Finance Market downturns For those of us who invest in stocks (either directly or via ETFs and mutual funds), market volatility is something which we have to learn to deal with. And while some people can simply shrug off a market downturn and get on with life, other people react to volatility with stress. And that’s understandable: who wouldn’t be stressed to see their portfolio go down by 10%, 20% or even 30% in value within a few short weeks? Some people believe that the only real way to eliminate this kind of worry and anxiety is to exit the stock market altogether, and invest in less volatile assets such as GICs, bonds and similar instruments. That’s certainly an option, but it might not be the wisest: by forgoing the superior returns that equities offer over the long term, you run the risk of your portfolio not keeping up with inflation. In essence, you swap the risk of volatility for the risk of outliving your money. A better way to regain control here is to shift your investment mindset and become laser-focused on high-quality, conservative holdings that stand up better in a market downturn. An added bonus: many of these high-quality, conservatively managed holdings also generate significant and growing dividends. That stream of dividend income can soften the blow of downturns (at least to some extent). By adapting a conservative mindset and steering clear of the highrisk/high-return startups, “hot stocks” and outright speculations that are so often the most severely affected by market volatility, we avoid the situations that cause us stress. That’s one of the best ways to retain control – over both your emotions and your long-term portfolio growth potential. Investment decisions and portfolio allocation Some investors enjoy the “thrill of the hunt”: searching out undervalued opportunities, analyzing stock charts, discussing company prospects online, and so on. Others consider all of that a tedious chore, or worse: a stress-filled minefield in which every wrong decision could somehow threaten to “blow up” their finances and their lifestyle. If you’re part of the latter group, one way to eliminate that stress is to shift your decisions to “autopilot” by building a portfolio focused on passive investments – pooled funds that simply track a given market index, rather that one which tries to select winning stocks. Exchange-traded funds (ETFs for short) are ideal vehicles for such investing; an added bonus is that because such ETFs simply track a pre-constructed index, their management fees and expense ratios are usually extraordinarily low. Of course, no portfolio can be considered to be 100% autopilot – you’ll still have to do some work selecting which ETFs you want, representing which assets, and in which world markets. And you should also commit to a regular rebalancing schedule (say, once every six months; or maybe every year), when you reallocate your positions to ensure that any one of them hasn’t grown into an overly large portion of your portfolio. But other than that, the passive ETF portfolio doesn’t require a lot of maintenance, oversight, or even involvement. There are many online resources and financial blogs that explain such an approach; many online stockbrokers, fund managers and wealth advisors offer sample “passive” portfolios and allocations. If you find yourself stressed by the complexity of all of your portfolio holdings, or are generally disinterested in following the various ups and downs of stocks, bonds and other assets on a regular basis, a passive approach can be a great way to regain the sense of control and empowerment that comes with keeping things simple. Giving Once we reach a certain age (or our portfolio grows to a certain size), our thoughts naturally turn to lending a financial hand to our family members and loved ones, and donating to causes and organizations which we care deeply about. While this is certainly a noble goal, sometimes this desire to give back can lead to strong feelings of pressure, indebtedness or even guilt. There’s a name for this feeling – social debt – and, for some, it can turn an honourable, worthwhile intention into something that causes considerable stress and anxiety. The best way to eliminate this stress is to plan. That is, instead of viewing giving as writing a one-time cheque, or as an impulsive decision that you make when some hurricane, or wildfire or other natural disaster hits some part of the world, think about your giving strategically: with care, with intention and with specific goals in mind. Take time to set out some causes or guiding principles about what kind of legacy you’d like to put your money behind. Perhaps you care deeply about funding your grandchildren’s education. Perhaps there’s a charity or organization that’s made a deeply meaningful difference to your life. Heck – maybe your portfolio is large enough for you to set up a private foundation and foster a culture of giving within your family. Any or all of these (and many more!) can be legitimate and noble goals for your giving. By being deliberate about it and thinking about what principles should guide your giving, you can actually simplify some of the complex decisions that often surround the issue, while eliminating the feelings of pressure or obligation that often accompany it. Instead, you’ll enjoy the feeling of empowerment that comes with knowing that your money is being put to a good cause. 28 | www.snowbirds.org
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