Investment Solutions

Why you should stay invested

In volatile markets like we’ve seen recently, many investors will flee the market for the safety of cash. Although we’ve all been warned that investments in stocks can behave erratically in the short term, when volatility hits our own investments, it is unsettling.

These are the times when you should call your financial advisor for advice. And more often than not, he will urge you to say the course and invest for the long term.

Does staying the course work?

To help answer at least part of that question we looked at bull and bear markets from July all the way back to 1956. And we found that the average bull market lasted for 46 months with a 122% gain, and the average bear market lasted for nine months and dropped by 28%.

So in that context, investors who stayed the course certainly ended further ahead than those that sold in bear markets.

Now let’s look at the buy and hold question from a more technical standpoint.

The dean of stock market research, Dr. Jeremy Siegel, quantified the advantage of equities in his book Stocks for the Long Run back in 1994. He has updated his numbers in three subsequent editions, most recently in 2007. Using US stock market research going back to 1802, Siegel found that the total real return of equities (that is, the return over and above the inflation rate), is 6.9%. Over some periods it is much more and over others it is much less. By contrast, the real return of fixed income investments is 2.9% for the same period.

For investors who are worried about volatility, there are products that can lower risk.

For example, investors in Mackenzie Symmetry One Portfolios benefit from having their investment managed by a number of portfolio managers from both inside and outside of Mackenzie. They control risk and volatility by diversifying the portfolio across assets classes and investment styles. And they rebalance the portfolio as needed.
In effect, Symmetry One is managed using the same rigorous techniques employed by institutional investors. This disciplined approach ensures emotions don’t come into play, and you can expect a smoother, more predictable ride on the road to your financial goals.

There are other products, such as balanced funds like Mackenzie Saxon Balanced Fund and Mackenzie Sentinel Income Fund that offer a mixed of bonds and dividend paying equities and are less volatile than a portfolio made up of only stocks.

As well, segregated funds also reduce risk by guaranteeing a part or all of your investment. And Mackenzie offers a number of these products through Canada Life, which with guaranteed lifetime income. These products ensure:

  • Income for life
  • Principal guaranteed  (75 to 100%)
  • Death benefit guarantee

Another way to handle investing in volatile markets is to consider investing through a  Pre-Authorized Chequing (PAC) plan. Using a PAC allows you to invest when stock prices are low and recovering. And in the end, market tops and bottoms are balanced out.

For more information on these products and investing in volatile markets, please contact your financial advisor.