No time for emotional investing

Fluctuation on stock market

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

Book a financial planning session

April 26, 2020