Staying the course in volatile markets

There’s been lots of noise about market volatility. But what does it mean? And how should you deal with it?

By Sun Life Financial

If you’re like some investors, changes and declines in your investment returns may make you feel uneasy. However, market volatility is a “fact of life.” It’s normal for markets to go up and down. And, if your reason for saving or your financial situation hasn’t changed, it’s generally better to stay the course to meet your goals.

During changes and declines in different investment markets, it’s important to continue thinking about when you’ll actually need your savings or investments.

If you’re a long-term investor:

  • Staying the course can help you achieve the positive long-term investment returns you’re looking for.
  • Withdrawing your money from a fund before the market has a chance to bounce back could mean missing out on valuable investment returns. 

So, unless you are nearing retirement, keeping a long-term perspective on this portion of your money is critical.

If you’re a short-term investor:

  • Consider a guaranteed or fixed-income investment(s) depending on your risk profile.

Being patient during volatile financial times is easier said than done. Historically, investment markets have recovered from declines, although the amount of time it’s taken to recover varies. Remember that downturns in the market usually don’t last.

How inflation affects your investments

In Canada, the official measure of inflation is the Consumer Price Index, or CPI. It’s important to keep in mind that inflation doesn’t just affect the cost of products and services you buy, it affects your investments too.

If inflation is high, it means your rate of return on your investment(s) should be even higher – otherwise your savings may not cover as many expenses. You’ll find the rate of return on your investment(s) on your statements, but it’s important to understand your real rate of return when you subtract the value of inflation.

What’s your real rate of return?

Let’s assume your statement says your investment grew by 5%. If inflation was 2%, your real rate of return is 3% (5%-2%=3%).

Discover how the investment funds in your plan are doing

You can see the funds available in your plan, along with their performance information on mysunlife.ca. You can also explore more advanced Morningstar® tools, by selecting a tab at the top of the page. Simply sign in, then select Manage plan, followed by my plan, Plan overview, then View available investments.

QUICK TIPS FOR STAYING CALM DURING VOLATILE INVESTMENT MARKETS
1. Stick to your plan.

Don’t panic and make an emotional decision. Saving for retirement is a long-term project, that asks for a long-term perspective.

2. A balanced investment portfolio spreads out your risk.

A well-diversified investment portfolio of stock, bond and/or cash investments, is ideal for spreading out investment risk. Managing risk is an important part of your investment plan.

3. Review your investments regularly.

Use the Asset allocation tool on mysunlife.ca. This tool will help you review your investment risk profile. Sign in then select Manage plan, followed by Tools, then under the Asset allocation tab, select Continue.

Personal advice

Consider speaking with a financial advisor of your choice to get personalized advice about your plan.