Business and Finance

The financial news is bad and getting worse every day.

How do you stay calm and hang on to your investments? How do you resist the urge to panic?

"I don’t pay any attention to how I’m doing. I only open my investment statements once a year," says Dan Richards, president of Strategic Imperatives Corp., who helps train financial advisers.

He files his statements and opens them in December, when he meets with his own financial adviser. That’s when they review his investments and tweak them for the coming year.

This would be a strategy that best applies to long-term investors holding diversified mutual or exchange-traded funds, as opposed to individual stocks.

Ask him how much his portfolio has dropped this year and he can honestly say he doesn’t know.

"My solution is that I just don’t think about it. I haven’t looked at my account online or on paper since the beginning of January."

Richards has a portfolio that would immediately reflect the 5.03 per cent drop in the S&P/TSX composite index since the start of the year and the 9.37 per cent decline in the S&P 500 index.

He has all his savings in equities, with nothing in bonds or fixed-income investments and he’s underweighted in Canadian equities versus U.S. and international stocks.

"I tend to believe that the only guide we have – and it’s not a perfect guide – is what happened in the very long term in the past."

He refers to U.S. stock market data (from Ibbotson Associates) going back to 1926, showing that stocks have outperformed bonds in almost all 10-year periods.

And while stocks are volatile, the level of volatility goes down the longer you stay invested.

 

"The good news is that the longer your holding period, the less you have to worry," Richards says. "I’m 57 and I have a 20-year time horizon for the vast majority of my savings."

Dan Hallett, president of his own investment research firm in Windsor, agrees you can suffer if you pay too much attention to your investments.

He has stopped subscribing to a service that sent him several emails a day detailing the ups and downs of the Dow Jones industrial average.

"You should get enough news to know what’s going on http://easy-quick-payday-loans.com. But checking your portfolio once a day is not healthy."

Patrick McKeough, publisher of The Successful Investor newsletter, advises holding onto good investments and avoiding fads.

"The industry keeps coming up with new wrinkles, but I think you’re better off with plain vanilla stocks and bonds," he says.

"Downplay stuff that’s in the broker/media limelight. The quality of securities you own is the key to success, rather than trying to outguess the market."

Warren MacKenzie, president of Second Opinion Investor Services Inc., a fee-based consulting firm, believes in diversification.

After analyzing about 200 portfolios, he has found that investors take more risk than necessary and keep too much of their savings in stocks.

You should keep at least 40 per cent of your money in stocks, in his view, to limit the risk of inflation cutting your buying power to shreds.

But don’t go overboard on stocks. Make sure you have a properly diversified portfolio.

"You need bonds to keep your powder dry, so you can buy more stocks when they’re cheap," he says.

Are stocks cheap now? The advice-givers I spoke to don’t think so.

The market hasn’t reached the point of maximum pessimism, where the bargains are compelling – not yet, anyway.

Ellen Roseman’s column appears Wednesday, Saturday and Sunday. You can reach her by writing care of Business, the Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or by email at eroseman@thestar.ca.

 

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