From falling earnings to slumping oil prices — many things can send a wave of volatility through the stock market. These days, investors can add one more worry to the list: a U.S. president whose impulsive actions could trigger market turmoil. In response, rattled investors may make sudden decisions that could damage their portfolios.
Indeed, behavioural psychologists say emotions (particularly fear) play a key role in how people make decisions about their money.
Studies also show that investment decisions triggered by emotions of the moment rarely (if ever) work out. And for people in retirement, fear of market volatility and the risk of making a bad investment decision are amplified even further. After all, without employment income it is extremely difficult to replace money lost in the market.
Whether retired or not, Sadiq Adatia, chief investment officer and portfolio manager with Sun Life Global Investments, believes the best thing investors can do when markets turn volatile is to set their emotions aside, ignore the gloom and doom, and stay focused squarely on fundamentals, like corporate earnings and the economy.
“If you’re worried about President Donald Trump’s impact on the market,” explains Adatia, “You just have to stand back and look at the U.S. as a whole and ask, `Is it in good economic shape?’ The answer is: Yes.”
In other words, when you look beyond what is roiling the market today, you just may find that the larger issues supporting it are still firmly in place.
Adatia’s view is shared by Gail Bebee the Toronto-based author of No Hype: The Straight Goods on Investing Your Money. She suggests investors might have more peace of mind, and be better off in the long run, if they simply ignored the steady stream of Trump-related news. “Get on with your life and don’t obsess over that kind of stuff,” says the author.
Another way investors can deal with market uncertainty is to develop a comprehensive investment strategy, with a long time horizon. When you do, says Adatia, who manages Sun Life Granite Managed Solutions, what happens in the White House today, or over the next few months, won’t derail your retirement goals.
Adds Bebee: “If you don’t have a plan and you have not figured out your risk tolerance, then you need to figure it out. But if you have done your homework and have an investing plan and are on track, I would not do anything.”
When you’re building a long-term retirement plan, U.S. securities, in varying levels depending on your risk tolerance, should be considered.
In fact, U.S. equities have done well since the 2008 financial crisis. Trump wants to implement a pro-growth agenda, including tax cuts and massive spending on infrastructure. “Trump should be able to put through some of these things, and it should help stimulate the U.S. economy,” notes Adatia. “They should happen, though maybe not to the extent he wants, or as quickly as he wants them to happen.”
If Trump successfully boosts the U.S. economy, growth could spill over into Canada — potentially helping retirement portfolios on this side of the border. “A stronger U.S. economy means that Canadian exports will probably increase,” explains Adatia, as long as the protectionist threats Trump has made against Canada don’t materialize in a meaningful way.
Commodities, including oil, natural gas and metals underpin the Canadian economy. Adatia says that the decision by OPEC and some non-OPEC countries to cut production has helped Canadian energy companies.
“OPEC and non-OPEC members have both agreed to cut production and we foresee that continuing,” says Adatia. And those cuts could support oil prices if world demand for oil rises faster than supply.
Canadian investors could also potentially benefit from rising gold prices. Canada is a major gold producer, and bullion, which has run up in price, is seen as a hedge against inflation, shifts in currency values and stock market uncertainty. “Gold may be great protection if Trump can’t get things done,” says Adatia. “If he doesn’t then you get the potential upward movement in gold prices.”
So investors should pay attention to the market if they want, but as Adatia explains, stay focused on the investing for the long term — it will give you the confidence you need to get through the rough patches.