What’s an investor to do?
Throughout history, markets have experienced periods of volatility – in this case brought about by a credit crunch and financial crisis which has created forced selling by some institutional market participants.
This search for liquidity and indiscriminate selling has resulted in a devaluation of everything to the same degree, regardless of the quality of the underlying securities or assets. Everything is being lumped together. It is only a matter of time before the markets readjust their focus from fear back to facts and fundamentals. Things will get better. Though no one can predict when volatility will subside, when the turnaround comes, it is likely to be sharp.
Unless your goals have changed substantially, then neither should your plan. It’s never a good idea to let short-term thinking guide your long-term plan.
Figure 1 shows that where an investor allocates their investments can have a very significant impact on their real return scenario. In this scenario, investors were clearly best served by ensuring they had some exposure to asset classes that provide inflation protection properties over time.
Figure 1: Example of the “real” return on an investment*
Figure 2 shows that short-term market events have very little impact on long-term trend lines. Looking back at $1 invested in numerous asset classes over 200 years ago, the trend shows that though throughout history there have been many wars, pandemics, crises, and times of turmoil – despite these events, markets have continued to grow. So while there have been many challenges that at the time may have appeared to be insurmountable barriers to future growth, each time, the markets have carried on.
Markets do not build turnarounds on good news. They will continue to do the important work of digesting and absorbing economic and financial events, eventually find a base and begin to lay the foundation for new growth.
Figure 2: Market disruptions have minimal impact on long-term trends
Christine Décarie, B.Comm., CFA
Vice-President and Portfolio Manager
Christine manages Investors Mutual of Canada, one of the country’s longest-running mutual funds, and has 22 years of investment management experience.
“The point of maximum pessimism is often the point of maximum opportunity.”
