Friday, August 19th, 2016
"Resilience" is a word that matters when it comes to your investment portfolio. Resilience is the ability to bounce back or recover from an adverse event, and a resilient investment portfolio can do just that — bounce back from sharp market downturns, preserve your capital and even keep your portfolio growing during turbulent times.
With investing, as with all things in life, there are things you can control and things you can't. One thing you can control is how you structure your portfolio to ensure it’s resilient to market changes, says Silvio Stroescu, Tangerine's Vice-President of Savings and Investments. “That means making sure it's well-diversified and aligned with your investment goals and overall plan."
You can boost that resilience through regular monitoring of your portfolios. “Ideally through an annual checkup to make sure that you're getting closer to reaching your goals and that the portfolio structure still makes sense," he says.
Another thing you can control is your emotions. Long-term historical market data shows that successful investors are those who stick with the basics, avoid panic selling and hold for the long term. But this can be challenging.
“We all know people who buy into the markets when things are going well but as soon as a downturn happens, panic sets in and they sell and lose money," says Stroescu. However, the ability to control your investment decision-making and behaviour is a key tool for staying resilient.
Make a pact with yourself
One way to help keep on track, suggests Stroescu, is to “write up a contract or pact with yourself as you set up your investment plan. State in it that you recognize there will be ups and downs in the market, but that you vow to stick with your plan regardless." Having a formal, written pledge serves as extra motivation to control investment behaviour and stay the course rather than giving in to panic selling, which could weaken your investments.
Prepare for a rainy day
As for the things you can't control – the roof needs replacing, a family member gets sick, or a natural disaster strikes — there are products and strategies to mitigate the effects of these on your investments.
"An emergency fund in a savings account is a great way to build resilience for these situations," says Stroescu. “This allows us to stick with our original investment plan and not have to cash out of our investments to pay for these unforeseen circumstances." Another is to have the appropriate insurance coverage — health and disability, home, auto and life — for your needs. As with your investment plan, be sure to review your insurance coverage at least once a year to confirm it still meets your protection requirements.
The financial markets tend to react to every event in the news, but that doesn't mean an investor should. By controlling your investing behaviour and applying these tips, you can build an investment portfolio that's resilient enough to withstand any potential market volatility.