The first rule of investing is to stay invested

01 December 2019 by National Bank Investments

And the second rule of investing… is to stay invested. So, maybe these implied principles aren’t as stringent as those that have appeared in popular Hollywood flicks, but they’re nevertheless the beacon of good etiquette in the financial arena. With 2020 just around the corner, and with the near guarantee that volatility is here to stay, what can advisors do to help investors ride the wave of uncertainty without hiding all their cash under a mattress?

Volatility is a frequent visitor

It’s true; it really isn’t all that unusual to see volatility play an active role in the markets. Investors driven by the impulsivity associated with emotions like fear or panic risk selling their assets at a lower price point, missing out on the market rebound that inevitably follows those downward spirals. It could seem ironic to your client that, in uncertainty, the best thing to do is oftentimes nothing at all.

How investors reacted to the markets in recent months

_{Source: National Bank Investments Market turbulence doesn’t last forever}

Sure, the ride feels bumpy right now, but it won’t be that way forever. Encourage your investors to favour the long term; short-term anxieties may tempt them to part ways with their assets when, historically, volatility occurs for a far shorter period than a rise in the market does.

If there’s one thing time has taught us, it’s that it’s virtually impossible to time the market. In fact, if an investor manages to time the market correctly

Market turbulence doesn’t last forever

Sure, the ride feels bumpy right now, but it won’t be that way forever. Encourage your investors to favour the long term; short-term anxieties may tempt them to part ways with their assets when, historically, volatility occurs for a far shorter period than a rise in the market does.

If there’s one thing time has taught us, it’s that it’s virtually impossible to time the market. In fact, if an investor manages to time the market correctly

60% of the time, their return could be 9.05% which is, paradoxically, the same result achieved by someone who didn’t change a thing.

Results for an investor who tries to time the markets

_{Source: NBI My Investing Guide.}

Weather the storm by establishing a periodic savings schedule

Now’s a great time to talk about periodic savings initiatives. Investing a fixed amount at regular intervals increases your client’s chances of acquiring more units when the market falls, and fewer when they rise again. It’s a great strategy for those looking to reduce the average cost of their investments while also potentially profiting in the long term. Don’t forget to 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. Diversifying your client’s portfolio could generate a more stable return from a variety of sources. Advisors can consider geographic region, market capitalization and of course, asset classes, in order to implement the best investment strategies based on their client’s needs

Legal notes

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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.