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Kim Parlee and Michael Craig, Head of Asset Allocation, TD Asset Management, talk about the state of the markets and the importance of focusing on long-term goals.
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[MUSIC PLAYING]
- Michael, it's been an incredible few weeks in the markets. And who's kidding who? It feels like a few years in the past little while. What is going on right now in markets?
- Stock markets have rallied anywhere from 20% to 30% off their lows. The corporate bond markets have come unfrozen. They weren't really trading not too long ago. And now, corporate bonds have rallied quite a bit. And so, broadly speaking, the tone is much better. I know in the real economy, things are still very difficult-- incredibly challenging. But in the financial market space, while we're well off the highs that we saw back in February, it feels a whole lot better today than it did just a few weeks back.
- For most people, they always hear the advice, don't sell at the bottom and don't try and time the markets. I think people hear it a lot but maybe don't specifically understand why. So can you just talk a bit about that and why that matters?
- Yeah, I think sometimes, people give these words of wisdom, but they don't explain why, which is probably why it's hard to follow. Selling at the bottom is problematic for two reasons. One, you crystallize losses, which are not-- on any given day, the markets may be up or down. But when you crystallize losses, those are real losses that you need that ultimately affect the investor.
The other issue is, look, if you're investing in high-quality businesses and the price falls 20%, while the outlook, short-term, for the business might be a bit more challenged, you have the same management team. You have the same business strategy. You're essentially getting the same business but for 20% less.
And so, if we walked into a store and we saw our favorite item on sale for 30% off, you'd be inclined to buy it. And I think the same thought process should be when you're investing. If there's something you think has a lot of value and is a good thing to hold for a long period of time and it goes on sale, you should do the same.
So that's important-- not to get too concerned about the path. Sometimes we forget about what the long-term implications are of investing. And that's what ultimately is what makes up for bad decision-making sometimes with investing.
- And you're giving us a little hint there in terms of how TD Asset Management views the markets in terms of seeing some great-quality businesses for sale on a discount. But give us a little more color in terms of how specifically you're managing through this.
- So we have horizons that vary, depending on our investment strategies. And this kind of speaks to the value of diversification. We see, on a short-term basis things are still going to be quite volatile. In the long-term basis, we spend a ton of time researching what the potential financial markets can give us in terms of return, based on our expectations for economic growth. And we see things as kind of a 12 to 24-month horizon.
It's still offering quite a bit of value. I know there's been a fairly breathless rally at the bottom, but it doesn't mean we're anywhere near the top of this. So I look at this now, and short-term, still going to be very volatile, still lots of troubling headlines on the health care front. But from an investment standpoint, quite common here. It feels like there's been bad news that's already well-understood by markets.
And there's been tremendously powerful and direct responses from both governments and central banks around the world to essentially underwrite economies as we go through this period of hibernation. So it's a lot to take in-- a lot happening. But I think what we're seeing is that it does make some degree of sense.
So within the Comfort Portfolios, they were designed to be able to function in various market environments. We don't have all of our strategies focused in on one thing. We have a variety of strategies and ideas. None of them work perfectly all the time. But there's always something that's working very well.
And this has been an environment where that's held true. And so, we build these portfolios. Well, I know that you see the headlines, and things are really scary. But the actual reality for our customers is that the returns, while down, aren't catastrophic.
From a personal-- I mean, I've been investing now for 20 years. And I think I better understood behavioral economics before it was really well-known. You know, certainly, financial problems are always a bit of a stress as I was growing up as a child. And so, I saw firsthand how stressful financial uncertainty can be. So I think I've always thought of myself as a risk manager before an investor. I mean, because if we are able to manage the investment path, our customers will be more comfortable and confident, thinking in what really matters-- that's long-term. And from my-- we all have a story of growing up. But that was something I understood before I knew anything about investing and still, today, something I look back on quite often.
- You talk about the news cycle and even the market reactions. It can be exhausting. I think for a lot of people who are watching, it's hard not to focus on that. You and I have talked about is, don't focus on what's happening in the news. Focus on your own plans and your own goals.
- Yeah, absolutely-- the biggest risk that investors have is not a recession or some volatility. The biggest risk that investors face is their long-term goals and not meeting those goals because if you don't meet them, that means whatever type of future you were envisioning that was going to be supported by a certain amount of savings has to be adjusted, and usually down.
And so, we talk about this all the time. And it's hard to visualize because we're not dealing with that. We don't know what we look like when we retire or what life looks like. It's hard to imagine that. But it is the greatest risk and most important thing for investors to think about. It's on that kind of end point of where they want their investments to be.
I recognize that this is a period time that there's all kinds of stress people are enduring, not just financial but health care, too. But we're here for you. We're here to serve our customers to ensure that we make sure that they're able to achieve those financial goals that they set out for when they made their first investment.
