Protect your investments
Protect your investments
“It’s not easy for anyone,” says Davis. So what is the financial planner doing with her own money? “I’m letting it ride,” she says. “I have a strategy and I’m sticking with it. The only way to ensure you will lose your money is to sell when the market is down.”
Market volatility has happened before and it will happen again, affirms Patricia Lovett-Reid, a senior vice-president at TD Waterhouse Canada. That said, it’s a good time to go back to basics and make sure your portfolio asset mix is a true reflection of your risk tolerance and investment objectives. “Gone are the days when you can buy a good name and sleep on it,” she says. “If you’re not already actively monitoring your portfolio, you need to.”
The key to reducing the ups and downs is to have a solid mix, including quality stocks, bonds and cash. Although cash and investment-grade bonds (the lowest risk category) generate paltry returns, they can even out the lows when the market is volatile. As for stocks, Lovett-Reid advises investing in blue-chip equities in such sectors as telecommunications, healthcare and consumer staples — things that people need even in a down market — and preferably those that pay dividends.
You might also want to weed out the dogs in your portfolio — the consistent underperformers — to free up cash. You can use those losses to offset your capital gains, reducing your tax bill, suggests Lovett-Reid. “And you can carry them back to the previous three years, so that can put some money in your pocket.” That said, she doesn’t recommend a wholesale sell-off of your equities. The TSX index has never lost money over any five-year period, she points out, and the markets are forward-looking, so they’ll move before the economic data tells you it’s time to buy again. “Then you have the issue of keeping up with taxes and inflation.” There’s nothing wrong with having cash on hand for emergencies, to reduce the volatility in your portfolio or for opportunistic purchases (of well-priced stock, for example). But over the long term, Lovett-Reid contends, “holding only cash can be detrimental.”
Retirees, she points out, are the most vulnerable in a market storm because they have to withdraw money in order to live. But rather than selling stocks while they’re down, Lovett-Reid suggests belt tightening. “It’s not fun, but you have to be realistic in facing your financial reality.”
What about those of us who worry that our retirement is receding farther and farther into the future? Hang in there, advises Lovett-Reid. “We can’t control the market. But one thing we can control is our emotions, and sometimes doing nothing is exactly what we should be doing.”
*Name changed by request
This article originally appeared in the February/March 2009 issue of More
