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Managing our investments in uncertain times
Most investors understand that markets go up and down, but there are times when these swings are especially dramatic. During these big swings, investors can be tempted to either BUY when the market has risen or SELL when the markets are down. Intuitively this can make sense. No one wants to miss out on the party when things are going well, and likewise we have been quite rightly conditioned to flee when things look dangerous.
But are these the right things to do when it comes to managing our investments?
The short answer, and one often quoted is “no, of course not”, however this can be easier said than done. The mantra may well be “buy low and sell high”, but the average investor’s behaviour is typically the exact opposite.
As indicated above, it is easier to put money into the market AFTER it has been doing well. This is especially true if that winning streak has lasted 6 months or more.
Conversely, it is also much harder to buy securities after a downturn, especially if the sell-off meets the definition of a Bear Market, i.e. down 20% or more.
The biggest selloffs of equities by retail investors have typically occurred after markets are already down 20% or more. This was true in 1987, 2001 and 2009 (and almost certainly again in March 2020, although the data will obviously not be in for a few more weeks). These same investors then buy back into the market only after it has had a large recovery. How does this impact their portfolios? They lock in their losses at or close to a market bottom, then miss out on most of the recovery before feeling it is safe enough to go back in.
How would this look in a $1,000,000 portfolio? We will use the crash of 2008-09 as our example with a start date of September 15, 2008 since this was just before Lehmann Brothers collapsed and the crash began. All values reference the S&P 500 $US (in our opinion, the most indicative of the overall economy).
CH Tax Pick-Up Service
CH Tax Pick-Up Service & Tips to Keep You Entertained With tax season upon us, we’re pleased to offer a special door-to-door tax package collection service from the CH team. The team and I are available to personally collect your paperwork from your home or office, remaining at a safe social distance, of course.
To book a time, simply contact our Office Administrator Hayley on firstname.lastname@example.org or 403 237 6570 and we’ll be there. And if you need us to pick up anything else while we’re out and about, don’t hesitate to ask. For our out-of-town clients, please continue to send us your tax information as normal.
From the entire team at CH, please stay safe and healthy. We’re all looking forward to a time when we can breathe a collective sigh of relief and see you again in person. In the meantime, please know we’re working hard on your behalf, and that will never change.
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