You have probably heard that when times are tough – like a recession or market correction – that’s it’s wise to “stay the course.” Ironically, with a recovering economy androbust investment markets, this advice bearsrepeating. Here’s why.
Money to spend
A forecast from the Conference Board of Canada in March noted that Canadians saved almost 15% of their income last year, the highest rate in 35 years. That’s an average of $5,000 per person. The Board predicts that consumers will be spending big, driving the economy to grow by 5.8% in 2021.1 In April, the Bank of Canada said households look intent on spending some of the billions built up during the pandemic either because they cancelled purchases or had no place to spend the money.
The overheated housing market suggests Canadians are spending here too. Prices have increased more in Canada than in any other G7 country, with the national average home price reaching a record $716,828 in March, up 31.6% from the same month last year.
Some are predicting another “Roaring Twenties” with consumers spending freely – even recklessly – as we celebrate the endof pandemic restrictions. At times like this,it’s easy to be blown off course on the waytowards your long-term goals, like a successfulretirement. What to do? Keep these keyprinciples in mind:
1.Keep investing. No one would begrudge Canadians some enjoyment spending afterlast year, but stay committed to your future too. Keep up or begin a regular investment program so that some of your discretionary income is always earmarked for a future that will come, come what may.
2. Take a portfolio approach. If the marketscontinue at their current pace, thetemptation of exotic investments is likelyto increase. The run-up in cryptocurrenciesand the GameStop fiasco suggest someinvestors have become less fearful, evencomplacent about their money. Stayingtrue to a well-constructed, diversifiedportfolio aligned to your goals and risk tolerance provides a bulwark against fads,impulsive actions, and herd mentality.
3.Build resilience. “This too shall pass” is a great mantra in both bad times and good.A prolonged expansion can lead us to forget about the tough times and ignoresome of our safeguards, like an emergencyfund or our insurance coverage. Keepingthese safety nets in place and strongwhile we can will prepare us for the nextfinancial challenge we’ll face.
Value of advice
Studies have shown that one of best defences against investor behaviour that destroys wealth is having an advisor. Hand-holding, providing perspective, reminders about your plan and goals are all as important as the investment work we do. Let us help you be successful today and tomorrow.