2018 was a wild ride in the stock markets with virtually every market worldwide posting a negative return with the TSX composite being one of the bigger losers at -11.64% (morningstar.ca). At times, it sure felt like we were in a bear market, but losses weren't quite bad enough last year to be under that definition. Volatility was a common term last year with very sharp declines and very sharp inclines day to day over the course of 2018.
What should we do when things go down and volatility doesn't go away? Panic? Quite the opposite actually. Stay calm and carry on. We must realize that stock markets always carry a certain degree of volatility and that they will remain unpredictable for the most part. History has shown that staying invested over the long term will produce the best results. Trying to time the market buying or selling has proven difficult even for the world's most renowned investors. Here is an example of how missing out on some of the best months since 1976 in the stock market could have affected your investments by hundreds of thousands of dollars.
For those wondering how a typical bull market or bear market might look we can see that bull markets are longer and have larger gains compared to bear market losses. This chart (via AGF) of the history of the Bull and Bear markets since 1956 show us the average bull lasted 44.6 months with an average return of +111.5% compared to the average bear lasting 8.9 months with an average loss of -25.8%. Based on these numbers, any long-term investor would benefit simply by staying invested regardless of what markets were doing.
Staying disciplined with your investments during your lifetime is key to success, but can always prove difficult when considering uncertainty in the economy, global trade wars, political corruption, etc. Also, just watching the value of your investments decrease during a bear market or a correction will make most a little uneasy. If you are an aggressive investor seeking higher long term returns then you have to accept market volatility to its fullest, but if it just doesn't suit your personality and you can't handle the fluctuations then a more conservative approach should be considered to fit your needs. Creating an investment plan will always have to consider volatility in returns when determining your risk tolerance and your goals, so if and when markets go up or down just remember why you invested the way you did and stick to your plan.
What are the important things to remember here?
-realize volatility is a constant whether in bull or bear markets
-make an investment plan and stick with it
-stay invested and do not try to time the market
-invest regularly regardless of what markets are doing
Considering a hands off approach and hiring a professional advisor to help map out your financial plan and put it in motion may also make sense for some people. Not only can an advisor create a plan specifically for you based on your unique needs and help with allocating and rebalancing your investments appropriately to reach your goals, an advisor can also help weather the storm during extreme volatility and reduce the possible pressure and stress one might realize managing things themselves. Any questions on anything always feel free to reach out. Happy Savings!
-Marty Metz, CFP
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