Don’t panic: Stay the course and follow your financial plan
“The best response for long-term goal-oriented investors is to not walk in lock step with the rest of the world and sell.”
I have been working on a communication regarding the impact of coronavirus on investment portfolios for most of this month. Each day events have prompted me to revise it.
As much as this event has consumed media and all digital platforms for everyday Canadians my inbox has been flooded by analysis and commentaries, and invitations to webinars by Canada’s top portfolio managers. It has simply been impossible to digest it all. It would be easy to fall back on these experts, but I have elected to share my own experience instead.
I have been a participant in bear markets for 30-plus years. My first RRSP contribution was made at the RRSP deadline months before Black Monday (Oct. 19, 1987) when the Dow lost 22.3 per cent in one day. In those days you could take out an RRSP loan and deduct the interest. By the time the loan was paid off one year later I found that, on paper, I would have been better off doing nothing. (The value of the RRSP plus tax refund was less than the original investment.) I did question my intelligence, but I continued to invest each year until the demands of raising our children put a pause on contributions. (As an aside, the growth during their early child rearing years was the equivalent or exceeded what my peers were contributing to their first RRSPs.)
The next investment venture was Registered Educations Savings Plans and this plan benefited from investments made in the aftermath of the Tech Wreck (also known as the Dot-com bubble). The lower valuations enabled us to purchase mutual fund units at a discounted price. RESP investing is unique as the withdrawal dates are known at the outset. (Retirement is often a moving target and the withdrawals are spread out over years.) The growth in valuations was interrupted by the Great Recession and the RESP portfolio bore the brunt of that bear market. We remained invested and given that post-secondary was still in the future there was time for a rebound and recovery which enabled us to fully fund our sons’ schooling.
My RRSP portfolio is considerably larger today than it was in 1987. Like most, I know what the high water mark of my plan is and I am guilty at times of measuring today’s value against that figure.
As an investor I need to practice what I preach — revisit the most recent printed statement and benchmark performance to the statement 12 months earlier. Doing so enables me to gain perspective and set aside the emotions of the moment. I am reminded of another saying that I can’t source but do subscribe to: Investing is like a bar of soap — the more you play with it the less there is.
Looking back, I know the best response for long-term goal-oriented investors is to not walk in lock step with the rest of the world and sell. In fact I have chosen to follow the maxims of Sir John Templeton and Warren Buffett and invest into this market:
Templeton: “The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” Buffett: “Be fearful when others are greedy. Be greedy when others are fearful.”
Bottom line, stay the course and stick to the plan.
Scott Weldon is a Certified Financial Planner, Chartered Life Underwriter and Chartered Financial Consultant. He advocates for Canada’s middle class, one Canadian family at a time. He lives in Hamilton.