– When stock markets turn volatile following a long period of relative
calm, as they have done in the past month, many investors will contact
their brokers and advisors and start selling things. Others, however, seem
not to be so anxious, and while concerned, do not “ride madly off in all
directions,” as the old Stephen Leacock quote has it. So what’s the
difference here? As financial advisors, we see both types of financial
personality, more of the former than the latter. What does it take to get
yourself into the group that just isn’t as fussed about market setbacks
When you create an investment strategy and build a portfolio to execute
that strategy, your objective is to see your wealth grow within your risk
So if you’ve decided on a broadly defensive asset mix of, say, 10% cash,
50% fixed-income, and 40% conservative stocks, it will serve you well. But
it will do so only if you have the discipline to stay with it. Your equity
holdings will cycle through ups and downs just like the rest of the market.
But the income generated from your income holdings will offset that
periodic volatility to some degree, because these assets have a kind of
built-in risk-reduction function. As a result, your overall portfolio won’t
suffer as severely in those inevitable market downturns.
The key to making it work, however, is that you have to stick with it. And
that’s where the discipline comes in. When you call your advisor to sell
stocks now because the market is “crashing,” you’ve made a fatal
mistake in your financial planning. If the asset allocation was good for
you before, and the security selections made sense, what’s changed? Are
those big blue-chip companies suddenly on the verge of bankruptcy? Will the
government default on its bonds? Of course not! But the markets will
fluctuate. The discipline lies in making sure you don’t blow up your
portfolio at every turn – because you’ll almost certainly do it at the
Patience goes hand in hand with discipline. The longer you apply your
disciplined approach to portfolio management, the more likely you are to
meet your objectives for wealth creation, regardless of transient market
Stock markets do tend to be cyclical and frequently undergo periods of
heightened volatility. They’ve done so may times in the past and are doing
it again now. But research has shown that stocks consistently outperform
virtually every other asset class over the long term. As of Dec. 31,
Toronto’s benchmark S&P/TSX Composite Index, for example, has returned
an average 7% compounded annually for 20 years. The important principle
here is that you’d have made that return only if you’d stayed in the market. And you’d have done that only
by exercising patience.
You will never achieve your wealth objectives and financial stability by
investing in hot tips or selling whenever markets get volatile or when
you’ve read a particularly scary headline. Once you establish your
financial objectives, define your true risk-tolerance level, and decide on
an appropriate asset mix, you need to select individual assets.
You’ll want to do research on any equities or fixed-income securities you
want to put in your portfolio – and many self-directed brokerages have
excellent online research and financial analysis tools to help you do just
this. Prudence means knowing what you’re investing in, knowing the history
and the outlook of any company you want to buy. But if market research
isn’t your favorite pastime, hire the expertise. Ask your financial advisor
who they use for asset management and what their financial management
philosophy is. Get the facts and figures and proof of performance. If they
can’t or won’t, find someone who will.
When you’re comfortable that you’ve set up an investment plan that follows
the principles of discipline, patience, and prudence, you’ll find that your
anxiety level about the latest craziness in the markets has gone way down.
And your confidence in achieving your financial goals has gone way up. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. She is also listed as a
MoneySense Approved Financial Advisor. Contact her directly by phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
© 2018 by the Fund Library. All rights reserved. Reproduction in whole or
in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.