Retirement portfolio

A market downturn won’t necessarily harm your savings long term

The pandemic market couldn’t last forever.

After surging from about 13,000 in late March of 2020 to a peak of more than 22,000 in early April 2022, Canada’s S&P/TSX Composite index has dropped by six per cent in just the past three weeks, thanks to interest rate hikes, global tensions and supply chain problems hitting commodities and putting pressure on the markets.

You may be looking at your retirement portfolio with unease as the numbers drop. But what should you do about it?

Financial adviser Jason Heath says if you’re panicking, you need to take a step back and think longer term. A market downturn won’t permanently harm your portfolio, as long as you’re at least a few years away from retirement and you’ve got a diverse mix of stocks, bonds and other fixed income investments.

If you sell now, you’ll only be locking in that short-term loss.

“When stocks go down, your losses are just on paper until you sell,” he said. “If you panic and you sell when stocks are down … you turn a temporary loss into a permanent one. So try to avoid knee jerk reactions.”

If anything, the current market is an opportunity to determine whether your current portfolio matches your risk tolerance, says Heath. If the recent decline is keeping you up at night, maybe you should look at some less risky investments, such as bonds or GICs, which might pay off in the longer term thanks to rising interest rates.

In fact, now is a good time to buy stocks or bonds if you’re able, not sell, says Heath, while prices are down.

“I think that (stress) can be a sign that over time you should reduce the risk in your portfolio.”

And while it can be tough to watch your portfolio balance rise and fall with the markets, don’t forget that it’s important to have decent exposure to stocks during periods of high inflation — or you’ll lose money as the spending power of your cash goes down.

Once your portfolio has the diversity and asset allocation that’s right for you, try to avoid following the ups and downs of the market if you can and keep your hands off your investments.

Sometimes the best action when things look bad is no action at all.

If anything, the current market is an opportunity to determine whether your current portfolio matches your risk tolerance, says financial adviser Jason Heath. DREAMSTIME

If you panic and you sell when stocks are down … you turn a temporary loss into a permanent one. So try to avoid knee jerk reactions.

JASON HEATH FINANCIAL ADVISER