| |
| When it’s hard to be optimistic, stay realistic!
|
COMMENTARY BY THE PATENAUDE SCHAFER GROUP
With investors feeling the most prolonged stock market correction since 2002 now is a perfect time to step back and review the basics of investing.
For starters, you can’t invest without assuming some risk. To have success as an investor you must control the expected risks to a level you can withstand, by balancing your portfolio with different investment vehicles that will tend to do well at different times.
Unlike gambling where odds always favor the house, investing is about accepting risks that are in your favor. For example, when you have a time horizon of five years or longer you should include equities or equity mutual funds, especially when investing after the market has retreated significantly from previous highs.
|
|
|
|
|
Why five years? There has only been one five-year period since the 1930s when North American stock markets have had a negative five-year return which was from an investment peak in 1969 to the bottom of the recession at the end of 1974.Any other five-year period, especially those starting from a market trough like we are enjoying today, has shown positive returns, most of them far in excess of the returns on so-called 'risk-free' investments like GICs.
So, why wouldn’t you give your equity based investments the same benefit you would give the bank when you purchase a five year GIC. The only difference is that the bank will not let you access your five year GIC, while they lend that money out at much higher rates to borrowers. With the stock markets down significantly from their peaks last summer and a steady diet of horrible financial news and predictions, it's tough to be optimistic. It’s a coin toss as to what markets will do tomorrow or next week.
|
Unlike gambling where odds always favor the house, investing is about accepting risks that are in your favor.
|
|
|
|
When it comes to investing our emotions make us feel optimistic or pessimistic. Through good times and bad, it is most important to remain realistic. Every piece of investment literature or financial statistic proves that the best time to invest in the stock market is during a recession or market correction.
Remember how awful you felt in 2002 when the TSX bottomed near 6,000 as that major correction drew to a close? Fast forward to 2008 and even with all the recent turmoil the TSX has more than doubled in less than six years.
With opening day this week in the majors, ball players are reminded to keep their eye on the ball and tune out the crowd noise. That is exactly what investors need to do; focus on your objectives and tune out the daily distractions.
If you’re investments are sitting on the sidelines or you have cash to invest and are waiting for higher markets or more favorable news headlines before investing, history shows you are likely making the wrong choice.
|
|
|
If you have any thoughts about this article or would like to make a suggestion on future articles contact;
|
|
|
|
The information contained herein is based solely upon the author's current analysis and is derived from sources believed to be reliable but Wellington West Capital Inc. makes no representation that this information is accurate or complete. Wellington West Capital Inc. is a member CIPF.
|
|
|
|
