If riding a roller-coaster makes you feel a little queasy, then watching your stock market investments take the roller-coaster ride of the century must be making you feel sick to your stomach.
Financial advisers have long told their clients that the stock market will provide the best returns over time, but also that the market can be quite volatile – and that was before fears over the coronavirus whipsawed the market into a cycle of tailspin and recovery.
On March 25 alone, the Dow Jones Industrial Average, which tracks 30 U.S. blue-chip companies, rose 5.2 per cent at midday before giving back some gains and ending the day 2.4 per cent to close at 21,200.
On the same day, the S&P/TSX index of about 250 Canadian stocks, jumped 4.5 per cent to close at 13,139. The very next day, with the U.S. Congress set to adopt a $2-trillion relief bill, the Dow climbed another 825 points at midday to 22,025, a gain of 3.9 per cent. In Toronto, the TSX index climbed nearly 233 points to 13,371, a gain of 1.8 per cent.
And then, on Friday, it all went south again, with the Dow, S&P 500 and TSX falling from three to 4.8 per cent by 11 a.m., bringing the Dow back down to 21,652, the S&P 500 to 2,536 and the TSX to 12,720.
It’s all a far cry from the dizzying highs the markets were testing just a few weeks before. In mid-February, the Dow was trading over 29,000.
At its high on the close of trading on Feb. 20, the TSX was at 17,944. In 22 days, the market dropped around 32 per cent.
So, what to do in these trying times?
Like a lot of people, Paul Harris checks his temperature every morning to make sure he doesn’t have the coronavirus, and then he checks the temperature of the markets. As portfolio manager and partner with Harris Douglas Asset Management, that’s pretty much his job.
Surprisingly, very few of his clients have been calling him in a panic, asking what to do about their investments. As a firm for medium- to high-net-worth investors, Harris tailors its portfolios to meet the needs and risk profiles of its clients.
“The stock market cannot be a bank account,” he said, pointing out that those investors with a longer time horizon can weather the storm. Those who need to draw cash from their investments should already be invested in fixed income assets.
If you allocate assets properly, you shouldn’t be as worried about the volatility of the market. Over time, it’s a good bet. Harris pointed to the market’s growth since its low in March 2009. For instance, the S&P 500 has gone up more than 300 per cent.
“So, you have done well over a period of time.” However, “you’ve given back all the gains since 2016, when Donald Trump became president.”
And as for clients who are nervous, Harris asks them, what do you need the money for? If you’re worried about your RRSP and you’re 50, you still have 22 years before you have to begin to withdraw the money and spend it.
Don’t make a short-term decision when your needs are long term, he advises.
Shawn Blainey, a senior financial planning adviser at Assante Capital Management, said he’s taken a fair number of calls from clients recently, but only one wanted to get out of the market.
“Definitely more are concerned. They’re not asking to get out, but to find out how bad it is,” he said.
Some want to add to their positions, seeing a depressed market as a buying opportunity, he said.
Blainey, who said he creates balanced portfolios for clients based on their needs, time horizon and risk profile, said those with actively managed portfolios with a mix of cash, bonds and equities have fared better than those exposed 100 per cent to the market, like those who own exchange-traded funds (ETFs), many of which closely track the ups and downs of the market.
One investor he pointed to is down 10 per cent year to date, compared to the drop of 25 per cent for the Dow and Toronto indexes.
As for selling with the idea of getting back in when the market improves, Blainey said in his 27 years as a financial adviser, he’s never seen anyone time it right.
You might be able to exit before the absolute bottom of the market, but you rarely get back in on time.
“You need a lot of good news in the media, and when you get that, the market has moved past the point where they sold,” he said.
That’s what happened after the March 2009 market bottom. For most of March and up until October, the market made large gains. Media coverage of the economy and the market didn’t get positive until October that year, he said.
As to what the future holds, no one knows for sure.
Central banks have done what they can by pumping liquidity into the economy, but this downturn is driven by fear, “things that central banks can’t do anything about,” Harris said.
Fiscal (government) stimulus is needed to help the restaurant owner who is terrified of losing his business, he said.
What the market will look like in the future is still anyone’s guess. Blainey said some analysts are predicting a V-shaped recovery (as plotted on a graph), with a sharp and fast move up. Others foresee a W-shaped recovery.
Either way, Blainey is confident the market will recover.
“Trying to time it is impossible,” he said.
Harris is also optimistic about the future. “The market will come back. It could take some time.”
“It will be harder for certain parts of the economy to bounce back quickly, but as a general rule, the stock market will do better over a long period of time.”
“This fall in 10 years from now will show up as a little blip in the chart…. In 10 years from now, you may look back and say, ‘I should have bought, it was a great opportunity.’ ”