The Learning Centre:
‘The virus effect’: an update on current market volatility and your Educators investments
(Reading time: 2:00)
‘Keep calm and carry on’. ‘Ride out the storm’. ‘Stay focused on the long-term’.
If these sentiments sound all-too familiar, it’s most likely because you’re an investor who’s seen their fair share of market volatility. While those ups and downs are part and parcel of investing, there are occasionally instances when the market reacts in extremes.
Those extremes can leave investors (both new and experienced alike) feeling a little… uneasy.
Take the recent headlines surrounding the outbreak of the coronavirus (COVID-19), for example.
In the past couple of weeks, the markets saw a sharp decline as the spread of the virus left many investors feeling nervous. This anxiety was attributed to the perceived financial impact the COVID-19 outbreak would have on multiple industries and regions globally (due to the threat of quarantine).
If you’re feeling uneasy about how this news affects your Educators investments, keep in mind that markets typically react in the short-term to global health scares and other crises.
What usually occurs within financial markets during these times of uncertainty is that investors will switch out of risky assets (such as stocks) and move into safe-haven investments (like bonds). This move into ‘safer’ territory has been the exact countermeasure to the COVID-19 outbreak in these early months of 2020. When this happens, the unit prices of risky assets go down—while the unit prices of safer assets go up.
It’s during these rollercoaster times in the market when investors benefit the most from a strategy called dollar-cost averaging.
With dollar-cost averaging, you invest a fixed dollar amount at regularly scheduled intervals, which also takes into account market fluctuations. When the unit price is high, your fixed investment will automatically buy fewer mutual fund units. When the unit price falls, more units will be purchased. Ultimately, you’ll be averaging out your unit cost and eliminating the risk of investing in the market at the wrong time.
When it comes to current market volatility, Educators Financial Group is well positioned to ride it out.
Since history shows these types of market reactions tend to be short-lived, our fund managers have not made adjustments to their allocations based on recent noise (regarding COVID-19). Instead, they have collectively maintained their strategy in the long-term by picking quality-underlying investments. Furthermore, by sticking to their rules-based approach on what to buy and sell, our fund managers remain confident their asset mix (of well-run businesses with solid financial statements) will ultimately result in superior outcomes.
Do you have Educators Monitored Portfolios? Great news: our fund manager reduced stock exposure prior to the market decline in order to lock in some capital gains. They will now be looking for opportunities to utilize this excess cash to top up their equity asset allocation. Learn More.
To further keep things in perspective, almost every year comes with its own unique set of challenges and news events that give investors a reason for concern.
However, markets, like most portfolios (and people for that matter), are resilient. Regardless of how things may seem right now—in the end, it truly is best to keep calm and carry on with your long-term investment plan. Because making any rash decision based on fear (or the news headline of the day) can seriously throw that plan off course. Patience, on the other hand, is the key to profitability.
A few final takeaways:
- The COVID-19 scare and its impact on the markets will pass eventually
- Long-term investment success involves staying the course (regardless of the headlines)
- A well-diversified portfolio will equip your investments to weather any storm
- When volatility hits, remind yourself that it’s a normal occurrence
- When in doubt, reach out to an Educators financial specialist