Let’s start with a confession: I place a lot of emphasis on personal development. I am a convinced follower of this type of reading, and I regularly participate in professional support sessions and training. Among the great principles that I was able to acquire there, I especially cherish that of being master of one’s life by choosing the right
thoughts, good words, good deeds.
Faced with an uncomfortable situation, I therefore strive to move quickly from the role of victim to that of person in action.
This approach is less innocuous than it seems.
With the decline in the markets observed since the beginning of the year, stating this principle leads us to reflect together on the temptation — very great in this period of uncertainty — to predict the future in order to synchronize our investments with the times.
The Dalbar firm, which has published its QAIB (Quantitative Analysis of Investor Behavior) report since 1994, provides us with plenty of evidence that the investor is often his own worst
enemy.
One of his conclusions is recurrent: average investors are unable to beat the S&P 500 index. This is partly due to the fact that their choices are wrong 50% of the time during market declines.
Fear and the ego therefore appear to be very poor advisers, and the influence of these psychological dimensions should not be underestimated when the time comes to make investment decisions.
Moreover, in theory, the perfect investment strategy is to sell when the securities are of a high value (just before they fall) and to buy when the markets are at their lowest (just before they fall).
go up).
But in practice, this strategy is almost impossible to put in place – these favorable conditions are very difficult to detect, whether you are in your living room or have both feet on the floor of Wall Street.
This state of affairs explains why your financial advisor is probably repeating that you have to resist the temptation to sell when the markets are bad: not only does this choice crystallize your loss, but it puts you in a situation forcing you to predict the best time to reinvest in the market.
Knowing that even economic indicators aren’t the best source of information—stock markets typically rebound before the actual recovery—how will you determine the right time? All the more so if the recovery is done quickly. You will then miss the best yield days. And that could turn out to be very
expensive.
Indeed, by analyzing the performance of the S&P 500 index between January 1986 and December 2021, according to data collected by the company Refinitiv, we find that an initial investment of $10,000 would be worth more than $188,000. if invested continuously, then it would only be $26,384 without the best 40 days. So isn’t there anything you can do to be proactive in such a depressing market environment? Here are some thoughts that may apply to your
situation.
Voluntary realization of a capital loss In a non-registered investment account, both personally and corporately held, the sale of a security with a lower tax cost than the market triggers a capital loss, which can be applied against a capital gain. The strategy here is to voluntarily trigger this loss by buying a similar security.
Otherwise, beware of apparent losses. Bear markets sometimes represent a good opportunity to dispose of certain securities, but you must be accompanied by your tax advisors to implement this measure.
Investing with Periodic Buying titles You continue to invest with a long-term view by reducing your exposure to market volatility compared to a single investment. Although it may reduce the potential gain, the spreading of the cost then possible represents, of course, an excellent protection against the risk.
Temporary recourse to credit If you are retired and on payout, you may only withdraw minimum amounts from your Registered Retirement Income Fund (RRIF), if applicable, and temporarily fund the cost of living through your line of credit mortgage loan (rather than taking losses in your investments). This strategy is even more useful if you need large sums. Now is not the time to pay for your cars and renovations in cash; temporary use of financing should be considered in certain situations. With the ongoing rate hike, this is, of course, a decision whose relevance is unique to each person.
Limit your RAP withdrawal You have been investing money for two years in order to acquire a first residence? It may be in your best interests to maintain the amounts in your Registered Retirement Savings Plan (RRSP) portfolio and only provide the minimum down payment required for financing, especially if you have been bold and invested the market with a short-term investment horizon!
Insured loan rates are sometimes lower than uninsured loan rates, and you will have time to recover your principal. Take out your calculators and seek advice from your broker
mortgage.
Whether you are accompanied by an advisor or an independent investor, your desire to be in control of your life should not make you forget that staying invested has, in the past, proven its profitability.
increased!