VP, WEALTH, TD ASSET MANAGEMENT
A: OK, I’ve been intricately involved with the markets throughout my career and nothing keeps me awake at night more than knowing there are people pulling investments out of the market when they think there’s bad news and waiting to jump in again when they think conditions are right.
So, short answer: Current events are suggesting that we are likely headed for a slowdown.1 And the problem of COVID-19 is the focus of all of us. But regardless of whether there’s a recession on the horizon, talk of poor economic news distracts from focusing on a steady, long-term outlook which ultimately may make your investment plan successful.
A recession is a natural part of how an economy works. And after every recession to date there has been an economic expansion that has more than made up for the previous declines. Quick proof? From 1962 until this year, Canada has survived four recessions — officially judged as two consecutive quarters of negative economic growth — and every single time the economy has come back with strong growth.2
In fact, from 1985 to 2018 we’ve seen eight stock market downturns. One of my first jobs in the investment industry was as an equity trader during the crash of October 1987 when I thought the world was falling before my eyes. Yet the S&P/TSX Composite Total Return Index has returned about 250% in that time period.3 The point is, if you are out of the market when growth occurs, you miss out.
I don’t like to view investing as a game we can decide to play one day and watch from the stands the next. Studies show that if you missed the four best positive days in the market every year, it can dramatically weaken your portfolio.4 Always being invested means you benefit from the power of compound growth over the decades. If your goal is saving for comfortable retirement, you won’t want to miss any chances over time to have great returns. Investing can be a life-long enterprise — but you can’t win when you stay on the sidelines.
Even if you’ve moved the bulk of your investments into GICs, with inflation at about 2% and most GICs now earning less, that decision will actually give you a negative return after inflation. GICs have their place but they don’t have a major role in a long-term growth portfolio.
No doubt the news today is disconcerting. An unexpected market setback can be scary. The reality is that governments and central banks around the world are working to provide stimulus to the economy and alleviate any stresses during these turbulent times. That is great for investors, and that’s the news I would be listening to.
Finally, if you’re worried that a recession or any other negative news might harm your investments, don’t let your emotions get the better of you; think about staying in the market. And if you’ve gotten spooked and are waiting for the best time to get back in, consider that it might be now — there are only so many growth periods in a lifetime.
Look at it this way: A traffic delay can ruin your morning, but if you pull over, you’ll never reach your destination. In the same way, market downturns can be meaningless in the course of a lifetime of investing, provided you stay on the journey.
Ingrid Macintosh has spent her three-decade career working on all sides of the investment industry, institutions, advisors and investor alike.
- Beata Caranci, “Top Questions from Our Clients in A Turbulent Time,” TD Economics, Mar. 16, 2020 ↩
- Brian DePratto, “Canadian ‘Solo’ Recession Risk: Rhetoric vs Reality,” TD Economics, Mar. 1, 2019, accessed Oct. 11, 2019, economics.td.com/canadian-solo-recession-risk. ↩
- “Market Ups and Downs,” Feeling Confident About Investing, TD Asset Management, 2018, accessed Oct. 11, 2019. ↩
- The Power of Staying Invested, TD Asset Management, 2018, accessed Oct. 11, 2019, www.tdassetmanagement.com/document/PDF/news-insight/Power_Staying_Invested_en.pdf. ↩