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The Learning Centre:

Good news: ‘bad news’ doesn’t mean you should bail from the market.

In fact, pulling out of the market during times of volatility could cost you greatly in potential returns.

As an educator, there’s a certain comfort that comes from knowing what the future will bring when it comes to your finances. For example, you have a good pension in place, so you know that down the road you will have a set income in retirement that you will be able to count on.

However, when you’re invested in a market that has seen quite a bit of volatility over the years, the only thing that is certain is the uncertainty of what tomorrow will bring—and that can be scary.

Market volatility is often associated with the ‘bad news’ headlines of the day—and those headlines can create a cloud of uncertainty for investors.

Now ‘uncertainty’ and ‘investing’ are not exactly the best of classmates, especially when you throw volatility into the mix. While it can be tempting to panic and ‘get out’ when market conditions take a turn for the worse, reacting emotionally may cause you to lose sight of your long-term savings and investment strategy—and that could cost you greatly in potential returns down the road.

Educators Certified Financial Planner professional Marian Ollila consistently reminds clients to stick to their long-term objectives when stuff in the market hits the fan. It’s advice that pays off.

“Time in the market is better than timing the market”, says Marian. “Even with significant declines, an investor who stayed in the market over the past number of years has still had positive returns.”

And Marian is not just being positive with that statement—take a look of the following example:


Scenario 1:

You remained fully invested in S&P/TSX over 10 years, in which case your $10,000 would have grown to $20,763, or 7.6% compound annualized return.

Scenario 2:

During periods of volatility/uncertainty, pulled out of the market for the top 10 days over the 10-year period, working out to an average of 1 day per year. Instead of receiving 7.6% return, your return would have diminished to 1.3%.

Scenario 3:

During periods of volatility/uncertainty, you pulled out of the market for the top 50 days over the 10-year period, working out to an average of 1 week per year. Instead of receiving 7.6% return, your return would have diminished to -10.3%, a material difference of nearly 18%!

So the lesson here is when the going gets tough—the tough doesn’t get going, but instead stays invested in the market.

When in doubt, you only have to look to past performance to be reassured about moving forward. Just take a look below—the S&P/TSX Composite Index gained approximately 1316% (or 9% per year) over the past three decades (that’s 22 of the last 30 years showing positive returns):

Year S&P/TSX* World Headlines
1985 25.1% Rome and Vienna Airport Attacks
1987 5.9% “Black Monday”; Record Setting Market Decline
1990 -14.8% Iraq Invades Kuwait
1991 12.0% Collapse of the USSR; US Recession
1992 -1.4% Standard & Poor’s Downgrades Canada’s Credit
1993 32.6% World Trade Center Bombed in New York City
1994 -0.2% Bond Market Crash
1997 15.0% Asian Market Crash
1998 -1.6% Russian Financial Crisis
1999 31.7% Y2K Chaos Predictions
2000 7.4% Tech Bubble Burst
2001 -12.6% World Trade Center Attacks in New York City
2002 -12.4% WorldCom Bankruptcy; Largest in US history
2003 26.7% President Bush Declares War on Iraq
2006 17.3% New Fed Chair; Adam Greenspan Replaced by Ben Bernanke
2007 9.8% Panic of 2007; Global Banks Start Reporting Billions in Losses
2008 -33.0% Subprime Mortgage Crisis; Bearn Stearns, Lehman Bros Collapse
2009 35.1% Chrysler and General Motors File for Bankruptcy
2010 17.6% Greece ‘Contagion Fears’; Flash Crash
2011 -8.7% US Debt Downgrade; Eurozone Debt Crisis; Japan Earthquake/Tsunami
2012 7.2% Commodities Boom Ends; Cyprus Banking Crisis
2014 10.6% Crude Awakening; Oil Price Collapses

*The S&P/TSX Composite Index percentage total return per calendar year.

While the market will always be unpredictable, one thing is for certain—there will be future events that will cause significant volatility.

So don’t stress and don’t bail. Instead, stay the course and remain focused on your overall financial goals and you’ll more than likely reap the rewards in the long-term for your patience and persistence.

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Have you reviewed your investment portfolio lately? Have one of our financial specialists contact you for an educator-specific portfolio review.




BMO Global Asset Management

The statements contained herein are based on material believed to be reliable. Where such statements are based in whole or in part on information provided by third parties, they are not guaranteed to be accurate or complete. The article does not provide individual financial, legal, tax or investment advice and is for information purposes only. Particular investment or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. Index returns are shown for comparative purposes only. Indexes are unmanaged and their returns do not include any sales charges or fees, as such costs would lower performance. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information.

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