Exchange Traded Funds | What to do in the face of the unpredictability of the markets?

Exchange-traded funds, which are a relatively simple and inexpensive investment solution, are popular with young investors. While the stock market is proving to be very unpredictable and the risks of recession are rising, two experts are giving their advice.

Emilie Laperriere
special cooperation

Are exchange-traded funds (ETFs) a good investment solution for young investors?

“Some are great, some are pretty bad. It’s the same for stocks or mutual funds,” said Jean-René Ouellet, investment strategist and portfolio manager at Desjardins. What you have to understand is that the ETF is not an end in itself. »

In short, sound investment rules apply to ETFs just like any other investment vehicle.

Catherine Patenaude, Associate Vice-President, Remote Privilege Advisory Team at National Bank, notes that for young investors, this is their first experience with such volatile markets. “It’s complex, there are several factors that are not under our control. It can be intimidating. However, she adds that over a period of 30 to 40 years, we necessarily go through several economic cycles. It is therefore normal to go through some areas of uncertainty.

What criteria should young investors consider before choosing their investments?

“The lure of short-term gain often leads young people to focus too much on sectors that have performed well in recent years and which are experiencing strong growth, such as technology,” observes Jean-René Ouellet. Instead, he suggests taking diversified investment vehicles, which are specialized in each asset class and in different markets.

“Although it is difficult to predict short-term shocks, we must anticipate fluctuations over the next 10 years,” he adds.

We come back once again to the famous risk tolerance, according to him. “This is measured in the investment in percentage and in real life, in dollars. How much can I lose? Losing 20% ​​is something intangible. But losing $20,000 is more concrete. By illustrating it in dollars, it allows for example to see how many years I have saved for this amount or what proportion of my inheritance it represents. »

What would be your advice for young investors in the current context?

“Above all, do not capitulate! “answers Jean-René Ouellet. “Young people are lucky to have time on their side. They can give their capital time to rebound. This is not necessarily the case for an investor who is on the eve of retirement. These have funnier choices to make. »

The expert notes that young people generally want to make their own experiences, their own trials and learn from their mistakes. “Mistakes in terms of investment management are, however, quite significant, and for a long time. Do-it-yourself investors should take advantage of this turbulent time to sit down with a financial planner to come up with a game plan. If the experts are not available, you can read about it, talk to your parents, those around you. »

Catherine Patenaude agrees. “We avoid all-or-nothing approaches. Diversification is essential in this context. We must also focus on what we control: our savings rate, our expenses, our risk profile and, as far as possible, our emotions. Little tips can make a big difference. Meeting an advisor is surely my main recommendation to start financial habits on the right foot. »