Strategies for a more comfortable investing experience

In January of 2012, a prominent stock market forecaster predicted a replay of 2008 and early 2009, but with an even deeper recession: he foresaw a 50 – 70 percent market decline over the following two to three years.(1)  In fact, global equity markets, as measured by the MSCI World Index, delivered a total positive return in US dollars of 53% from the end of 2011 to the end of 2014. (2) When a Baker Scholar who graduated in the top 5 percent of his Harvard MBA graduating class gets things so wrong, what chance do the rest of us have of getting it right?

Negative forecasts and media chatter increase our anxiety about investing in the stock market. Losing money in a falling market feels worse than missing opportunities in a rising market (in the language of psychology, acts of commission are regretted more deeply than acts of omission). Our delays due to dread of a possible loss can diminish long-term potential investment returns as we wait for the right time to get into the market and constantly second-guess ourselves once we do.

In reality, what we should be focused on is how our investment portfolio is structured and how well it is delivering on meeting our long-term financial goals. The market will react to events in the news, but how it will react and for how long is unpredictable, and short-term fluctuations (which can feel long in a market downturn) are part of the investing experience.

Four strategies to mitigate investment anxiety

Instead of worrying about when to get in or out of the market, here are four strategies investors can use to ease anxiety and have a more comfortable investing experience while keeping on track with long-term investment goals:

  1. Maintain a long-term strategic asset allocation: Frame the decision not in terms of being 100% in or out of the market, but rather on determining the right mix of investments (stocks, bonds, real estate) and diversifying across different securities, sectors and countries. Based on your risk tolerance, determine the balance between stocks and bonds that works for you, whether it’s 70/30 or 60/40 or 50/50.
  2. Rebalance your portfolio periodically: Over time, as some asset classes do better than others, the weighting in your portfolio will shift away from the asset allocation you have chosen to meet your financial goals. Periodically (say, annually) shifting assets from the better performing asset classes to those less favoured can restore balance and help you manage risk.
  3. Lock in your returns: In some circumstances, you may wish to lock in your returns after a good period by adjusting your asset allocations. For example, if you are on track to meet your financial goals, it may make sense to preserve your gains by shifting some assets into short-term fixed income.
  4. Dollar-cost averaging: Some investors manage anxiety about market timing by investing a fixed dollar amount on a regular schedule, regardless of whether the market is up or down, rather than investing a lump sum all at once. This discipline takes the focus off the timing of the investment.

As investors try to balance the need to achieve targeted investment outcomes with the desire to have a more comfortable investment experience, individual differences will result in a different mix of strategies. One requirement remains constant, however: starting with a well-structured portfolio that is designed to weather the inevitable storms. Investors who have concentrated and undiversified portfolios, or those who respond to short-term market fluctuations, can be putting their financial well-being – as well as their peace of mind – at great risk.

1.       ­­­­­­­­­­­­­Globe and Mail, January 10, 2012, “Get Set for a Crash, Forecaster Says.”

2.       MSCI World Index (net div), Returns Program


Dale Berg is a Senior Financial Advisor with Assante Financial Management Ltd. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Please contact him to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd.