If house prices dropped tomorrow would you sell? Probably
not.
A well-diversified investment portfolio is a lot like a solid
home in a good neighbourhood. It should be able to withstand ups
and downs over a long period of time. The big difference between a
home and a portfolio is that you can log in every day to track the
constantly changing value of your investments. Seeing a dip,
especially when markets are volatile, can trigger an emotional
response that leads to selling low, a counterintuitive
approach.
You may hear that other people are selling their investments or
choosing to park their money in cash until life returns to normal.
But if your investments are professionally managed, match your risk
profile, and put you on the right path to meeting your long-term
goals, sticking to your plan may be the best short- and long-term
approach.
7 Tips to stay focused on your financial plan
Here are some tips and strategies on dealing with your emotions
now and keeping your plan in place for tomorrow.
1. Don’t panic
Panic and anxiety almost always lead investors to make bad
decisions like selling good-quality investments at fire-sale
prices-only to buy them back later at much higher prices.
2. Get an objective view of your situation
This is not the time to call your day-trading buddy for stock
tips. Talk to friends and relatives who have endured times of
economic uncertainty. If your portfolio is professionally managed,
definitely ask your advisor for some perspective on dealing with
your emotional response to all that’s going on today.
3. Balance good and bad news stories
It’s essential to stay informed and know what’s expected
of you in extraordinary times. But dwelling on negative news can
eat away at your optimism. Seek solid, fact-based sources of
information and search out the good news. Lots of people and
organizations are doing the kind of positive work that will help
economies heal and markets recover. Balance your screen time with
these stories of hope and inspiration.
4. Keep saving money
If you are one of the lucky Canadians who is continuing to
receive a salary or other income, don’t let uncertainty derail
your good money-saving habits. If you are contributing regularly to
an investment plan, your contributions will benefit from
dollar-cost-averaging, a proven way to benefit from ups and downs,
while the markets remain unpredictable.
5. Stay committed to what works
Whether you manage your own investments or work with a
professional advisor, the decision to sell an investment should be
driven by your plan, not your emotions, and not as a reaction to
global events. Selling during a downturn locks in your losses and
forces you to choose an alternative investment that may or may not
perform as well when markets recover.
6. Stay protected
Cashing in or canceling your insurance policies is a
short-sighted strategy that can weaken the foundation of your
financial plan. If you need access to cash, talk to a professional
advisor about ways to create income from the assets you have in the
most cost-effective way. For example, you may be able to borrow
money using your assets as collateral. You’ll need to pay back
the loan but you can avoid cancelling policies at a bad time.
7. Spend within your means
Interest rates have dropped slightly and many assets are
undervalued right now. It can seem like the right time to trade in
your vehicle or make major purchases. But parting with cash or
taking on new monthly payments will have an impact on your cash
flow. If markets take their time recovering or interest rates start
to rise, financial security may be more important than a few new
things.
Get Your free financial plan
If the “new normal” has you feeling off-balance,
you’re not alone. Don’t let emotions guide your investment
decisions. I invite you to give me a call for a one-on-one review
of the markets and your portfolio. Then let’s work together to
develop a comprehensive financial plan that will help you achieve
your long-term goals. Some financial planners will charge upwards
of $3,000 to develop a plan. We’re happy to provide this
valuable service to our clients at no cost. –
Amardeep Sidhu (A.D. for short), Financial
Advisor
Originally published 26 April, 2020
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
