Investing in Volatile Times

The recent volatility in the stock market has elevated investor anxiety to a level not seen since 2008. How can you navigate through these difficult times? The following are a few basic steps that should help you with your investment plan.

First of all, have an investment plan. This is normally outlined in a document known as an “Investment Policy Statement” (IPS). Your IPS will outline your objectives for the portfolio, how your portfolio will achieve these objectives and what you can expect over specified investment time horizons (both good and bad). It takes into consideration your tolerance for risk, what contributions and withdrawals you are planning and the liquidity requirements you desire. In addition, it will outline your targeted rate of return and the time horizon for achieving these results.

The reason that this document is so important is because it allows you to focus on your long-term investment goals as opposed to riding the emotional roller-coaster of short-term stock market gyrations. This brings us to the next basic step — don’t focus on short-term market volatility. At any given point in time, there will be a reason to doubt the sustainability of the current level of the market. This is normal and is why there is a Wall Street proverb that states, “Bull markets climb a wall of worry.”

The last basic step is to stay informed. The Internet has provided us with unlimited sources for information on how to invest. This doesn’t mean that all of these sources are beneficial or reliable. Therefore, to stay properly informed, you should be looking for articles in recognized publications such as Forbes, Fortune, Bloomberg Businessweek, Barron’s, The Economist, Financial Times and The Wall Street Journal.

Certain individuals have an educated and informed perspective on what is happening and include such names as Warren Buffett, Bill Gross and Jeremy Grantham, to name a few. Bank of Canada governor Mark Carney shares his perspective on a regular basis, as does Ben Bernanke, chairman of the U.S. Federal Reserve. These sources can help you to understand what is happening at any given time and hopefully avoid a knee-jerk reaction to a piece of news making the headlines.

To summarize, start with a written investment plan that allows you to focus on your long-term investment objectives. Secondly, avoid the temptation to react to short-term fluctuations in the market that would have you deviate from your written plan. Finally, look to credible sources for help in understanding what is moving the markets at any given time.•

Peter Murray is a senior financial advisor with Assante Capital Management Ltd. (Member CIPF) in Calgary. Email your questions or comments to Peter at pmurray@assante.com or check his website at assante.com/advisors/pmurray