Investment Tips to Weather Market Volatility

If you’re like many investors, market volatility and your portfolio's related ups and downs, including your retirement/savings plan with your employer, may make you feel uneasy.

What is market volatility?

Market volatility is a period when the price of an asset, like a stock or a bond, rises or falls in sudden, significant and unpredictable ways. Most of the time, stock markets are calm, but at other times, prices jump dramatically.

World events and announcements, including those regarding economic indicators, interest rates, or global trade, can cause volatility in the stock market, which may make you wonder how this impacts your investments.

How might this impact you?

It is important to remember that changes in the investment market are a normal part of economic cycles and investing. It does not reflect poor investment fund managers or your choice of investment funds. The economy and the stock market are not in a 1:1 relationship, and your investments are distinct from the stock market, even though they often include elements from it.

Historically, many significant events have had a dramatic short-term impact on the markets, such as:

Black Monday (1987)
The Dot-com Bubble Burst (2000)
9/11 (2001)
The Financial Crisis (2008)
The Declaration of the COVID-19 Pandemic (2020) and the resulting inflation (2022)

However, the markets have always recovered and continued to grow. Based on historical data,¹ average downturns of 21.9% are likely to return to normal, or better, within 12.8 months. Generally, those who remain calm, stay invested and contribute regularly are rewarded in the long run.

Help your plan members save for the future.

What should you do?

During changes and declines in different investment markets, focusing on when you’ll need your savings or investments is essential. If you’re a long-term investor, staying the course can help you achieve the positive long-term investment returns you’re looking for. If you withdraw your money from a fund before the market can bounce back, you could miss out on valuable investment returns. Also, the current volatility may present an opportunity to buy investments “on sale,” meaning you may be able to buy more units at a lower price through your group plan.

Focusing on the bigger picture

If you’re a short-term investor, you may consider a less volatile investment option or redirect some of your savings from a group RRSP to a group TFSA. Short-term events may not affect your long-term retirement and savings goals if your investment portfolio is based on risk tolerance and appropriately diversified across asset classes, sectors, investment styles, and geographic regions.

When things are going well, we tend to forget that there will be times when the markets aren’t as strong. Being patient during volatile financial times is easier said than done.

Here are a few strategies to help you weather market fluctuations:

Stick to your plan. Don’t panic and make an emotional decision. Consider your long-term plan and investment strategy, which should align with your long-term goals and risk tolerance.
Ensure your investment portfolio is diversified. A well-diversified investment portfolio of stocks, bonds, and cash investments is ideal for spreading investment risk; managing risk is an essential part of your investment plan. Having a TFSA in addition to an RRSP can offer flexibility during uncertainty.
Meet with your financial advisor to consider your holistic situation and contextualize the market.
Review your financial goals, risk and investments regularly to give you confidence that you’re invested appropriately for your situation.

If you have questions or need more information, contact your Cowan group retirement consultant at 1-866-345-8256 or email makesense@cowangroup.ca; accessible accommodation is available upon request.