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Stock markets are down, but experts say don’t panic

Stock markets are down, but experts say don’t panic
Stock markets are down, but experts say don’t panic

 


The bad news for investors continues to pile up as stocks on Wall Street and the TSX continue to fall.

Two weeks ago, the S&P/TSX Composite Index entered correction territory and the S&P 500 plunged into a bear market. On Thursday, the S&P/TSX fell another 300 points as the S&P 500 posted its worst first-half result in 52 years.

But while it can be easy for your emotions to take over if you’ve invested money in the market, experts agree there’s no need to panic if you’re investing in the right type of portfolio with the right level of risk.

“The wise advice — I can’t remember who said it — is that your investments are like a soap bar. The more you touch them, the smaller they become,” author and personal finance educator Kelley Keehn told CTVNews. .ca by phone on Thursday.

WHEN TO MAKE CHANGES TO YOUR PORTFOLIO

If the state of the markets is making you particularly anxious, it may be a sign that you weren’t in the right risk bucket in the first place.

“If you can’t sleep at night, you may not have been in the right portfolio and now is definitely the time to talk to your investment advisor,” Keehn explained.

If this applies to you, it may be necessary to reduce your portfolio risk by reallocating some of your stock and equity investments into bonds, GICs or savings accounts.

“A lot of people think they can take more risk than they actually can and that’s become very evident now with the crypto crash,” said personal finance expert and CTVNews.ca contributor Christopher Liew. , in a telephone interview on Thursday. “People used to invest in crypto, which is usually extremely volatile and risky. But when things go up, people really don’t care. But now that it’s crashed, a lot of people who couldn’t handle that risk are now really feeling that pressure.”

Your risk tolerance may also change based on changes in your life. If you’re planning to retire or buy a house soon, for example, that might warrant moving your portfolio to a lower-risk portfolio.

“If nothing has changed, if it’s just that the markets are going crazy, then you should just let it go. But if something big has changed, it really changes what you do now. That doesn’t mean that you drastically slam on the brakes on the freeway and start selling. Those things should have some forethought,” Keehn said.

DO NOT CONSTANTLY LOOK AT YOUR WALLET

It can be disheartening to see the value of your portfolio appear to be plummeting, and experts advise against checking your portfolio every day.

“If you’re invested in what you should be invested in, then yeah, you shouldn’t be watching it,” Keehn said.

While shorter-term investors may need to check their portfolios more frequently, Liew says longer-term investors should only check their money every few months, or if they plan to make new contributions.

“I would say check it as infrequently as possible because if you don’t need the money for 10, 20 or even 30 years, it doesn’t make sense to check it daily,” he said. he declares.

Steve Joordens, professor of psychology at the University of Toronto’s Scarborough Campus, says constantly checking your portfolio could worsen your mental health and lead you to make rash decisions.

“You get information you want, but you can overdo it.” he told CTVNews.ca by phone Wednesday. “Every moment you spend watching this is going to feed your brain and put it into this state of stress.”

While the recent market downturn may seem painful, Keehn says that in the long run it’s just a “blowout.” Although the S&P/TSX Composite Index has fallen almost 13% since the beginning of April, it has still risen an average of 4.63% per year over the past five years and 5.10% over the past 10 years.

HOW ECONOMIC DOWNTURNS AFFECT THE BRAIN

Joordens says economic downturns can be quite stressful and it can be easy to make emotional knee-jerk reactions.

“When we see the downturns start to happen, it becomes a big problem for us because it becomes a threat. And we have a very natural, primitive response to threat,” he said.

While the frontal lobes of our brain are responsible for rational decision-making, the brain’s limbic system activates the primitive “flight or fight” response when we are faced with a threat.

“Quite often it works well for us. If a bear walks past us, that’s what we want to happen. We want our primitive limbic survival system to take control and help us through that,” explained Joordens.

But while our limbic system works well when it comes to reacting to something like a bear, it’s not well suited to responding to a bear market.

“Where you have weird threats, like a stock market crash, the limbic system is still doing what it’s always done. It hasn’t changed and it wants you to fight or flight. is what makes him so uncomfortable,” Joordens said. .

If markets make you anxious, Joordens recommends finding “cognitive palate cleansers” in things that make you laugh and smile, like your favorite TV show.

“Try to change the channel of your mind and the way you can do that is through what you experience in the world,” he said. “The idea here is that you have removed the taste of this negative stressor from your mind, rather than watching it, and then walking away and taking it with you in your mind.”

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