Life / Money

‘Be patient, don’t panic’ amid global stock market mayhem: expert

We ask financial planning expert Noel D'Souza what to do as world markets tumble.

Traders signal offers in the S&P options pit at the Cboe Global Markets, Inc. exchange on Feb. 6 in Chicago.

Scott Olson / Getty Images

Traders signal offers in the S&P options pit at the Cboe Global Markets, Inc. exchange on Feb. 6 in Chicago.

Global stock markets were extremely volatile last week, with the Dow Jones industrial average officially in correction mode after record-setting and jaw-dropping point plunges.

All the negative news in equities is understandably unsettling for investors of all ages and income levels. How do you deal with the chaos?

Noel D’Souza, financial planner at Money Coaches Canada, has some tips on what you should do to weather the stock market storm.

What strategy should investors take now, given the sell-off?

If you have a financial plan and/or an investment plan, refer back to them. If you are properly invested, chances are you should do nothing and stick to the plan. If you don’t have a financial plan, it’s probably a good time to get one because you are motivated to get your finances sorted out and not feel the worry you are now feeling.

What should investors be worried about in terms of their portfolios — or should they be worried at all?

It depends on when you need to turn your investments into cash to spend on important life goals or priorities. If it’s not for many years (five or more), they shouldn’t worry. But if you need cash from your portfolio in the short-term, you should ensure that the cash you need is secure in something safe and sound, such as a GIC or high-interest savings account. It doesn’t have to be an all-or-nothing proposition; it’s perfectly reasonable to have a portion of one’s investible assets in cash (earning some interest) and a portion in investments that have greater potential for long-term growth.

Those who are especially anxious should work with a certified financial planning professional to determine how much risk they need to take to reach their financial goals and develop an investment plan. If they are really risk-averse, they may instead choose to just save more and invest in lower risk investments.

What should you absolutely not do with your portfolio after a big hit on the stock market?

An investor should not be making rash decisions based on emotion — especially fear. Stop. Take several steps back. Make a long-term plan that takes into account your needs, values and goals, then follow it.

What should inactive investors do — those who only have a mutual fund or two — in the midst of a market meltdown?

Well-managed mutual funds should offer a reasonable level of diversification (within their mandate, such as Canadian equity, U.S. equity, etc.). If investors own such mutual funds, they don’t need to do anything, since they are paying their fund manager to take action – if necessary – on their behalf. Investors should ensure that the mutual funds they own provide sufficient diversification to cover opportunities globally. There are balanced mutual funds that can effectively cover many opportunities, but investors need to work with their investment advisor to ensure that the investments in their portfolio are properly diversified to handle meltdowns in parts of the market.

And what sectors should all investors be wary of?

In general, investors should be wary of fads and “hot” sectors. Often times, investors will invest only after a large run-up in valuations has already occurred, leaving them vulnerable to a sharp correction. With new sectors (such as pot), we have additional risks and uncertainties due to evolving federal government regulations and distribution plans and regulations for each province. Regarding individual stocks, some will be overpriced, and some will be a good value. It’s important for investors to do the proper due diligence on an individual stock to assess whether it’s a buy/sell/hold. Or, delegate that to a professional investment manager who has the skills, time, interest, and data to make educated (though still occasionally wrong!) decisions on your behalf.

The bottom line is: Be patient and don’t panic.

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