The Importance of Staying Invested

I have seen a number of posts and internal market updates in the last two weeks highlighting the need to focus on long-term investment plans, even in periods of market volatility. I would alter that slightly to say “especially during periods of market volatility.” 

For those of you who have attended one of my many presentations, watched RBC GAM’s quarterly outlook videos or listened to any of my webcasts, you know that one of my key messages is to “ignore the short-term noise and stick to your long-term investment plan.” It is our job as professionals to constantly remind clients of this very critical point. When individual investors panic and sell after reading headlines about the looming recession (we are not expecting a recession in the next year) or market sell-off, they need to be reminded that they are not invested for the next few days or months, but for the next few years or even decades. Most investors are invested for the long term, so they need to focus on their long-term plan, not short-term market volatility.

It’s time in the market, not timing the market 

Time is one of investors’ biggest assets. The longer your time horizon, the higher your odds of a positive return. For instance, on a day-to-day basis, it boils down to a coin flip in regards to whether financial markets will be positive or negative (the RBC Select Balanced Portfolio has had a positive return in 53% of trading days). However, over any 10-year period since it was launched, RBC Select Balanced Portfolio has never had a negative return.

A long-term picture 

Here’s another way of looking at it. We have had a lot of periods of volatility and numerous market corrections over the past 30 years (we launched RBC Select Balanced Portfolio in 1986), but when you actually put that on a chart, those periods are much less noticeable! Even the Global Financial Crisis of 2008/2009 looks relatively small on this long-term chart.

The equity-market volatility at the end of 2018 certainly caused a lot of anxiety. While investors are clearly concerned about a number of challenges facing the economy, it is important to balance the near-term risks with the potential opportunities over the longer term. I expect that for many, staying invested during this period was a challenge, but they would have been rewarded by doing so. Using RBC Select Balanced Portfolio as an example, the sell-off in the three weeks leading into the holidays was completely offset in the first three weeks of 2019. So clients who stayed the course were likely better off than those who panicked and sold their investments as they would be re-entering the market now at about the same price that they sold at!

A balanced approach

One of the key benefits of investing in a balanced strategy like RBC Select Balanced Portfolio ties back to a series of posts that I wrote about a year ago on diversification. Markets are unpredictable and no single asset class consistently outperforms. Diversifying our investments across multiple asset classes and sectors better positions us to generate strong returns for our clients while minimizing volatility. 

When people ask me what they should do during these periods of volatility, these are my key messages: 

• Corrections are a normal part of the market cycle but are extremely difficult to anticipate
• Ignore the short-term noise and stick to your long-term investment plan
• Diversification is your friend
• Don’t try to time the market! 

I hope that these key messages can help you stay focused and committed to your long-term goals.

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