Wednesday, April 15th, 2020
There's no denying that we're facing challenging times and many people are confused about what everything means for their investments.
The information below is a detailed analysis of the current economic environment from our colleague Judith Chan at 1832 Asset Management Inc. Judith is the lead Portfolio Manager for Scotia Portfolio Solutions and DynamicEdge Portfolios and is also the advising representative overseeing Tangerine Investment Funds, our passively managed Portfolios.
Judith provides some great perspective on investing through a challenging environment. It's important to consider your own personal situation and maintain a focus on your investment objectives and strategies in order to keep yourself moving forward toward your goals. Tangerine Investment Clients will want to:
We hope you stay safe during this unprecedented time, and that you find the below information from Judith helpful.
This has been an unprecedented time for all of us. Since the outbreak of COVID-19, our lives have drastically changed with government imposed self-isolation and quarantine. This has significantly affected global economic prospects and forced policymakers around the world to push out an extraordinary amount of fiscal and monetary support through interest rate cuts and relief programs as shown below to combat the major economic contraction.
The chart below is the VIX Index, which is a volatility measure for U.S. equities. A higher VIX number reflects a higher expectation of market volatility, and as you can see, COVID-19 has driven the VIX to the same level we saw during the 2008-09 Financial Crisis.
Q1 saw a steep decline across all equity markets. The chart below shows the year-to-date change in various asset classes. The fixed income market saw positive returns, helping to provide downside protection for balanced investors.
Fixed income securities, such as bonds, are an important diversifier. As you can see below, a portfolio with exposure to fixed income held up meaningfully better during the first quarter.
Rebalancing, which involves periodically buying or selling assets in your portfolio to maintain your target asset allocation, is just as important. If the equity portion of your portfolio has drifted higher over the last few years, then the negative impact from the downturn this quarter would be greater. A well-diversified portfolio with regular rebalancing ensures that your portfolio remains aligned with your risk tolerance and long-term goals.
While the sharp and sudden market decline was unsettling in the first quarter of 2020, it's important to remember that the pandemic will eventually end, and the economy should recover. Looking back at the 10 worst quarters since 1928, we can see that major declines have generally been followed by major recoveries in the following 4 quarters.
These major recoveries can be sharp and can happen quickly. Sticking to your plan even when markets have declined ensures that your portfolio is able to participate in the recovery when stocks rally.
We will get through this pandemic, but volatility is likely to remain high in the short term. Throughout this period, there are a few things that you can do to help you stay grounded.
Remember, our Investment Funds Advisors are here to answer any questions and guide you on reaching your investment goals. Feel free to call us at 1-877-464-5678. We're open Monday to Friday from 8 am to 8 pm ET.
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