Figuring out how to navigate coronavirus-driven financial market stress, including plunging oil prices, can be an anxiety-inducing feat as investors brace for further economic impacts.
While it can be easy to get caught up in the major market swings, knee-jerk reactions may do more harm than good.
"The two greatest tools an investor can have in times like this are inattention and procrastination," said David Steele, regional director at IG Wealth Management. "Don't pay attention, don't stick your fingers in it – just let it go."
With businesses closing, layoffs and uncertainty with employment, there's going to be household stress, said Craig Strain, Red Willow Wealth Management financial planner.
However, there are ways to navigate your finances when it comes to managing events out of your control.
"When there's turbulence on an airplane, it's not time to remove your seatbelt," Strain said. "Focus on the long-term – there's going to be turmoil and stress, but remain positive that we're going to come out of it."
Don't sell
Big market swings could mean losses in your investment portfolio, but what's important to keep in mind is these declines are happening from record highs and will eventually recover.
"The markets are going to rise and fall, but historically, we've seen continued growth. Volatility does create opportunity," Strain said.
Markets flirted with "bear market" territory, when prices fall by more than 20 per cent, as recently as December 2018, and they were quick to recover. Similar downturns happened in 2000, and most may remember the recession of 2008.
"It was a pretty severe market crisis, and it was globally connected, but we got through it. Basically within an 18-month timeframe, we initiated one of the longest bull market runs in history," Strain said, referring to the 10-year-long turning point when global stock markets changed direction.
Not being in the market when these big gains happen can make it difficult to re-enter, said Duane Gibb, independent financial adviser. People who stay invested tend to take advantage of the recovery a lot better than people who have moved cash to the sidelines.
"Maybe the market has knocked you down by half, but it still has value. WestJet would likely be worth nothing today in the share prices because of (air travel restrictions), but when people start travelling again, it still has assets and value."
Steele said their financial consultants are expecting the crash to be relatively short-lived, "three to four months, tops." When the rebound does come, it won't help for people to sit on the sidelines.
"If you have any sort of time horizon at all, you're far better served to just leave the money in the market and take advantage of the recovery," Steele said.
Rebalance and stay the course
Strain said it's important for people to look at their portfolios with a financial adviser and consider whether or not they need rebalancing to keep pace with eventual economic recovery.
"It's about looking at the fundamentals of your financial plan, and investments are one side of that. People can maintain their contributions to take advantage of dollar-cost averaging, spreading out their investments over time."
This is where keeping up monthly contribution plans is an effective tool.
"With your financial well being, it's more than just the investments you choose. It has a lot to do with the practices you implement."
If people need to take out additional income, it's better to take it out of low-risk investments like bonds and guaranteed investment certificates (GICs), which don't fluctuate, Gibb said.
Consider discount buys
Anyone with a time horizon should consider buying up the stocks that may have been out of reach before, Steele said.
"Maybe they couldn't justify paying $1,000 for that handbag, but hey, all of a sudden it's on sale for $700. That's a good buy, so you pick it up," Steele said.
"That's exactly what professional money managers are doing in situations like this, where the entire market is rising and falling as a group, without any sort of discretion onto any individual equity."
There is a disclaimer on this, though.
It's important to work with a financial adviser to reposition your portfolio so you can acquire these safer investments and equities at a discount – don't buy them up at random, Steele said.
"You need to have identified the equity that fits your portfolio in advance, and just say, 'If this ever comes available at this price, I'm going to move on it,'" he said.
"You don't want to start creating an imbalance in your portfolio by going out and buying all the oil stocks that are currently depressed, because you'll end up with concentration risks. You need to have really pre-planned out a lot of this – otherwise, it won't work as well."
Lessons learned
Market volatility, while nerve-wracking, can present a valuable teaching moment.
Don't let it deter you from keeping up with your monthly investments, including tax-free savings accounts, emergency funds or retirement savings plan (RSP).
"It helps people re-evaluate how you prepare for these kinds of circumstances and the advantages of things like an emergency fund, or trying to stay liquid so that you can ride out these circumstances, because we will come out of it," Strain said.
However, Strain noted every individual situation is different. People may not be able to continue making these contributions because of job loss or economic hardship, but there are benefits to maintaining these investments while market values are down, he said.
For example, people who invest regularly each month into their RSPs will see better value when the market is down, Gibb said. Emergency savings should last for at least six months, ideally over a year.
