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I've been hearing that our economy may be falling into a recession. If so, what is a good investment strategy?

"The safest time to buy stocks is when people are afraid to be in the market, as they were in 1974, 1982, and after the crash of 1987. The most dangerous time to buy stocks is when people are afraid not to be in the market, as they are in 1997." Robert Prechter

While this quote is taken from The Bear Book, Survive and Profit in Ferocious Markets, by John Rothchild, published in 1998, you could easily end the quote with the year 2000. The confidence and euphoria of the high-flying tech market has long ago evaporated, along with short-lived gains in hot stocks that are now on ice. With the threat of a recession and a restrained economy, means many investors are again looking at "back-to-basic" fundamentals.

Hold steady

Many long-term investors become short-term investors during a volatile or bearish market. Caught up in doomsayers' gloom and doom forecasts, emotions override sound investment decisions and many investors panic during market slumps. Unfortunately, they often sell low, forfeit gains in the future, and then return when markets and stock prices are on the rise again. Whether the threat of a recession is realized or the economy slows, tried and true investment strategies remain the best approach.

How to weatherproof your portfolio:

Spread your risk   Over the long term, equity investments have outperformed other investments, but an equity-based portfolio experiences volatility and may not suit your risk tolerance or your time horizon.

Consider spreading your risk among the three major investment choices: cash, bonds and equity investments. Cash reserves, besides doubling as an emergency fund, add stability to an investment portfolio. Actively managed mutual funds, which typically hold more cash than "passive" investments such as index funds, tend to perform better during a market downturn.

Bond market   Over the past 50 years, the Canadian stock market has had an average annual return of about 10 per cent and the bond market has averaged about 7 per cent. Investing in fixed income securities such as bonds or dividend-paying investments offers regular income payments and can help offset market fluctuations.

Consider foreign investments   Since Canada represents less than 3 per cent of the world market, concentrating on Canadian stocks alone overlooks global opportunities and industries.

The new foreign content limit in a registered retirement savings plan allows up to 30 per cent in foreign holdings. Many financial professionals suggest investors maximize this limit as a strategy to diversify among global sectors and industries.

Buy low   Lower stock prices among many blue-chip companies represent a buying opportunity for investors with a long-term view. Borrowing to invest (other than for a tax-sheltered RRSP in some cases) is not advised by most investment professionals.

If you do not have a cash position in your account to support the "buy low and sell high" philosophy, a disciplined, pre-authorized savings program is an excellent alternative. You will not only purchase stocks or mutual fund units at lower prices, but you will also offset market fluctuations. It's a painless, pay-yourself-first form of saving and eliminates investment decisions based on panic and greed. Most financial institutions offer pre-authorized savings plans for as little as $25.00 a month in some cases.

Talk to a financial professional   A trusted and experienced advisor can give you an objective perspective on the market. As well, she/he can suggest an investment strategy suited to your investment personality, risk tolerance and time horizon.

Build investment knowledge

The Bear Book, Survive and Profit in Ferocious Markets, by John Rothchild, published by John Wiley & Sons, Inc., 1998. What's the Economy Trying to Tell You - Everyone's Guide to Understanding and Profiting from the Economy, by David M. Blitzer, published by McGraw Hill. Crash? Boom! Bang! Y2K Boomeronomics Retirement Anxiety: Common Sense Investment Strategies for the Next 20 Years, by Wayne Lang, published by Turner books.