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Financial Friday #85: How to Deal with a Market Meltdown

Friday, October 22, 2021   /   by Mario Daniel Sconza

Financial Friday #85: How to Deal with a Market Meltdown

Markets Hit New Highs – Time to Pull the Plug?


"What goes up must come down?" If you believe that old adage applies to the markets, stock prices might be heading south sometime soon.


Markets have been on fire in 2021 and the TSX has just soared past the 21,000 level, a 21% increase since the beginning of the year. Regardless of the economic factors underlying the rise and whether it is merited or not, the fact is that stocks can suddenly drop with little warning.


Predicting the timing, extent, and duration of a fall in the market is something the experts seldom get right and can never do on a consistent basis – so what’s an investor to do when left holding the bag as stocks go for a tumble?


If stocks do slide, you should not be overly surprised nor emotionally broken; try to keep the situation in context. You entered the markets for higher returns and made a conscious decision to accept some level of risk, and then you created a portfolio to match that risk. For example, you may have passed on a fund that specializes in small, hi-growth tech firms in favour of a lower risk index fund which moves in sync with an entire market. Regardless of the outcome of that choice, you have to live with it and beating yourself up about it won't help.


Ideally, you have already prepared for market volatility by mixing up what’s known as your asset allocation. Some stock downturns are regional or country-specific in scope and spreading you investments across several international markets can reduce the impact of a dip in any given market. You can also add bonds to the mix (they often move contrary to stocks) or other types of securities to further spread out your risk.


Don't forget to adjust your asset allocation to reflect changes in your financial situation and life stage; it's not a one-time task.


While we highly recommend studying all you can to improve your financial literacy, overloading on the analysis and hype that goes with any market downturn can lead to spur-of-the-moment decisions you may regret.


Historically, markets have always recovered. If you believe in the strength of the markets, the companies you invested in, and their ability to be successful over the long term, you are best to ignore the short-term chatter. In other words, stay the course! The TSX is 79% higher today than it was in March of 2020 when the pandemic hit, and almost 20% higher than it was just prior to the pandemic.


Exiting the market at a peak is more often the result of luck than any sort of purposeful investing strategy. If you guess wrong, you will be stuck on the sidelines until the downturn eventually comes, or be forced to buy in again at higher prices. Riding out the dips with a long-term horizon and proper diversification/allocation is a much more realistic, and still very effective strategy.


If you are thinking about entering the markets and want to learn more about how to minimize your risk, make sure to join our webinar next week. We will be expanding on a few of the points above and giving you the facts you need to make your own informed decision.


Resources


Perfect storm brewing for cash-strapped Canadians

Inflation reaches a 20-year high in September and economists are now saying it is not a short-term issue. Are interest rate hikes imminent as the government looks for ways to keep a lid on inflation?


The 4 biggest mistakes made by new investors

Sage advice for getting started in the markets - we wholeheartedly agree with this one so check it out... and make sure to read this week's feature article above!


Retirees head back to work

Inadequate savings, low interest rates and rising costs are turning retirement dreams into nightmares and forcing seniors back to work - if they can find it!


Canada not looking very affordable

An extensive new survey from insolvency experts BDO reveals bad news about the overall affordability of life in Canada as well as their debt, saving, home ownership and retirement situation.


How to avoid buying on impulse

If you are prone to making unplanned purchases and regret it later, these helpful tips will help you keep your wallet in your pocket.

eXp Realty of Canada
Mario Daniel Sconza
4711 Yonge St 10th Floor
Toronto, ON M2N6K8
416-230-3476

Information is provided exclusively for consumers’ personal use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®.
Information is provided exclusively for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®. Copyright 2021 Last Updated December 1, 2021
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