The media has been increasingly filled with news about market volatility in the last few months – so much so that 22% of Canadians are thinking of postponing their retirement because of the associated downturns*. But there are things you can do to keep market volatility from having a devastating impact on your savings and goals.
* Saine Marketing, 2011
What is volatility?
Volatility is measured based on financial market fluctuations. The greater the fluctuation, the higher the volatility. During periods of high volatility, strong upturns are followed by strong downturns, which means that while you could see temporary gains in your investments, you could also end up at a loss.
Time matters
The impact of volatility on your savings and goals mainly depends on your investment horizon.
The longer you have to invest your money, the less of an impact these alternating high and low periods will have – as long as your investment generates long-term average returns that will allow you to achieve your goals. If, on the other hand, you plan to withdraw your savings in a few months or years and your portfolio is showing negative returns, you may not have enough time to recover your losses.
If you are already drawing a retirement savings income, you are even more vulnerable to volatility, since you cannot afford to wait for the best time to draw on your savings. But if you redeem an investment when it is showing negative returns, it quickly declines in value.
Ways to maintain peace of mind
No matter what stage of life you are at or where you are with your goals, by planning properly, you can spare yourself many of the worries associated with market volatility.
Here are some things to consider in your planning:
- Talk to a qualified financial representative who will help you establish your risk tolerance level so they can recommend financial products you will be comfortable with, even during periods of high volatility.
- Once you have developed your plan, stay on course – no matter what the market is doing! With proper planning, you have reasonable assurance that you can achieve your goals over the target period, despite occasional market downturns. Remember that redeeming your investments too early because of market fluctuations can drastically reduce the long-term return on your investments.
- Look into savings products with guarantees. They can offer significant protection if you are vulnerable to volatility affecting your ability to achieve your goals. There is a wide and diverse range of guaranteed savings products available, which gives you the flexibility you want to choose the product that meets your needs, whether that means guaranteeing the payout period and amount of your retirement income, achieving a medium- or short term goal, or maintaining the value of your estate. Talk to your representative!
Source: Perspective, Desjardins Financial Security
Questions? Comments?