Why now? Because 2022 was a year like no other — at least unlike anything we’ve seen in a very, very long time. One “event” after another — some unprecedented — challenged us, surprised us and shocked us. And all investors, all over the world felt it and were taken aback, to put it mildly.
On top of rising interest rates, inflation and the threat of a global recession, no major asset class went unscathed — stocks, bonds, real estate and crypto all underperformed. The last time both stocks and bonds performed this badly was 1969.
Sleepless nights were not uncommon.
by Alan Friedman
So yes, this is a very good time to take stock (no pun
intended) of your tolerance for risk
When it comes to risk, we’re kind of damned if we do and damned if we don’t. If we don’t find the ideal balance for us, if we let fear rule and our emotions take over we could make the all too common mistake of panic selling, for example, which is not without consequences.
If, on the other hand, we’re too over-confident and take chances without fully understanding and appreciating the potential downside, we could end up losing our hard-earned savings. Either way we can find ourselves in an undesirable situation.
So isn’t it preferable, doesn’t it make more sense to spend the time now, re-assessing what you’re comfortable with, what you’re no longer comfortable with and discussing, with your advisor, your current goals, what your options are and the most effective strategy? To be proactive instead of reactive.
Risk has to be managed, but first we have to understand ourselves and just how much volatility we can comfortably handle. Because what we’re really managing here are our emotions, our behaviour. It’s our emotions that can cause us to make rash decisions — never a good idea when it comes to investing.
Bottom line? 2022 unsettled all investors, and we should all be checking in with ourselves.
It shouldn’t come as a surprise, therefore, to discover that your comfort
zone — and ultimately your success as an investor — may very well
benefit from some soul-searching and reassessing
So before you make investment decisions that can and will affect your future, and your family’s, take the time and ask yourself what, if anything, is different for you now. And involve your Investment Advisor, and possibly family members, in these conversations.
Think about how you react now, both emotionally and physically, when the markets are volatile. If your stomach dips like it would if you were on a roller coaster, if you can’t take the market swings in your stride quite the way you used to, that could call for a change in your investment strategy.
Have your circumstances changed — either by choice or events that are beyond your control — like your health, your job or your business? What about your financial resources and family obligations? Has anything changed on that front?
These questions are about the emotional side
of investing, but there is much more to consider
Because based on how much volatility you are now comfortable with, based on what your timing now looks like, based on the needs you have now, based on the investment opportunities available now — what, if any changes are you comfortable making?
And while you’re pondering and determining your best course of action, here is something important to take into consideration before making your investment decisions:
While it’s true that we’ve been through an unsettling and upsetting year, we must remember that there is always an upside, all is not lost. History has proven time and again that lower prices eventually lead to higher returns. The lesson is, don’t despair when prices go down. Be optimistic.
All investments come with some risk — “some” being the operative word. To quote Mellody Hobson, co-CEO of Ariel Investments,“the biggest risk of all is not taking one.”
It’s up to each of us to weigh the risk versus the opportunity, the upside versus the potential downside and decide whether or not we’re comfortable with it. It’s different for everyone. And then adjust your long term goals accordingly.
There’s a lot to consider, a lot to weigh. But it’s essential that you invest the time to take a deep dive into your post-2022, post-allthat- turbulence psyche, so you understand what, if anything, has changed for you and what, as a result of that, you have to do in order to sleep at night, but still reach those goals.
While I’m certainly not suggesting that taking the time to assess and reevaluate will eliminate any future uncertainty, it will make us much better equipped to deal with it, and improve our chances of success. And for investors, that’s money in the bank.
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Alan Friedman is an Investment Advisor with CIBC Wood Gundy in Toronto. The views of Alan Friedman do not necessarily reflect those of CIBC World Markets Inc. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Regulatory Organization of Canada. If you are currently a CIBC Wood Gundy client please contact your Investment Advisor. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.