Five tips to consider when uncertainty and volatility resurface.

25 February 2025 by National Bank Investments

Five tips to consider when volatility resurface

As the global economy grapples with a series of unprecedented challenges, from the change in the interest rate cycle, the impact of a newly elected president and on going tariff challenges, investors face heightened uncertainty and market volatility. Recent economic events, such as inflation surges and fluctuating interest rates, along with political tensions, have created an environment where market fluctuations are more frequent and pronounced. In these turbulent times, having a clear strategy to manage investments effectively is crucial. This article offers five essential tips to help investors navigate periods of economic and political uncertainty while maintaining a long-term perspective.

1. Do not time the market

Data shows that market timing is not a great investment strategy: it can even lead to the depreciation of your capital. It is recommended to save over the long term with sporadic readjustments. By investing early on, investments have more opportunities to grow and investors will have more time to recover from any potential losses that may incur.

Source: CIO Office (data via Refinitiv). Myths and Realities. As of September 30, 2024

2. Manage emotions

Easier said than done. Having an open conversation with your clients to reassure them is important. You can help them make sense of their emotions. A repertoire of street smarts serves well in a day-to-day context, but in a financial arena, emotional biases stem from impulsive reactions or gut feelings not founded in actual fact. Those who stay the course are rewarded for their patience.

Source: CIO Office (Data via Refinitiv). 1. For illustrative purposes only; subject to change without notice; no guarantee of future performance. 2. Equity benchmark: 35% S&P TSX, 35% S&P 500, 20% MSCI EAFE, 10% MSCI EM, all in CAD. 3. Balanced portfolio: 21% S&P/TSX, 21% S&P 500, 12% MSCI EAFE, 6% MSCI Emerging Markets and 40% Canada Bond Universe, all in CAD. 4. Based on the historical interquartile range of returns since 1950.

3. Pay yourself first and invest regularly

Now’s a great time to talk about periodic savings initiatives. Investing a fixed amount at regular intervals increases buying opportunities when the market falls, and less so when they rise again. The capital is continuously growing and the purchasing power climbs steadily over the years.

Source: CIO Office (data via Refinitiv). *Annualized money-weighted rate of return.

4. Reconsider your risk tolerance and investment horizon

Source: CIO Office (data via Refinitiv, National Bank of Canada and C.D. Howe Institute). S&P/TSX total return index from December 31, 2007, to December 31, 2023. All values are represented in Canadian dollars. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Market: S&P/TSX.

Radically changing an investment strategy when the markets go down could result in regret down the line. It’s important to reassess the risk tolerance and the investment horizon and remain loyal to those principles.

5. Finally, opt for diversification

Asset classes are sensitive to market fluctuations, and it’s outside of our control to know which ones will be affected next. See if your clients’ assets are optimally allocated rather than withdrawing from the market entirely. Reallocations may allow money to grow in other sectors or securities that are more promising. It can be a profitable strategy if they eventually benefit from a rebound in the market or gain value by dipping into different asset classes.

The takeaway: Stay Invested!

Sure, market volatility, heightened by current global events, can create uncertainty, but it won't last forever! Focus on the long term; short-term anxieties may tempt your clients to part ways with their assets while, historically, volatility lasts far less than market upswings.

For more fact-checking and perspective on common investment beliefs, check out NBI CIO Office’s Myth & Realities report.

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

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