If you’re like most investors, emotions tend to creep into your investing decisions.
When markets are strong and your investments are rising in value, you may become overconfident and less careful, investing money in the next “sure thing” without thoroughly researching the potential risks involved. On the other hand, when markets decline and your investments start losing value, your initial response might be to panic and sell before you lose even more money.
It’s human nature to bring emotions into investing, but it’s also a likely way to fall short of your longer-term financial goals. That’s where an advisor’s steadying influence and expert advice can help.
Guiding you through the tough times
An advisor is trained to approach the markets rationally and with a long-term perspective. They understand that markets are volatile, rising and falling in response to macroeconomics, geopolitics and, yes, the emotions of other investors.
Let’s say we’re in a bear market, which is commonly defined as a prolonged decline where investment prices have dropped by 20% or more from recent market highs. Would you have the confidence and resolve to stick with your
However, advisors aren’t like most people. A key part of their role is to help you invest methodically and without emotions so you can remain focused on your long-term goals. They know bear markets don’t last forever. In fact, history shows that bear markets are typically much shorter in duration and less pronounced than bull markets (i.e., when overall prices have risen at least 20% above recent market lows). It’s just that most people feel more pain when they lose money than happiness when their investments gain.
Strategies to weather the storm
An advisor will help you stay the course and continue investing through short-term market turbulence. Bear markets may even be a good time to buy, as they often create opportunities to invest in attractive companies trading at undervalued prices. A strategy of “buying low” may lead to significant gains once the markets recover.
If you’re hesitant about investing a large lump sum when markets are challenging, consider a “dollar-cost-averaging” (DCA) strategy where you invest a set dollar amount at regular intervals. For instance, you may choose to invest $250 per month in a particular mutual fund. That way, if the unit value of this fund declines, your $250 will allow you to buy more units. As values rise, you’ll buy fewer of the higher-priced units. A pre-authorized contribution plan, often referred to as a “PAC,” pairs well with a DCA strategy because it provides the convenience of investing automatically without emotions getting in the way.
Not only can an advisor help you stay invested and potentially profit from “oversold” markets, but they also review your investment portfolio regularly. They will work to keep your portfolio tax efficient and well diversified, allocating to investments that suit your specific circumstances, risk tolerance, time horizon and investment objectives. If required, they’ll make adjustments to your portfolio.
While it’s dangerous to be greedy when markets are performing well, it’s equally risky to let fear cloud your judgement when markets are declining. Without proper guidance, you might not stay on track to meet your goals and secure the financial future you want. A trusted advisor will offer the advice and direction you need, especially during bear markets when you’re probably most vulnerable to investing emotionally.
To learn more about how we can build a suitable plan based on your needs, please contact us today.
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The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This content was prepared by Sunrise Wealth Management a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.