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Market fluctuations: 5 things to keep in mind to stay optimistic

March 31, 2022

Various socio-economic factors can cause stock markets to fluctuate. Are you concerned about that? That’s totally normal. The good news is we’re here to help! Read on for the 5 things to bear in mind to keep your emotions in check and stick to your financial goals.

1. Staying calm and positive is a wise investment strategy

As in all kinds of situations, avoid making impulsive decisions; otherwise you may end up on an emotional roller coaster! Here’s what could happen with your investments if you let your emotions run the show.

The curve below represents stock market fluctuations. We’ve summarized how most growth stock investors typically react at each stage.*

When it comes to investing, emotions make poor financial advisors. During market downturns, the optimism investors may have felt when things were looking good can quickly turn to worry—to the point where some of them panic, give in and sell their stock. But that’s how they miss out on market recovery opportunities.

By choosing logic over emotion, you can break free from the current cycle faster and end up in a better financial position. In other words, staying calm and positive is a wise investment strategy—that’s why it’s important to never lose sight of your most valuable asset:your long-term vision.

Want more tips? Contact your Desjardins advisor. We’re here for you!

2. Historically, the numbers go up

It’s impossible to know when the bear market will end and when the bull market will begin. This was true 100 years ago, 25 years ago and 2 months ago, and it’s still true today.

Shortly after a big stock market drop, there’s often an equally sharp rise before positive momentum picks up again. Although past performance doesn’t guarantee future results, we see this decade after decade.

This table shows the performance of a $10,000 investment.We can see how the investment performed at the start of, during and 5 years after the 2007-2009 crisis. Note that the return became positive again.

Notes: The values shown are in Canadian dollars. The peak dates were determined based on the market index without currency conversion to reflect the actual movement of the selected market. The initial investment dates of each index are different, because each index peaked on separate dates: Canadian market (S&P/TSX) on June 18, 2008, US market (S&P 500) on October 9, 2007, and the international market (MSCI EAEO) on October 31, 2007. On each of these dates, a $10,000 investment was made. The market low date is the same for all 3 indices: March 9, 2009. The valuation date is 5 years after that: March 9, 2014. The data used for these calculations comes from the Morningstar Direct database and is based on total return indices, including dividend reinvestments.

3. What goes down must come up

Believe it or not, markets often deliver the best returns right after huge drops (aka market corrections).

That’s why we advise investors with long-term horizons to keep their investments. They’ll fare better when the markets pick up again.

4. Automatic investments keep your emotions in check

Decide on an amount and set up regular, automated transfers to your investment account—just like the pros. It’ll help you resist the temptation to outguess the stock markets, whether by trading frantically under emotional stress or staying too long on the sidelines during a bull market.

This is why we recommend keeping up with regular automated contributions.

5. A diversified portfolio is better for weathering the unexpected

If you have the money, keep making automated contributions. You’ll be in a better position to benefit from good market opportunities in the future.

Angela Iermieri

Financial Planner, Desjardins

Lastly, diversified portfolios are more resilient during volatile periods; a portion of your investments is protected against major fluctuations.

As a rule of thumb, you won’t be affected as much by shaky market periods, unlike more daring investors.

Whether you’re young or nearing retirement, the keys to achieving stability and long-term growth are the same: look at historical investment return data, manage your emotion, don’t touch your investments and automate your savings.

If you feel uncertain, take a deep breath and remember: Based on data from the last 100 years, changing your course during a storm usually isn’t the best strategy for your investment in the long term. You’re better off waiting for everything—including your finances—to stabilize.

If this situation is keeping you up at night, talk to us. Our priority is to guide you through these tough times, and your Desjardins advisor can help ease your worries.