVID-19 causing such chaotic fluctuations, but that doesn’t mean you have to ditch your investing goals. “It makes sense to be worried about market volatility and its impact on your portfolio,” says Colleen Ciccozzi, Senior Manager of Wealth Programs for Coast Capital. “However, despite this instability certainly feeling different, it follows a familiar pattern.” Whether you’re looking to make a large purchase, build your savings, or plan for retirement, you should still consider using your money to make more money and hopefully achieve those dreams.

The key message is, markets are often unpredictable. So think twice about reacting to or abandon your long-term investment strategy due to the circumstances. Instead, look at some ways to curb your risk—and your nerves. This article lays out five actionable insights for how you can remain confident about investing during uncertain times.

1. Establish your investing type

Investing is investing, right? Not really. Your approach to and reason for investing often determines how you should invest. “Decide what type of investor you want to be,” says Robb Engen, a fee-only financial planner and blogger at Boomer & Echo. For instance, more hands-off investors, who prefer to set up their investment portfolios and just make minor changes over long periods, might consider working with a financial advisor. But hands-on, or “do-it-yourself investors, might look for a discount brokerage platform that offers all of the account types, and free or low-cost trades,” says Engen.

The way you think about your financial goals is pertinent, too. If, for example, you’re putting away money to make a large, one-time purchase, like a car, or a big vacation, you’ll need the money in the short- to medium-term. Consider a GIC or a tax-free savings account (TFSA). “You won’t want to lock your investment into a long-term product but rather choose something that maximizes your earnings quicker, like a GIC or TFSA,” says Ciccozzi. “Buying mutual funds may have the potential for a higher return but are also a little riskier because you don’t have the timeline to allow the market to correct if it dips.”

Retirement investors, on the other hand, have time on their side and it may well be their most valuable tool. That’s because the market fluctuates—but it also bounces back. When you aren’t forced to withdraw funds because of an immediate need, the plan is to outlast market crashes and come out ahead.

2. Make automatic contributions

Perhaps the most common (and commonly ignored) investment insight is to set up regular contributions to your investment account. By doing this, a certain amount is automatically deposited into your investment account with every paycheque. The strategy is sound. It lets you build up the account easily and regularly without too much impact on your monthly budget. And, if you’re contributing to an RRSP, it can have positive implications for your tax bill.

For gig workers, freelancers, or solopreneurs with irregular pay, however, this is harder to negotiate. “Investors who have irregular income and expenses need to do some extra planning when it comes to their contributions,” says Engen. “One approach is to establish a baseline amount that they can contribute each month and then top that up as their income allows, for example, in a higher income month or at the end of the year.”

The caveat, of course, is if your financial situation becomes untenable. “If the pandemic has had a negative impact on your income and future outlook, then it’s perfectly sensible to pause any regular contributions until your situation becomes more clear,” says Engen. “Focus on debt repayment, maintaining a healthy emergency fund, or just staying afloat until your finances stabilize,” he continues.

3. Keep your risk tolerance low

“Set it and forget it” is a mantra for a reason. Investors might be tempted to try and play the market—to buy low and sell high. But there’s really very little evidence that this approach works. “In the big picture, your investing strategy shouldn’t change based on market conditions,” says Engen. “You started investing with certain goals in mind, and with a specific risk tolerance and asset mix, so stick with your approach with regular contributions.”

If you like to obsess over the Tesla share price or scan for Gamestop news and are eager to learn more about investing, dip your toe into online trading platforms like QTrade. Many online stock brokers are good for beginners because they can help new investors learn more about the markets. Look for platforms that are simple to navigate, have easy-to-understand commission and pricing structures, and allow you to practice on demo accounts.

4. Invest more in the market—even if it’s volatile

Stocks have been on a roller coaster ride throughout the duration of the pandemic. Should you really invest more in the market? “It’s pretty much always a good time to invest your money,” says Ciccozzi. “And that’s because every day that your money is invested, you have the potential to earn more.” Historically, the stock market has gone up, even if you have a bad year. So if you’re not looking to take your money out in the short term, you’re likely to gain it back—with interest.

Also, consider the power of compounding. Every time you make money on your investments, it contributes towards the amount of money that you earn interest on, and so on. For example, says Ciccozzi, “if you invest $100 and you get a 10% return on your investment, you then have $110. If you leave your money in the market, you not only earned $10, but you also gain a 10% return on the $110, for a total of $121, and so on.”

Another bonus: For those in a strong financial position, market downturns are an opportunity to buy more at a discount. But this comes with a strong caveat: Buy low only if you still have time on your side, not if you’re looking to retire soon.

5. Seek balance in your portfolio

A balanced portfolio can refer to your investments or your investment products, and what’s right for you will change over time. Younger investors can leverage time to make the stock market work for them, while older investors will want to start moving more of their money in low- or no-risk products.

“If you’re looking for a no-risk product during COVID-19 recovery but don’t want to lock all of your investments in for the long term, you might want to consider GIC laddering,” says Ciccozzi. “With this strategy, you invest in GICs with staggered maturity dates.” This gets you elevated interest rates but also ensures you have regular access to your funds. The idea is to be flexible enough with your investments that you can access what you need without interrupting your investment strategy.

Lean on a financial advisor

Remember that investing is a life-long pursuit, and you can expect downturns and times of volatility. Realistic goal-setting, strategic planning, and patience are all important factors that can help guide you through.

Experiencing the pandemic, you probably don’t have to be reminded that times of uncertainty can be emotionally charged. So don’t hesitate to ask for help. Working with a financial advisor can help you avoid rash decisions, understand all of your options, and make plans for the short- and long-term.

Talk to a Coast Capital financial advisor to better understand all of your investment options.

 

The stuff we have to say
Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan, and mortgage products. Coast Capital Wealth Management Ltd. provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities, and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual funds are not guaranteed or insured by any financial institution, government, or other deposit insurer. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees, and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing. The views expressed here are those of the authors and writers only and not necessarily those of Worldsource Financial Management Inc. It may also include forward-looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate.

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