This article was reviewed by Chris Singer, CFP®.
How to Improve Your Recovery
Are you looking at your investment portfolio and wondering, “How can I recover from the effects of the recent stock downturn?” Depending on your situation, there are some potential strategies that you can use to improve your recovery and future returns.
The following basic strategies are ones that pretty much anyone can implement to help improve their bottom line during a period of market volatility:
Infusion of Cash
The addition of new cash deposits allows mutual funds or stocks to be purchased at a “discount” which brings down the average cost of your holdings. This improves the spread between how much you originally paid and how much it may be worth when you eventually sell (assuming you plan to sell for more than you originally paid). The cash doesn’t need to be a large lump sum either, since regular monthly contributions are also able to take advantage of this strategy through dollar cost averaging.
Choose Equities over Bonds
When the market is down, it can be a good time to sell bonds and more conservative positions in your portfolio in order to prioritize equity purchases. This allows you to “buy low” and take advantage of the expected positive market gains over time. This is often a temporary strategy designed to capitalize on market volatility, as it may result in your asset allocation becoming a little lopsided towards equities. Once the market starts to recover and the stocks increase in value, your portfolio can be rebalanced back to your preferred asset allocation.
If you are already retired and have been making withdrawals from your investment accounts, it is critical for your recovery to re-evaluate the amount of funds you actually need. Many of us are discovering that being stuck at home much of the time has had a positive effect on our cash flow due to reduced activities and less shopping. Review your recent spending and reduce your withdrawals if you are able to as it can help to improve your portfolio returns during a down market.
This is the most important strategy, as there is a natural tendency to panic in the face of the unknown and unpredictable. Letting your emotions dictate your decision-making is often the worst thing you can do when it comes to money. You do not want any temporary losses to become permanent. Stick to the plan you have agreed upon with your advisor and allow time to heal any wounds. Well-known money experts will confirm that trying to “time the market” is an extremely difficult thing to do.
Of course, each of these strategies need to be balanced with your current need for cash as well as your appetite for risk. Make sure to reach out to me with any questions and I will be happy to provide sound advice tailored to your unique personal situation.
Investment products are provided by Aligned Capital Partners Inc. (ACPI). ACPI is regulated by the Investment Industry Regulatory Organization of Canada (www.iiroc.ca) and a Member of the Canadian Investor Protection Fund (www.cipf.ca). Jay Brecknell is registered to advise in (securities/mutual funds) to clients residing in BC.
This publication is for informational purposes only and shall not be construed to constitute any form of investment advice. The views expressed are those of the author and may not necessarily be those of ACPI. Information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by ACPI, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions expressed are as of the date of this publication and are subject to change without notice. Content is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or rely on the information without seeking the advice of the appropriate professional. Products or services referenced may not be suitable for you and it is recommended that you consult your financial advisor if you are in doubt about the suitability of such investments or services.
Jay Brecknell is a Certified Financial Planner in BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Jay can be reached at cedarrockfinancial.com