Many investors have worries and questions about the global stock market’s decline. These emotions are totally normal. There is a whole field in investing called “behavioural finance” that studies how we react to market movements, the biases we are subject to, and the decisions we make based on emotion. We know from studies that we feel the pain of a loss doubly to the joy of a gain. So, naturally some want to eliminate the chance of any further loss.
What does that behaviour result in? We know that the average investor earns approximately 1.7% less than the market over a period of 20 years. Why is this? It stems from emotions causing people to invest more when the market goes up, and pull money out when the market goes down.

Source: PIMCO – www.pimco.ca/en-ca/resources/video-library/media/behavioral-science-in-uncertain-times
This is akin to running to the mall every time the price of something goes up, and then returning the merchandise when it is on sale—but you are returning it to a store that will only give you the sale price back. This irrational behaviour causes investor market returns to be substantially less than historical stock market returns.
Bottom line, we should never make investment decisions based on emotion. We should be sticking to the plan and only changing the investment mix if the plan changes. The media headlines are noise meant to grab your attention. Current issues such as rising inflation, rising interest rates, fiscal and monetary policy, and reduced earnings projections all have a short-term impact on the markets.
Rolling 1YR – 3YR – 5YR – 10YR – 20YR – 30 YR Returns of the S&P/TSX (Canadian Equities) 1981 to 2021

Source data: S&P/TSX Rolling 1-,3-,5-,10-,20-,30-year average annual returns from Jan. 1980 to Dec. 2021.
No one knows how this will play out 6 months to a year from now. What we do know is that if we look at our portfolios in 5 years’ time, the overwhelming odds are in our favour that the value will be higher than it was at the beginning of this year before the decline. The chart below shows historical returns of Canadian equities. Over 5 years, the worst the Canadian market has every done was -2%. When you add in fixed income, there’s never been a negative return in a balanced portfolio (based on a 5-year rolling period.)
We understand the worries as our own portfolios are down along with yours. Our advice for ourselves and for our clients is the same. Stay the course, avoid the headlines, and don’t look at your portfolio value every day. Don’t reduce your wealth by making decisions based on emotions.
Please feel free to reach out to us if you would like to discuss your investment plan or any worries that you might have, and we would be happy to talk with you.

CFP, CIM, FCSI, CHS, RIS
Director, Wealth Planning Services | Caldwell Wealth & Estate Advisory Ltd.
Investment Advisor | Credential Securities
Along with helping people prepare for their financial futures through solid financial planning, Dan curates and manages the investment options for the firm.
Disclaimer
Material in Dan’s articles was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Caldwell Wealth & Estate Advisory to any person to buy or sell any security or adopt any investment approach, and is no indication of trading intent in any fund or account managed by Caldwell Wealth & Estate Advisory. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Caldwell Wealth & Estate Advisory. Past performance does not guarantee future results.
Mutual funds, other securities and securities-related financial planning services are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.




0 Comments