Stick to your plan
The key problem, always, is that no one knows precisely whether what’s
going on now is in fact a healthy “correction” following a bull market of
nearly unprecedented length, the beginning of a “bear market,” or a
temporary momentum-driven market triggered by a shift in investor sentiment
combined with a surge in year-end tax-loss selling, option resets, and
window-dressing by big funds (including mutual funds, hedge funds, and
My advice at this point is to stick to
your investment plan
– if you have one. The silver lining can be found only if you stay invested
in a well-diversified portfolio. Fear is the impetus for bad investment
decisions. If you have made a well-considered asset allocation, made solid
individual investment choices, and have done your research – whether
fundamental, technical, or quantitative – and your investment objectives
remain intact, then ride out the volatility. If you have a cash reserve, be
prepared to snap up bargains when they appear, especially in the Canadian
energy and financial sectors.
So far, the New Year has seen markets continue their volatility, with yet
more steep losses seen in the early days of trading in January. But this
won’t last forever. There will be a major buying opportunity, and astute
investors will be well positioned for it.
Instead of pushing the panic buttons, those with well-constructed
portfolios that take into account your true tolerance for risk, would be
well advised to conduct their annual portfolio review to see if any
rebalancing is needed.
An annual portfolio review not only tells you how your portfolio has
performed against your benchmark, but whether it’s time to make changes to
your holdings. This could happen, for example, if some investments in your
portfolio have done exceptionally well or have not met expectations, and
have consequently tilted your asset weighting in that sector beyond your
optimal target level. To conduct a portfolio review, at a minimum you need
to look at four key areas.
1. How assets are allocated
Assets fall into three key groups: safety, income, and growth. The weight
that each group commands in your portfolio largely determines the return
you can expect and the risk that you’re accepting over a given time. If
that allocation is skewed by extraordinary gains or losses in one class or
another over the year, your risk profile will change. For example, steep
losses in equities may have underweighted that asset class and unduly
skewed the weighting of your fixed-income holdings. But because
fixed-income is considered more defensive than equity, that means your
overall risk profile has become more defensive, perhaps much more than you
2. Are you diversified?
Diversification is at the heart of risk mitigation. It doesn’t make a lot
of sense to hold only one bond and one stock. Ensure individual asset
classes contain a sufficient number of diversified individual securities to
provide good diversification. For example, you’d hold a mix of federal,
provincial, and corporate bonds, further diversified by yield and duration.
And in equities, you’d diversify by sector, by region, by capitalization,
and so on, to achieve your desired risk level.
3. Review individual securities
With proper research, your individual stock and bond holdings work in
harmony to achieve a specific objective, say a minimum dividend yield or a
specific target price gain or a specified yield to maturity. When that
target has been achieved, the position is usually analyzed to determine
whether a switch or change within the portfolio is needed.
4. Review investment funds
If you’ve diversified by investing in mutual funds or exchange-traded
funds, review your funds’ performance over the past year and compare it
with your investment rationale. Have there been changes in fund management
or mandate (in the case of mutual funds) or to index methodology,
liquidity, or ownership (in the case of ETFs)? Investment funds are
frequently closed, merged, and renamed. Make sure such funds still deliver
what you expect. If not, consider switching.
5. Beware of tax consequences
Bear in mind that rebalancing portfolios through asset sales may have
unintended tax consequences or other unwanted effects. And remember, your
objective is not to remake your portfolio but to restore it to a state
where it continues to meet your time horizon, risk tolerance, and return
objectives. If your portfolio has outgrown your ability or desire to manage
it, consider consulting a
qualified independent financial planner
to help you work through the review process.
Watch Robyn discussing how to protect your finances when
you’re going through a divorce on CTV’s “Your Morning.”
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. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
© 2019 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.