Sticking to Your Financial Plan – How Not to React to a Dip in the Market

STICKING TO YOUR FINANCIAL PLAN – HOW NOT TO REACT TO A DIP IN THE MARKET

By Clinton Orr

Needless to say, it is important to have a financial plan. A well-constructed plan brings all areas of your financial life together, ensuring all parts are actively working towards the same goal.

However,

if

you

don’t

properly

implement your plan, having one won’t do

much

good.

Your

investment

portfolio is part of your overall financial plan, and in times of market turbulence, there is the temptation to alter your

investment strategy, sometimes drastically. This could impact the rest of your financial plan and isn’t necessarily the best course of action.

When this turbulence occurs, many people get nervous and consider changing their investment approach. In this article, we will dive into a bit of data on the topic in hopes it can provide clarity and help people stick to their financial plans.

Listen, no one likes to see their portfolios decline in value, it’s an awful feeling and it's normal to want the decline to stop. When the stock market goes through these dips, it’s understandable to have an emotional

While

doing

this

may

provide

a

temporary feeling of emotional relief, it usually ends up hurting you in the long run. Take J.P. Morgan’s retirement guide released in March of 2020 -- part of it included a study on this very topic of discussion.

J.P. Morgan reviewed the US stock market data from January 2000 to December 2019. During that nearly 20year-period, according to the data, if you invested in the US market and just left that money alone, you averaged 6.06 per cent per year. If you were out of the market and missed the 10 best days, your average return dropped to 2.44 per cent. Just 10 days out of a 20-year period and your return is substantially lower. If you were out of the market for the best 20 days, your return drops to just 0.08 per cent per year. Think about that for a moment: in a 20-year period, if you miss just the best 20 days in the stock market, you effectively don’t make a single dollar.

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But what’s the catch?

The reality is that the really big “up days” in the market follow “down days.” The data shows us that most of the best days in the stock market follow closely with some of the worst days. These best days are a part of portfolio recovery. Once you pull out your investments, it’s not often you’ll reinvest at the right time, causing you to miss that recovery period. Making big changes to your investment strategy in the middle of a down period can cause you to significantly lose out on your return.

Now, if your investment doesn’t perform as expected, that could impact the other portions of your financial plan and knock it off track. If this makes you nervous and unsure of what to do, remember that you can chat with a financial professional and review your plan. They are there to help put your mind at ease by providing insight and helping your redirect where necessary.

Having said that, sticking to your plan is usually the best course of action.

The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s.

Research Department.

Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.

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