Between August 1987 and November 1987 the TSX lost 24%.
Between April 1998 and August 1998 the market lost 27%.
Between August 2000 and September 2002 the market lost 43%.
We’ve been here before
And it is a very safe bet that we will see this again and again in the future. I do not think there can be any doubt about that.
We need to recognize that volatility is a normal part of investing. Fluctuations in the market are simply par for the course. Even significant declines are not unusual.
Market declines have always been followed by excellent recoveries simply because a rising market reflects the growth of the economy and the wealth creation and increasing value of the companies that make up the market.
Market declines have always been buying opportunities because they fluctuate but tend to correct with an upward trend over time. This means when the markets are in decline, equities are actually “on sale” – they cost you less!
An important caveat
This does not mean, however, that one should throw all caution to the wind and ignore some of the more basic lessons that fluctuating markets teach us, for example:
- Above all, review any debt you have and make plans to either reduce or eliminate it. Doing that will put you well ahead of many.
- If you need help with budgeting or the process of debt evaluation and repayment schedules, do not hesitate to call us.
- Don’t invest all your dollars in one type of investment. Diversify your portfolio not only by type of investment but by asset classes as well. That means: yes, invest in equities, but fixed-income investments are also important to maintain a reasonable balance. Not all segments of the market function at the same pace at the same time and therefore, it is extremely important to protect yourself by having a strong mutual fund portfolio of equity investments and at the same time, ensure that a percentage of your investments are in fixed-income vehicles.
- Did I just repeat myself? Yes… I did. Why? Because it is important that a balance be maintained so that you can protect yourself while achieving reasonably good results… safely.
- If you are depending on an income from your investments, make sure that you have set aside twelve to twenty-four months (if not more) in money market funds or T-Bill accounts to ensure that you are not drawing down against equities each month. In a down market, selling off equities can prove extremely costly. Best to let your equity and fixed income investments function without selling off portions of them each month to provide your required income. At Latimer Financial we recognize this and have arranged our clients’ income largely from money market funds even when markets are rising – merely because we know there will be down turns…we just don’t know when.
Continue saving and investing not ignoring, particularly in down markets, the benefits of dollar cost averaging.
Stay in touch with your financial advisor. And if he or she is not responsive… what can I say… call us!
If we are already your financial advisor, then rest assured we will stay in touch and will welcome your questions at all times.