Golden Rules of Investing | Corona Virus & Your Retirement Savings


Golden Rules of Investing

Corona Virus & Your Retirement Savings

Perhaps you remember, during the early days of the COVID-19 pandemic, we all watched stock markets turn decidedly negative - quickly. During this time, many of you had rightful concerns regarding your hard-earned savings and willingly reached out to our team to ask questions such as:

Is my Registered Pension Plan safe?

Is now a good time to make some changes?

How do I change my investments in my Registered Pension Plan?

As Canada slowly reopens, the federal and local governments are warning of the second wave of COVID-19; while to date, we still do not have a complete picture of how severely the market may be affected in the coming weeks and months. As Frances Donald from Manulife Investment Managements explains, “If we were in the midst of a baseball game, we’re probably only in the second inning—and it’s still far from certain how it’ll end. We need to re-frame our thinking and find ways to help us navigate these uncertain times.”

Financial markets go up and down – and you want to be in the game when they go up. That’s why it’s important to avoid speculation of “What Is Going to Happen?” Knowing your investment risk tolerance, developing an investment strategy and sticking to your plan are all tools in your toolbox to help you achieve your investment and retirement goals.

Let’s have a look at some proven ways to help you focus on your long-term retirement goals;

1. Understand Your Investment Personality & Risk Tolerance

Do coronavirus and the stock market changes have you worried about your investments? Perhaps you couldn`t sleep last night because you were concerned about your savings?

We all make decisions in our daily lives, some with careful reflection and others without much thought. When it comes to successful wealth building, it is vital to know the investment style that suits your personality and risk tolerance.

There are 5 types of investment personalities, and they dictate the way we invest our money;

  • Conservative
  • Moderate
  • Balanced
  • Advanced
  • Aggressive

Your investment personality usually depends on your age and the comfort level in taking risks with your finances.

Your investment personality usually depends on your age and the comfort level in taking risks with your finances. If you are not sure about your investment personality or wish to do an investment change, we strongly suggest you complete Investment Personality Questionnaire. It will guide you to determine your risk tolerance and align your investments with your priorities.

2. Determine Your Investment Strategy by Talking to Your Financial Advisor

Are you comfortable with investing over a long period? What age should you retire? Are you thinking of purchasing any big-ticket items anytime soon, such as a house? Do you have debt or student debt? Do you need other insurance coverage that is not included in your group benefits plan?

Proper investment strategy determines clear goals, guides you through your investment journey and helps with ups and downs in the financial markets.

In the early stages of the COVID-19 pandemic, you might have considered changing your investment strategy. However, it is proven that with a well-planned strategy, you
are going to be less likely to make rash decisions, and you will get better returns.

Talk to your financial advisor; she/he will help you to stay disciplined and committed to your investment strategy. If changes are needed, they can help guide you to suitable solutions.

3. Maintain Calm & Stick to Your Plan

During uncertain times, many investors let their emotions get into the way of investing and react to the market after it has moved up or down. If you are nervous about market volatility, have a look at these strategies to help with avoiding emotional investing;

Dollar-Cost Averaging happens when you invest at regular and smaller amounts of money rather than putting a large lump sum at once. If you would like to learn more about dollar-cost averaging, click and review our previous publication here.

Diversification can`t protect you from the market ups and downs; however, it can help to lower the volatility. Simply, you are putting your eggs into different baskets to spread the risk among your investments.

Dollar-cost Averaging and Diversification strategies can help you avoid emotional investing.

 

COVID-19 has taught us that things can change very quickly, and financial markets will respond and react accordingly. We need to be ready for more turbulent times ahead. Following your plans, maintaining calm, and sticking with the traditional investment philosophy will help you to focus on your long term objectives despite what might be happening in the short-term.


References

This article is written with influence from the sources below;

Canada Life Blog Articles "Don’t let emotions rule your investment plan" & "Understanding Risk Tolerance"