4 Interactive Tools for Understanding the MarketsSubmitted by Parkhouse Financial / Portfolio Strategies Corporation on March 14th, 2017
Investing in Uncertain Times
Generally, stock markets have acted very positively since Trump’s election…the so-called “Trump-Bump”.
However, since it seems like every day we’re waiting to find out on CNN what Trump and his administration are up this time, markets have demonstrated a lot of uncertainty over these past few weeks.
It’s only natural to be concerned about your investments when stock markets are fluctuating. Yet history shows that investors who stick to their investment plan come out ahead.
4 Interactive Tools for Understanding the Markets
The following interactive links will help demonstrate the effects of market volatility and why it’s beneficial to stick to a long-term plan:
Hedge funds collapsing, tsunamis, terrorist attacks, wars, interest rate hikes, rising oil prices, sovereign debt crisis – many events contribute to fear of investing in the stock market.
In many cases markets have dropped substantially in the wake of a crisis. Yet we’ve also seen markets recover from these events, often quite quickly. Of course, there are no guarantees that what’s happened in the past will
always happen in the future. But we can be sure that more crises will strike, and trust that markets will continue to return to their true value over time.
It’s impossible to predict in advance just when the best and worst returns will occur in the markets.
For example, in August 1998 the S&P/TSX Composite Index declined over 20%. Over the next two years, it was up over 109%!
Anyone trying to time the market to avoid short-term losses could be just as likely to miss gains. Over time, missing just a few days in the market can significantly reduce the overall performance of your investments.
Every day, we see reports on how stock markets are performing. It’s easy to get concerned about our investments if we hear “The market is down” on the evening news!
But exactly what is “the market”?
The S&P/TSX, the FTSE, the Dow Jones – they are all indexes that average the performance of a very large number of companies. Within a stock market, individual companies can perform very differently from the average.
Portfolio managers aim to choose companies that will perform well in the long term, whatever the short-term performance of the overall stock market.
In investment terms, a “risky” investment is a volatile one – an investment with returns that can vary a lot from year to year.
Of course, if it were possible, we would like to earn the highest possible return with the lowest possible risk! However, in investing, there is generally a trade-off between risk and return. That is, the higher the long-term
potential return from an investment, the higher the short-term volatility.
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