- Michael, thanks for your time. We really appreciate it.
- Thank you for having me.
[MUSIC PLAYING]
- Michael, it's been an incredible few weeks in the markets. And who's kidding who? It feels like a few years in the past little while. What is going on right now in markets?
- Stock markets have rallied anywhere from 20% to 30% off their lows. The corporate bond markets have come unfrozen. They weren't really trading not too long ago. And now, corporate bonds have rallied quite a bit. And so, broadly speaking, the tone is much better. I know in the real economy, things are still very difficult-- incredibly challenging. But in the financial market space, while we're well off the highs that we saw back in February, it feels a whole lot better today than it did just a few weeks back.
- For most people, they always hear the advice, don't sell at the bottom and don't try and time the markets. I think people hear it a lot but maybe don't specifically understand why. So can you just talk a bit about that and why that matters?
- Yeah, I think sometimes, people give these words of wisdom, but they don't explain why, which is probably why it's hard to follow. Selling at the bottom is problematic for two reasons. One, you crystallize losses, which are not-- on any given day, the markets may be up or down. But when you crystallize losses, those are real losses that you need that ultimately affect the investor.
The other issue is, look, if you're investing in high-quality businesses and the price falls 20%, while the outlook, short-term, for the business might be a bit more challenged, you have the same management team. You have the same business strategy. You're essentially getting the same business but for 20% less.
And so, if we walked into a store and we saw our favorite item on sale for 30% off, you'd be inclined to buy it. And I think the same thought process should be when you're investing. If there's something you think has a lot of value and is a good thing to hold for a long period of time and it goes on sale, you should do the same.
So that's important-- not to get too concerned about the path. Sometimes we forget about what the long-term implications are of investing. And that's what ultimately is what makes up for bad decision-making sometimes with investing.
- And you're giving us a little hint there in terms of how TD Asset Management views the markets in terms of seeing some great-quality businesses for sale on a discount. But give us a little more color in terms of how specifically you're managing through this.
- So we have horizons that vary, depending on our investment strategies. And this kind of speaks to the value of diversification. We see, on a short-term basis things are still going to be quite volatile. In the long-term basis, we spend a ton of time researching what the potential financial markets can give us in terms of return, based on our expectations for economic growth. And we see things as kind of a 12 to 24-month horizon.
It's still offering quite a bit of value. I know there's been a fairly breathless rally at the bottom, but it doesn't mean we're anywhere near the top of this. So I look at this now, and short-term, still going to be very volatile, still lots of troubling headlines on the health care front. But from an investment standpoint, quite common here. It feels like there's been bad news that's already well-understood by markets.
And there's been tremendously powerful and direct responses from both governments and central banks around the world to essentially underwrite economies as we go through this period of hibernation. So it's a lot to take in-- a lot happening. But I think what we're seeing is that it does make some degree of sense.
So within the Comfort Portfolios, they were designed to be able to function in various market environments. We don't have all of our strategies focused in on one thing. We have a variety of strategies and ideas. None of them work perfectly all the time. But there's always something that's working very well.
And this has been an environment where that's held true. And so, we build these portfolios. Well, I know that you see the headlines, and things are really scary. But the actual reality for our customers is that the returns, while down, aren't catastrophic.
From a personal-- I mean, I've been investing now for 20 years. And I think I better understood behavioral economics before it was really well-known. You know, certainly, financial problems are always a bit of a stress as I was growing up as a child. And so, I saw firsthand how stressful financial uncertainty can be. So I think I've always thought of myself as a risk manager before an investor. I mean, because if we are able to manage the investment path, our customers will be more comfortable and confident, thinking in what really matters-- that's long-term. And from my-- we all have a story of growing up. But that was something I understood before I knew anything about investing and still, today, something I look back on quite often.
- You talk about the news cycle and even the market reactions. It can be exhausting. I think for a lot of people who are watching, it's hard not to focus on that. You and I have talked about is, don't focus on what's happening in the news. Focus on your own plans and your own goals.
- Yeah, absolutely-- the biggest risk that investors have is not a recession or some volatility. The biggest risk that investors face is their long-term goals and not meeting those goals because if you don't meet them, that means whatever type of future you were envisioning that was going to be supported by a certain amount of savings has to be adjusted, and usually down.
And so, we talk about this all the time. And it's hard to visualize because we're not dealing with that. We don't know what we look like when we retire or what life looks like. It's hard to imagine that. But it is the greatest risk and most important thing for investors to think about. It's on that kind of end point of where they want their investments to be.
I recognize that this is a period time that there's all kinds of stress people are enduring, not just financial but health care, too. But we're here for you. We're here to serve our customers to ensure that we make sure that they're able to achieve those financial goals that they set out for when they made their first investment.
- Michael, thanks for your time. We really appreciate it.
- Thank you for having me.
[MUSIC PLAYING]
