Q – I am a self-directed investor, and I am growing very tired of the huge swings in the market. Can you please give me your opinion on the latest market downturn?
James R., Victoria, British Columbia
A – Markets are going through an equity cycle, and we are in a decline phase. The 5-year market low for the S&P/TSX Composite Index was 8,123 back in February 2009. In August 2011 the market closed at 12,768, representing a 57% gain from the bottom in February 2009.
Simply put, the markets were due for a correction, which was triggered by a slowdown in the rate of global economic growth and growing debt problems in the eurozone and the US.
My advice at this point in the equity cycle is to stick to your plan. The silver lining can be found only if you stay invested in a well-diversified portfolio. Fear is the impetus for bad investment decisions. If you have made solid investment choices and have done your research – whether fundamental, technical, or quantitative – and your investment objectives remain intact, then ride out the volatility.
It is going to be an ugly fourth quarter, and I suspect the markets will rally somewhat to close out the year relatively flat – that is, neither up nor down too much on the year as a whole. The good news is that the next phase of the equity cycle is the accumulation phase. This will be a buying opportunity. – R.T.