 | Investment Learning Centre
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5 Actions You Can Take In A Market Downturn
Should an investor panic when a volatile market causes interest rates to fall and stock markets to decline? Should an investor leave equities behind and rush to money market funds? No!
If you plan to keep your money working for the next 10 to 20 years, you have time and historical trends on your side. Market downturns are part of a normal business cycle. And historically, markets have risen quickly following a long decline. Riding out a downturn is, therefore, a sound strategy.
Here are 5 actions you can take:
1. Review your savings goal and stick to your retirement plan.
The Manulife Financial's Steps Retirement Program® makes it easy for you to take the right steps towards building and maintaining your unique retirement plan. This program will help you set your retirement goal, create a retirement plan to achieve it, and keep track of your progress.
To ensure that you're saving enough money to achieve your retirement income goal, you need to check that your retirement plan is on track at least once a year. Login to the secure website today, and choose 'Set/change my goal' from the My Retirement Goal section of the menu.
2. Assess your risk tolerance.
Once you know what you need to save, choose investments that match your risk tolerance. The Investor Strategy Worksheet will help you assess not only your tolerance of losing money, but your tolerance for not making enough money as well.
Simply login to the secure website, and choose 'Investor Strategy Worksheet' from the Change My Investments section of the menu.
3. Diversify, diversify, diversify.
With a mix of stock, bond and money market funds. Over the long term, almost all investments grow. But over the short term, a specific investment will go up and down depending on market conditions. All investments don't move the same way all the time. Some may go up while others lose money over the short term. By diversifying and choosing different types of investments, you can take advantage of the long term growth potential while reducing the short term volatility. If you are not comfortable picking a mix of investments, look to asset allocation funds which conveniently provide a diversified asset mix for each investment style.
4. Don't try to time the market.
Selling stock funds when a market is depressed means you are selling at a loss. Moving back into stock funds when the market begins to climb means you will likely miss out on the recovery. If you carefully chose your equities based on your risk tolerance, stick with them. They will not let you down in the long term.
5. Maintain the saving habit.
When you invest a specific sum at regular intervals, you benefit from the magic of compounding. And you reap the rewards of dollar cost averaging. When markets are down, the unit value of investments decreases. That means you can by more units for the same amount of money. When the markets start going up, as they inevitably do following a major decline, so will the value of your units.
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