Volatile times call for long-term view

As the world stumbles from one crisis to another, turbulence is fast becoming the new normal in financial markets.

From the great recession of 2008 and the European sovereign debt crisis to the geo-political turmoil in North Africa and the Middle East, the world has experienced tremendous upheaval. And while investors waited for a respite, the tragic events in Japan triggered a new wave of panic.

During times like these, say experts, investors would do well to insulate their investment portfolios from the wild economic swings and the mercurial mood of the market.

BMO’s Sherry Cooper and Serge Pépin advise Canadians portfolio protection starts with diversification and liquidity.

“Investors should never knee-jerk react in such situations,” says Sherry Cooper, executive vice-president and chief economist, BMO Financial Group. “This is the reason we preach diversification and liquidity; the underlying fundamentals remain sound and Canada and the United States will be safe havens in this storm, although only on a relative basis.”

Hold your nerve, stay informed and seek professional help, says Serge Pépin, head of investments, BMO Investments Inc.

“When markets become volatile, they often incite hasty moves on the part of investors,” he says. “When faced with sudden and dramatic market fluctuations, it’s essential for investors to stay informed and not jump to any hasty conclusions, as hurried decisions most often do more harm than good.”

Pépin offers some tips for investors to consider:

• Seek out expert opinion: Investors need to speak with you, their financial advisor, in order to gain a better understanding of how an event will impact the financial markets over both the short and long term. Advisors need to ensure they are in a position to speak to these issues.
• Do not panic: As hard as it may be, investors must avoid over-reacting and making impulsive changes within their portfolio, especially in the equity portion.
• Consider buying into the downward trend: Often financial markets, especially stock markets, will over-react to local or global events, falling sharply only to come back with a vengeance. Selling into these types of environments can be detrimental to a portfolio. With proper research and due diligence, these periods present attractive opportunities at favourable prices.
• Re-examine your portfolio: Although investment portfolios should always be reviewed at least once a year, market upheavals are a good prompt to examine your portfolio for diversification and market exposure. Keeping your portfolio balanced, with a mix of equities, bonds and cash can help protect it from fluctuating markets.