by Mike Onotsky
We are all too often influenced by the media. They love to share the bad news and even embellish it since good news just doesn’t sell. You are engaged when they are talking about the risks to you, but not so much when they project everything humming along normally.
When it comes to financial markets, wording like “triple digit losses” seem to attempt to strike fear when, in reality, a triple digit loss when the markets are around 15,000 is really a 1% swing and this is for a portfolio that is 100% in stocks which would be a very aggressive investor. If we look to the days before 2008, a 1-2% swing either way was a pretty normal day in the market.
So what is the result of fear over the financial markets? Well, for most people, it results in panic and often a drastic change in investment style for their retirement or other savings. As an advisor, I hear the worries…”I am seeing a quarter of my retirement savings disappear”. The reality is that it you don’t suffer any loss in value until you actually sell. Those that held through 2008-2009 saw their portfolios come back within a couple of years (assuming they were properly invested in the first place). As I have discovered in my own life, reality is never as bad as the fear.
So what are folks doing and how is it hurting them? Often times it is selling their equities and moving to cash or very low risk (read low returning) investments. These are the same folk that then wait until the markets have taken off before jumping back in…”buying high and selling low” as they say. The key to success is determining your risk level in all environments then sticking to your plan no matter what.
Rob Carrick has a great piece in the Globe and Mail that he wrote two years ago and I will link to it here for your reading pleasure. Rob feels, as I do, that if you let your fear drive your financial decisions, your retirement goals may need to be adjusted because sitting on a mattress full of cash will simply not get you where you want to go.
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Thanks for reading.