Let’s face it. 2011 was not a great year for the Canadian stock market. It started out well — almost reaching pre-2008 financial crisis levels, but then fell back to close out the year in the red.
For diversified investors the damage was limited, thanks to a decent bond market. But still, the ‘news’ was bad — worse than normal, really — with Europe, Japan, and Libya topping the list of things for investors to worry about.
At times like this, people who have financial plans often worry about them, since they are rarely based on assumptions of negative returns. They worry that falling markets will result in plans that fall short. Surprisingly though, this is usually not the case, as diversified investment portfolios rarely take long to recover — even after the severest of market downturns.
How people react, on the other hand, is another story. There is a tendency to panic and sell when the market is down, then buy when it is up again. Even those who resist the natural temptation to panic are likely to invest less aggressively after a period of weak market performance. Often when the market is down, there is an impulse to stop investing, or simply put savings in the bank until markets ‘stabilize’. This money often finds its way back into the market eventually, but typically only after the market has risen substantially off its lows.
In his or her defense how does the everyday investor stand a chance in a world where media is everywhere — and decidedly negative.
To some, the financial services industry at times may be hard to defend. While the predominant majority of those in our industry are honest and hard-working with a genuine interest in helping others make informed financial decisions, our message may sometimes be difficult to hear above the crowded marketplace. For example when markets are down, some may offer a “second opinion” which can be helpful if objective. But what if it isn’t? Always be alert to help ensure that a recommendation to buy or sell is in your best interest and not a way for an institution to push a product. Exacerbating matters is how media induced investor behavior affects long-term returns.
Ironically there is an abundance of good advice available to investors — related to investment taxation, income maximization, control of risk, maximizing government benefits during retirement, and much more — advice that can actually make a difference. Instead we obsess over the things we can’t control.
My New Year’s Resolution this year is to get the word out — that financial planning is a worthwhile pursuit.
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only. Securities are offered through Raymond James Ltd., member CIPF. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member CIPF. For more information feel free to call Jim at (250) 594-1100, or email at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca
