Navigating Volatile Markets

Navigating Volatile Markets

By: Russell Willems, Chief Investment Officer, Amity Trust

The first half of 2022 has been a difficult start to the markets.  Both stock and bond markets are down double digits as of the end of June.  This means that many conservative portfolios, which typically have a higher bond component, are down over 10%.

In light of this reality, what should be done?  Does it make sense to make changes?  Will the markets keep going down?  These are normal questions that we ponder during times like these.

In order to help make solid, rational decisions pertaining to our finances and retirement funds, I’d like to share some key principles to keep in mind:

  1. Remember that volatility is normal. While this volatility at times means downward movement, this same volatility is what provides positive growth as well.  In a way, the volatility can be considered the “price of admission” for earning higher average returns compared to low-risk investments.  The following chart shows that in many years, there have been drawdowns nearing (or more than) 10%.  Yet in most years, there have been net positive returns.

  1. Resist the urge to time the market. While the “perfect” strategy would be to sell out of the market just before it drops, and reinvest just before it recovers, we know that this is virtually impossible.  In fact, days with large drawdowns have historically been clustered with days of high positive returns.  It becomes apparent that trying to avoid the large down days will very likely result in missing the big positive days too.  Therefore, it is important to stay invested and stay consistent as opposed to trying to time the market movements. 

  1. It is important to take a long-term view of investing. Often during periods of market declines, the financial headlines can invoke fear and panic. However, we must remember that volatility is normal, and thus time in the market instead of timing the market is key.  You can see from the chart below that bull markets have historically lasted much longer than bear markets, and have generated positive returns that more than offset the declines experienced during bear markets. The aim is to generate reasonable average returns over years and decades, and not get overly focused on weeks and months.

At times, investing can be an emotional rollercoaster.  Working with an advisor can provide a sounding board for your concerns and your unique circumstances.  We are here to help you make solid, rational decisions with your finances.  If you have questions regarding your financial health, or would like to meet to review your investments, we would be pleased to do that.  Feel at ease to call us, or book a meeting in the office.

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