Just as Canadians aren't phased by bone-chilling temperatures in the middle of February, they should keep their cool when their investment portfolios rack up huge losses every once in a while, a prominent investment adviser says.
Dan Bortolotti, a money manager with PWL Capital and frequent commenter on the markets in Moneysense magazine, agrees it's uncomfortable, but shouldn't be totally unexpected.
"It's a bit like a Canadian acting shocked every time the temperature hits –20°C," Bortolotti says.
"It's not an everyday occurrence, and it's uncomfortable, but it's part of what we signed up for."
Canada's benchmark stock index, the TSX/S&P Composite, has fallen about 19 per cent over the past year, and more than 11 per cent just since the start of 2016 alone.
The TSX is down 11 per cent already this month, but if you are well diversified the worst thing you can do is sell out now, investment experts say. (Ralph Orlowski/Bloomberg)
Bortolotti suggests that if an investor wants to buy stocks, they should be prepared to lose at least 30 to 40 per cent of their investment over the short term.
If that risk sounds too high, Bortolotti says, "you should not be invested in stocks at all."
Buy low, sell high
The Bank of Canada held its key interest rate steady on Wednesday, something that will keep returns on holding cash low for a while, so holding onto savings won't pay off in a big way any time soon.
The Royal Bank of Scotland recently told its investors that the safest way to survive this "cataclysmic year" is by selling. Specifically: sell everything.
In a note to clients, the bank wrote, "Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small."
David Baskin, the president of Baskin Wealth Management, couldn't disagree more with that view. He claims "market timing is a fool's game."
"I don't think you should probably ever sell everything," Baskin told CBC News in a recent interview. "I don't think the world is coming to an end. Even in 2008 when things were at the worst, the very worst advice you could've given anybody was to sell everything," said Baskin.
That means for some investors, playing it safe may be the answer. So what's a smart investor to do? Keep your eye on the prize.
"If you have a well thought-out plan," Bortolotti says, "you just need to tune out the noise and stick to it."
"If you're panicking now, it probably means you overestimated your risk tolerance."
David Lester thinks that's sound advice. The financial writer urges investors to think with their head — not their heart.
"There is an emotional brain and an intellectual brain and you want to use your intellectual brain in today's market," Lester explains.
"Listen to the experts with your intellectual brain. We didn't lower interest rates and experts are saying that we don't have a fundamental problem. This is a big difference to the fundamental problem in 2007-2008 when...banks were collapsing."
Lester says times when stock markets are low often end up being great buying opportunities in retrospect.
"If you make monthly contributions double them for the months that the market is going down," he says. "It will give you some zip when markets go back up."
"Do the opposite of what your brain is telling you."
Rather than watching the daily dips and dives of the markets and fearing for your investment portfolio, Lester advocates taking a longer-term view.
"Look out one or two years and focus on that," Lester says, "[and] hide your statement when it comes next month."
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