Why the urgent need for “safety” can lead investors astray
These days, we’re reading a lot about the “flight to safety” in markets and investments. It’s understandable, of course, as the COVID-19 virus pandemic spreads fear and panic through global financial markets as a nasty side effect. But is that flight to safety the right thing to do right now?
Robyn Thompson is featured in CTV’s “Your Morning” with Anne-Marie Mediwake, discussing how to handle your investments and personal finances in the wake of the COVID-19 pandemic scare.
With stock markets now into bear market territory, a global recession looming, and mob-mentality behavior prevailing in both supermarkets and stock markets, Robyn has some timely advice for investors on how to stay calm, weather the market turmoil, and even profit from new opportunities.
Stock market rout not the time for wholesale portfolio changes
The rapid spread of the Covid-19 virus (also known as the coronavirus), has hit global markets hard over the past few weeks as investors worry about the impact of the spreading contagion on global trade and corporate earnings. Stock market indexes have plunged well into correction territory (down more than 10% from recent highs), crude oil has dropped to levels last seen in 2017, global growth appears to be slowing, and with a possible recession looming, central banks are cutting interest rate cuts.
Can you really “live with the risk”?
In this day and age of “robo-advisors” and passive index investing, many investors seem to have forgotten the single immutable truth that equity markets are inherently risky. That’s simply because the share prices of stocks traded on markets are influenced mostly by expectations of future earnings growth. Many factors can come to bear on these expectations apart from a company’s competitive position, financial strength, and industry outlook. These include shorter-term geopolitical events (not as important) and longer-term economic and monetary policies (more important). Put it all together and it adds up to market-wide trends, oscillations, and fluctuations, which are often characterized by a wide amplitude from top to bottom. This is what’s broadly called “risk.” And it’s what most investors have trouble dealing with. READ MORE
Stock markets are setting records daily. Ignore it!
“The market will fluctuate.” That old bit of market wisdom is ascribed to Gilded Age financier J.P. Morgan, and is as true today as it was a hundred years ago. The primal emotions of fear and greed are ultimately at the bottom of all market movement, and they take turns confounding market watchers, analysts, and investors. Trouble is, no one ever knows when there will be a market top (or bottom). READ MORE
The market will fluctuate – get used to it!
Stock markets seem to be reaching record highs every day. Toronto’s S&P/TSX Composite Index is the top-performing market in the world so far this year. Yet endless storm clouds seem to be gathering permanently on the horizon: Brexit; the U.S. election; negative interest rates in many developed countries; and on and on. Should you pay attention? Yes, most definitely. But should you start selling off your assets looking for the (probably mythical) “safe haven”? No. Here’s why. READ MORE
The lure of low rates can lead to a risk trap
With interest rates so low, and stock markets hovering around all-time highs, many investors are looking to borrow for investment purposes, especially since the interest on an investment loan is tax deductible. While this might look attractive on the surface, borrowing to invest can be a perilous experience – one that you undertake at your own risk. READ MORE
How to avoid the market timing trap
In a post-Brexit bounce over the past few weeks, the major North American stock markets have touched record highs. That blindsided many small investors who had bought in to the end-of-the-world style of media hype right after the Brexit vote and jumped out of their equity holdings. Of course, they pretty much missed the almost immediate rally, which recovered the losses and sent markets surging to new highs. So is now the time to buy stocks again? Actually, that’s the wrong question to ask. READ MORE
How to keep your head when stock markets start gyrating
If you got a bad case of market jitters over the latest stock market scare headlines, then the business media will have done their job – which is to get you to look at their websites, Twitter and other feeds, cable channels, and newspapers – and, of course, all those ads that track you and follow you around. Welcome to the brave new world of instant market panics! Trouble is, all that market and media noise can lead to bad investment decisions. READ MORE
Trading by headline is a sure way to lose money
Q – I have both mutual funds and exchange-traded funds in a self directed brokerage account. They’ve suffered some pretty big losses over the past couple of weeks. Should I be selling my equity funds and switching to cash to protect my investments in this volatile time? – Asked by J.B.
Not necessarily. First of all, don’t panic! Markets fluctuate and regularly experience periods of volatility. During especially uncertain periods, as we’ve seen recently, it’s best first of all to review your financial plan and revisit your investment objectives to ensure your investment portfolio is still in line with your goals. If it is, then you should be able to ride out the storm. READ MORE