Using the crash of 2008 as a reminder, Penticton financial advisors said investors shouldn’t panic at the volatility of the market right now.
“It’s not the time for that at all,” said Judy Poole, a financial advisor at Raymond James. “I think as in 2008 we start to find out what people’s true risk tolerance is. I think people need to assess what that is and over time get their portfolio to reflect that.”
Market volatility was sparked by the U.S. losing its AAA credit status rating. A negative outlook on the U.S. rating, means that further downgrades are possible. The concerns over the European debt crises and global economic growth are also weighing in on the stock markets.
Justin White, financial advisor with Edward Jones in Penticton, said stocks have dropped by more than six per cent over the past two weeks and the TSX is down about 13 per cent from the high it reached in April. Even though it can be unsettling, he said these types of stock market declines are common and not a reason to abandon your investment strategies.
“Investing is more than buying when you feel good and selling when you feel bad. It’s about developing and sticking with a solid strategy that addresses your needs today as well as your long-term goals. It can be tempting to turn your back on your investment strategy, but we believe that is a mistake,” said White. “You can’t control the market or the economy, but you can control how you react to them. If you find yourself reacting to every headline, it may help to take a step back and evaluate the longer-term positive trends in the economy and earnings. We believe they will ultimately matter more than the market’s short-term ups and downs.”
Poole said the U.S. is the least taxed of the developed economies and need to get their heads politically wrapped around the idea that is not working.
“In the meantime what we are seeing is pure volatility. The ups and downs aren’t based on anything factually. It is absolute emotion that drives this market and nobody can predict what that will be,” said Poole.
Adjusting in a moderate way is the thing to do right now advises Poole. Although she doesn’t suggest anyone make wholesale changes at this point in time, rather start to slowly develop the plan for it.
“Because nobody can predict, this is a really good time to average into the market. So use some of those old-fashioned conservative strategies like averaging to take the bumps out,” said Poole.
Setting up an appointment with a financial advisor and starting to do something on a regular monthly basis is the ideal way to invest at any time said Poole. As for the best guess on what the horizon holds for the Canadian dollar, Poole predicts it will return to the $1.05 to $1.06 range. The Canadian dollar rose to $1.0118, at close on Thursday.
“This up-kick in the U.S. dollar is probably a safety thing. They are still the largest most stable currency in the world, but based on economic reality it would belong where it was at $1.05. For a snowbird, I wouldn’t panic, but I would also use averaging there as well. If you know you are going to need $10,000 in U.S. currency for the winter then buy some now, buy some a month from now and you may not get the best rate but you are not betting the farm on today or tomorrow either,” said Poole.