It pays to be invested

Investing is a long-term process. By focusing on the future, you can ride out occasional volatility. Historically, stock markets have rebounded from selloffs, with some of the best days coming on the heels of the worst, so it typically pays to remain invested through volatile times.

Volatility is not the same as risk

There’s more to risk than market fluctuations. Over time, an uninvested dollar will lose its purchasing power.

For example, the low-risk profile of a GIC can appear attractive at first glance, especially during volatile markets. However, when you account for tax and inflation factors, the real return of a GIC has often been negative throughout history. When choosing your investment, it’s crucial to evaluate your options through the lens of real return. Sometimes, the low-risk path may end up working against you.

A line chart showing the real return of a 1-year G-I-C. As inflation rises, the real return after taxes and inflation, may be as low as nearly -4.3%.

Chart: Since 1942, bull markets last much longer and move the market much further than bear markets.

While the stock market can be volatile, the long-term outcome can be far less risky than leaving your money uninvested. Severe declines can be stressful but tend to be short-lived. Historically, the recoveries that follow have tended to last longer, with gains that overshadow the losses.

A few simple strategies have proven

To be highly effective in mitigating losses and capitalizing on the recoveries:

Avoid trying to time the market

It’s virtually impossible to know when the market has peaked, or when it’s primed to recover. Historically, it’s been best to ride out volatility.

Line chart: S&P 500 from 2004 to 2022, with seven major periods of high volatility. The overall trend is positive.

Maintain a diversified portfolio

It’s also very difficult to predict which investments will outperform from year to year. It’s usually best to hold a mix of investments that perform differently throughout a market cycle.

Table showing the unpredictability of asset class performance between 2008 and 2021.

Invest on a regular basis

Because it’s so difficult to know when to buy or sell an investment, it can be a good idea to invest frequently. This can remove the emotional element of investing so you can take advantage of periodic downturns when the markets are “on sale”.

An illustration of the benefits of dollar cost averaging, with more securities purchased when their price dips.

The most important thing to remember

Periods of extreme volatility can be sparked by dramatic world events, which can add to the emotional toll of a falling portfolio. Yet even the most traumatic world events have not had a lasting impact on the market.

It’s about time in the market

The most important thing to remember is that, historically, the markets eventually recover from their selloffs — it’s about time in the market, not timing the market. A moment of crisis may undercut the market, but innovation and economic growth are the true drivers of investment returns.

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We want to inspire Canadians to invest in their passions, as well as their financial futures.

Working with a financial advisor can greatly improve your financial well-being.

Unlike mutual funds, the returns and principal of GICs are guaranteed.

¹ Bank of Canada. March 11, 2021. Source: COVID-19, savings and household spending - Bank of Canada.

² Morningstar’s ESG Indexes Have Outperformed and Protected on the Downside.

³ Cirano Research Study, March 2020. In 2018, the average household with a financial advisor for 15 years or more had asset values 2.3 times higher than an average “comparable” household without a financial advisor. This number varied between 2.73 in 2010 and 2.9 in 2014.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The content of this web page (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

Mackenzie Investments head office is located on the home and traditional lands of many nations including the Mississaugas of the New Credit, the Anishnabeg, the Chippewa, the Haudenosaunee, the Huron and the Wendat peoples and is now home to many diverse First Nations, Inuit and Métis peoples. Our clean drinking water comes from Lake Ontario. We are grateful to have the opportunity to work in this community and also recognize our employees working from places, near and far, acknowledging the traditional owners and caretakers of those lands.