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Stock markets have hit record highs while cryptocurrencies have exploded during the pandemic, but if you’re an investor tempted to jump in only because you missed out earlier, financial experts say you should take a step back, a deep breath and first reconsider how you approach investing.
Salman Ahmed, co-chief investment officer with investment firm Steadyhand in Vancouver, says there are investors, both new and experienced, who feel like they missed a golden opportunity.
Canadian saving rates shot up during the pandemic as people sat at home during extended periods of lockdown. Meanwhile, the S&P 500 index has more than doubled from its pandemic low in March, 2020, and many Canadians who invested in stocks – and cryptocurrencies – are richer than they were before COVID hit.
While North American markets are still climbing upward, they’re moving at a slower and rockier pace than before, with concerns thatlingering cases of COVID-19, labour shortages and supply chain issues will limit what many thought would be a bustling post-pandemic economy.
But if you’re worried that the best gains are behind you, don’t be. Mr. Ahmed and other investment advisers say the period of rapid gains the market experienced duringthe pandemic will look tiny down the road – if your goal is to invest for the long term. And if you’re not thinking with that kind of timeline, he says it might be time to reconsider whether to invest in stocks at all.
“In the long chart they’re going to have in front of them 30 years from now, what they experienced in the last 18 months is going to be a blip. That’s the case when markets go down, and it’s the case when markets go up.”
Stephanie Douglas, a financial planner and cofounder of Harris Douglas Asset Management, said stepping into investing because of a fear of missing out, or FOMO, is the kind of mindset that’ll burn you in the short-term.
“Investing in this way, you’re much more likely to buy close to the top and sell close to the bottom because you constantly have this panicking that you missed out,” said Ms. Douglas, who is based in Toronto.
“You need to build a plan and use that plan to build your investment strategy according to your risk tolerance, your goals, and to me that’s a far better way to invest than finding something that’s favourable at the time.”
So how can you get started? If you’re investing in the stock market, then both Ms. Douglas and Mr. Ahmed say you have to be willing to invest for three or five years at the very least. Ideally, you’re looking at a longer term, such as 20 or 30 years, for exponential growth to really take place.
That’s because there needs to be enough time for your investment to recover from any downward volatility in markets, which is a reality to consider when investing in stocks.
The risks and rewards can be even higher if you’re considering investing in cryptocurrencies such as bitcoin and ethereum, which are up more than 300 per cent and 900 per cent, respectively, over the past year in Canadian dollar terms.
Mr. Ahmed said the reality is that we simply have less information about cryptocurrencies to use toward an educated investment decision, since they’re relatively new and regulatory decisions are still evolving.
“Know what the purpose of the investment is. If you’re investing in crypto as a gambling part of your portfolio, then allocate a part of your portfolio that is high risk, and that you’re willing to see go to zero,” said Mr. Ahmed, who added that all cryptos are different, with some that are more speculative, or new, than others.
Jason Heath, a financial planner and managing director with the fee-only planning firm Objective Financial Partners in Markham, Ont., said people looking to get started should consider one of the more than dozen robo-adviser companies that exist in Canada.
“Robo-advisers really have made investing accessible to young people or anyone with smaller amounts of money to invest,” said Mr. Heath.
“Some robo-advisers have no minimum investments, the fees are low and competitive, and you don’t have to worry about what to buy and when to sell.”
He pointed to companies such as Wealthsimple and Netwealth, which offer simple long-term saving accounts that allow you to invest in a mixture of stocks, exchange-traded funds, bonds, and commodities like gold, to have a diversified portfolio.
While some people may have profited heavily off of individual stocks, Mr. Heath warns they carry much more risk than ETFs.
“It’s been a pretty phenomenal year … and one concern I have is it gives people a false sense of investing prowess, that they might be able to continue generating great rates of return,” Mr. Heath said.
“Everyone’s a genius when stock markets are going up, but it’s important to have reasonable expectations about stock market returns.”
A reasonable goal for stock investors would be a return between 5 and 9 per cent, Mr. Heath said.
For consumers who want a more guided experience, there are firms like Mr. Ahmed’s Steadyhand that have minimum investments at $10,000, and aim to provide a service similar to what you’d get at firms that require a six- or seven-figure minimum investment.
Mr. Ahmed said that even people who profited wildly during the pandemic are coming to firms like his own, because they’re realizing that investing isn’t as simple as it seemed at the beginning of the pandemic.
“A lot of investors who did do well during that period have taken their chips off the table,” Mr. Ahmed said. “They realized they got lucky and got the timing really, really right and wanted to take some of their winnings to a diversified portfolio with us.”
For anyone who plans to invest for the long term, Mr. Heath and Mr. Ahmed have one last piece of advice: Invest now, not later.
“Statistically the best time to invest a lump sum is today, because stocks generally do rise,” said Mr. Heath, saying that over enough time, markets will provide good returns.
“People, even professionals, generally do a poor job of timing markets, so for any individual investor to think they can outsmart the markets, the odds are pretty low.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
