Huntsville, Ont. It’s election day in Canada and to be honest, I don’t think the markets are bothered about that.
The reason, of course, is that investors will be watching closely to watch the impact on sectors, including energy, if there appears to be an aggressive push toward a low-carbon economy and banking if banking profits exceed $1 billion. New taxes are imposed. These two sectors combined represent 40 percent of the S&P/TSX.
So far, from an electoral perspective, the markets have adopted a wait-and-see approach.
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However, it appears to be a rocky trading session as September appears to be living up to its reputation of being the most challenging month of the year for investors.
There are growing concerns over the regulatory environment and troubled property market in China; The US Federal Reserve is meeting this week; Colder weather is on the rise, more likely to increase in Delta variants; Energy prices are high; And inflation remains a wildcard.
Investors are worried about a growing sense of unease as the company’s profit margins are squeezed, costs are rising and central banks are telegraphing that they may be getting closer to pulling back on stimulus measures. The companies that are being impacted are linked to the global market recovery.
To be fair, the markets are on fire. Year-to-date, the S&P/TSX is up about 17.5 percent, the Dow more than 14 percent, and the S&P 500 more than 18 percent. No market trajectory is straight up. Pullbacks are a normal and expected part of investing, yet when they happen it raises alarm bells.
It won’t take long for some investors to go over the edge.
Before reacting, some thoughts:
1) If you have a diversified portfolio with money in cash, bonds and stocks, recognize that we have gone through periods of volatility before. If you have a reasonable time horizon of at least five years, for many people the best course of action is to do nothing.
2) Don’t try to time the market. Even experts have to fix it twice – going into the market and coming out of the market. Make a plan to rebalance your portfolio throughout the year and stick to the plan. Despite the speculation, it is difficult to know what will outperform at any given time. Buy good quality investments and think about long term investments, which are short term speculations.
3) Understand your tolerance for risk. Are you looking for the “return” of your investment or the “return” on your investment? Take the time to really appreciate who you are as an investor. Market challenges will always be there, however, so don’t let savvy investor sentiment dominate your investment decisions.
ground level: I am not saying that you have to buy and hold your investments forever. I hope that you, as an investor, make informed portfolio decisions based on your time horizon and your tolerance for risk. This strategy helps ensure that logic versus emotion drives your decisions.