my money
At a Glance
Helping You Understand Financial Planning and Investments
Advice for stormy markets? Stick to your plan
Market declines are a normal part of investing, as we’ve recently seen
in the yo-yo market of the past several months. While it’s often tempting
to take action when markets weaken and newspaper headlines scream
doom and gloom, it’s a temptation you should work hard to resist.
Here’s why. Your best investment decisions will be based on the savings
and investment plan that you’ve already put in place – not on yesterday’s
headlines. While it’s important to stay informed about investment
markets, it’s also important to read the headlines in context.
Emotional investment decisions commonly lead to buying investments when they are expensive and selling them when they’re cheap.
The result? Below average portfolio performance.
While the current stock market volatility can test the patience of just
about any investor, if you’re building toward your long-term retirement
savings, patience is exactly what’s needed.
Here are three strategies to help ensure your retirement savings stay
on track, even in difficult market conditions.
Stay invested
If you’ve seen the value of your
investments decline in recent
weeks, it’s natural to want to take
action. But before you react and
consider selling long-term equity
investments, consider the downside.
When you sell, you turn a paper
loss into a real loss. Meaning that
once you sell, you’ve lost your
chance to gain back any of your
losses. By staying put, you’ll have
the opportunity to gain your
money back. Too often investors
buy or sell at the wrong time
and lose money or miss out on
potential gains.
So take a deep breath and stick to
your plan.
Continued
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For example, if the value of your
equity fund investments decrease
by 15% in a year, and your fixed
income investments gain 5%, you
need to rebalance your portfolio
and increase your equity investments and decrease your fixed
income investments to maintain
your target asset mix.
While it may seem strange to
increase your equity investments
in a difficult market, it can work
to your advantage in the long
run. Asset mix rebalancing forces
you to buy in at market lows
(when your equity percentage
falls below target) and sell at
market highs (when equity
markets have risen in value faster
than other asset classes).
In addition to asset mix rebalancing, remember to review your
asset mix strategy over time.
While the strategy you’ve developed may be the right one for
you today, it will gradually
change over time, especially as
you get closer to needing your
savings in retirement.
i
As a group plan investor, you may already be making regular
contributions to one or more plan accounts. If you are making regular
contributions, keep up the good work. If you are not, there’s no better
time to get started.
Making small contributions on a regular basis is one of the best ways
of managing short-term investment risk in an uncertain market.
When you invest in a fund at regular intervals – each pay period for
example – the unit price of the fund will be higher in some months,
and lower in others. The average price you pay lies somewhere in
the middle. Provided the investment gains value over the long term,
you’ll profit from your purchases during the short-term price declines.
Take a look at the chart showing the performance of the S&P/TSX
Composite Index over the past 10 years. If you were making regular
contributions to a Canadian equity fund during the market declines
between 2000 and 2002, you can see how you profited as the index
rose in more recent years.
S&P/TSX Composite Index
$2,600
$2,400
$1000
If the recent declines in equity
markets persist, this could
require you to rebalance your
portfolio to ensure you’re investing according to your original
investment strategy.
Make regular investments over time
Value of
Rebalance to maintain
your target asset mix
$2,200
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
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Make sure you have a plan in place
You may have already determined the savings and investment strategy
that’s right for you, but if you haven’t done so, or it’s been a few years
since you last looked at your plan, there are a number of online tools
that can help you determine how much to save and how to invest your
savings over time. Sign into Sun Life Financial’s Plan Member Services
website to review some of the online tools available to you. It also a
good idea to consult a financial advisor when making changes or
updating your investment strategy.
If you have a general question or suggestion about this newsletter, please send an e-mail to can_pencontrol@sunlife.com or write to my money
At a Glance Newsletter, Group Retirement Services Marketing, Sun Life Financial, 225 King Street West, Toronto, ON M5V 3C5.
This bulletin has been created exclusively for you. It addresses issues to help you with your financial planning and investments, and cannot be
reproduced in whole or in part without the express permission of Sun Life Financial.