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Weathering tough markets

Central 1 Credit Union website
Shannon Rupp

Screaming headlines proclaiming stock market meltdowns, bank failures, and job losses  leave even the most confident investors feeling shell-shocked. For small investors whose primary concern is financing retirement the current onslaught of bad news, delivered in hysterical tones, often induces unnecessary fear.

The first tip for coping with doom-and-gloom financial predictions is to check the source of your financial news. Many Canadian news outlets save money by filling their white space or newscasts with American stories from wire services, which leaves a lot of Canadians believing we share the same problems. We don’t. Canadian regulations would never have allowed the so-called sub-prime mortgage products such as “ninja loans” – shorthand for borrowers with no income and no job – or “liar loans,” the nickname for loans made to borrowers without checking their income claims. U.S. bank failures and the resulting chaos can be traced directly to a lack of prudence.

By contrast, the World Economic Forum called Canada’s banking system the soundest in the world giving it a 6.8 on a scale of seven, in its October 2008 report on global competitiveness. Canada led the way for stable banking nations ahead of Sweden, Denmark, and the Netherlands.  The U.S. was ranked 40th.

For meaningful economic information, talk to your financial planner and review your portfolio. Have your circumstances changed since you made your investments? Do you need your money within the next three years? Everyone’s circumstances differ, and there may be real reasons to tinker with a portfolio during a volatile market – but fear isn’t one of them. As American financier J.P. Morgan reportedly said when asked what the stock market would do next: “It will fluctuate.” That’s what it does.

Now is a also good time to remember the other advice you were given when you first put money into stocks: investing isn’t gambling, and it isn’t stock-flipping, it’s a strategy for beating inflation over the long term.

Don’t forget that one person’s crisis in someone else’s opportunity. For young investors with a built-in risk tolerance – they won’t need the money for 40 years --  market downturns are an opportunity to make good buys on undervalued stocks and hold them over the long term. When investment gurus say the best advice is to buy low and sell high, they mean buying into just the sort of frightening market that characterized 2008.

Generally, even the most anxious investors are ill-advised to pull out of a bear market, but that doesn’t mean there aren’t other things they can do to improve their personal finances. Billionaire fund manager Stephen Jarislowsky, a child of the Great Depression who is now worth an estimated $1.2 billion, advises individuals to work aggressively to reduce debt, the greatest financial weakness for most Canadians, and to eliminate “silly” spending. The best hedge against financial disaster, he’s often quoted as saying, is to maintain a modest standard of living as your income increases and save more. 

2 Feb 2009