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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert

By Robyn K. Thompson  | Friday, March 02, 2018

Q – Stock markets have been on a roller coaster ride since the end of January. A large part of my portfolio is tied up in equities and equity funds. But after a long bull market, I’m getting very nervous, especially now that the new Chairman of the Federal Reserve indicated the Fed would continue raising rates in 2018 and President Trump said recently he would impose tariffs on aluminum and steel products, raising concerns about a global trade war. Stock markets have turned volatile. Is it time to sell stocks? How does one deal with this level of market anxiety? – Barry N., Burlington, Ontario

A – When stock markets turn volatile following a long period of relative calm, as they have done in the past month, many investors will contact their brokers and advisors and start selling things. Others, however, seem not to be so anxious, and while concerned, do not “ride madly off in all directions,” as the old Stephen Leacock quote has it. So what’s the difference here? As financial advisors, we see both types of financial personality, more of the former than the latter. What does it take to get yourself into the group that just isn’t as fussed about market setbacks like this?

1. Discipline

When you create an investment strategy and build a portfolio to execute that strategy, your objective is to see your wealth grow within your risk comfort zone.

So if you’ve decided on a broadly defensive asset mix of, say, 10% cash, 50% fixed-income, and 40% conservative stocks, it will serve you well. But it will do so only if you have the discipline to stay with it. Your equity holdings will cycle through ups and downs just like the rest of the market. But the income generated from your income holdings will offset that periodic volatility to some degree, because these assets have a kind of built-in risk-reduction function. As a result, your overall portfolio won’t suffer as severely in those inevitable market downturns.

The key to making it work, however, is that you have to stick with it. And that’s where the discipline comes in. When you call your advisor to sell stocks now because the market is “crashing,” you’ve made a fatal mistake in your financial planning. If the asset allocation was good for you before, and the security selections made sense, what’s changed? Are those big blue-chip companies suddenly on the verge of bankruptcy? Will the government default on its bonds? Of course not! But the markets will fluctuate. The discipline lies in making sure you don’t blow up your portfolio at every turn – because you’ll almost certainly do it at the wrong time.

2. Patience

Patience goes hand in hand with discipline. The longer you apply your disciplined approach to portfolio management, the more likely you are to meet your objectives for wealth creation, regardless of transient market fluctuations.

Stock markets do tend to be cyclical and frequently undergo periods of heightened volatility. They’ve done so may times in the past and are doing it again now. But research has shown that stocks consistently outperform virtually every other asset class over the long term. As of Dec. 31, Toronto’s benchmark S&P/TSX Composite Index, for example, has returned an average 7% compounded annually for 20 years. The important principle here is that you’d have made that return only if you’d stayed in the market. And you’d have done that only by exercising patience.

3. Prudence

You will never achieve your wealth objectives and financial stability by investing in hot tips or selling whenever markets get volatile or when you’ve read a particularly scary headline. Once you establish your financial objectives, define your true risk-tolerance level, and decide on an appropriate asset mix, you need to select individual assets.

You’ll want to do research on any equities or fixed-income securities you want to put in your portfolio – and many self-directed brokerages have excellent online research and financial analysis tools to help you do just this. Prudence means knowing what you’re investing in, knowing the history and the outlook of any company you want to buy. But if market research isn’t your favorite pastime, hire the expertise. Ask your financial advisor who they use for asset management and what their financial management philosophy is. Get the facts and figures and proof of performance. If they can’t or won’t, find someone who will.

When you’re comfortable that you’ve set up an investment plan that follows the principles of discipline, patience, and prudence, you’ll find that your anxiety level about the latest craziness in the markets has gone way down. And your confidence in achieving your financial goals has gone way up. – Robyn

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. She is also listed as a MoneySense Approved Financial Advisor. Contact her directly by phone at 416-828-7159, or by email at for a confidential planning consultation.

Notes and Disclaimer

© 2018 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

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