When the market plunges, do you instantly check your portfolio? Here’s a better way to cope with emotional investing so you can manage the lows (and the highs) when financial markets are volatile
If you’re prone to financial anxiety, and feeling concerned about your investments since the March 2020 market crash, you’re not alone (and we’ve got strategies to help, below).
When the COVID-19 crisis hit financial markets last spring, the ensuing market crash was enough to send many people into a tailspin of emotion — and emotionally fueled investment decisions.
Here at Genus, the crash was less panicked due to the careful risk mitigation we build into every portfolio, but we nonetheless fielded many concerned calls from our clients and worked with them to assuage their anxieties. “Helping to walk clients through market volatility is always part of the work we do,” says Mary Lou Miles, Director of Wealth Management and portfolio manager at Genus. “In this case, we did a lot of communication, including our weekly In Focus videos to update people on the markets. We wanted people to know that we were on top of it.”
Miles, along with all of our portfolio managers, worked to guide anxious clients and help them learn how to cope with emotional investing during difficult financial times. “I’ve always worked with clients on the emotional management side of things, and even more so since COVID,” Miles says.
Why investing and psychology go hand-in-hand
Most people are naturally emotionally invested in their money. But understanding how and why that emotional attachment exists can help us to deal with our emotions when the markets go wild.
For some, the emotional attachments begin in childhood, as modelled by their parents, while for others, it’s about how the money was acquired. “People who worked hard for their money tend to be more attached to market ups and downs than those who inherited money, for example,” Miles says. “The source of the money has an impact on their perception of it.”
Then there’s the transition from saving for retirement to accessing those savings. “When you retire, the money we’re managing is replacing your job,” Miles says. “You’ve been spending time saving and that savings becomes your pension. It’s difficult to make that shift in perspective.”
How Genus minimizes the impact of market fluctuations
While the Genus investing team worked swiftly to minimize the impact of the Covid-related market crash on client portfolios, Miles reinforced with clients the strategies we use to manage the market rollercoaster ride on any given day. And from a Genus client perspective, the outlook was relatively good. “When markets are down, we’re not going to be down as much, because our focus is on consistent returns over the long term.”
“We are constantly balancing and rebalancing portfolios,” Miles adds. “So it doesn’t matter if you have Canadian equities, U.S. equities, cash or bonds in your portfolio, they’re not all going to be down at once. Our disciplined approach means we will never hold any one stock that’s more than 10% of our pools.”
Miles says the portfolio managers at Genus also strive to understand what clients’ goals, attachments and investment philosophies are. “We gather all their information and look at the big picture. Sometimes that involves seeing an accountant or lawyer and helping the client to develop a plan.” Once the plan is in place, changes are minimal. “You should feel comfortable with the entire plan, even if you encounter some volatility,” Miles says.
And when the volatility inevitably occurs, you can take comfort not only in the risk mitigation of the long-term plan, but also the market opportunities that come with market crashes.
“We take advantage of the downturns,” Miles says. “We look for opportunities and, after spending a lot of time researching them, we move our clients accordingly.”
4 ways to manage the highs and lows and cope with emotional investing
- A diversified portfolio
- A focus on long-term investing
- Big picture planning with your portfolio manager
- Quarterly (as opposed to daily or weekly) check-ins
“People don’t think about the value of their home and how it changes on a daily basis, so why would they do that with their portfolio?” Miles says. “A diversified portfolio provides the best returns over the long term with the least amount of risk, so not all your eggs are in one basket.”
Work with your portfolio manager to understand your investment philosophy, goals and long-term plans. Then let the experts do what they do best. “We want to help you reach your financial goals,” Miles says, adding, “if you’d gone to cash in 2020, you’d have missed this whole bull run we’ve had.”