Volatility is a normal part of long-term investing

From time to time, there is inevitably volatility in stock markets as investors react nervously to changes in the economic, political and corporate environment.

Above all else, financial markets dislike uncertainty. Yet markets are also prone to over-react to events that cloud the short-term outlook. As an investor, it is important to take a step back at these times and keep an open mindset.

1. What is the plan for this again? i.e. let’s go over what we talked about for my plan.

While a sudden and severe correction in the market is never fun, it is normal and part of being an investor in the marketplace. This is why we employ broad diversification across asset classes, geographies, currencies and styles. From an investment management standpoint, we have you covered and have prudently and pragmatically positioned your portfolios to withstand these market tremors. Like tremors. They pass. The most important thing during a time like this is to trust the discipline and process of your portfolio management team and your financial advisor and remain calm.

2. What if the market goes down 40% or more? Do you plan to change anything?

Absolutely! If this were to happen, we would expect our balanced and defensive positioning to weather the storm significantly better, and at that point and along the way, would rebalance portfolios to capture the rebound in equity prices. Also, DON’T fixate on one stock or one company’s success or disaster – it’s not going to change the world. There will be losses, sometimes significant, but we manage a portfolio, not as a single security. Don’t blame your advisor or yourself for a few bad ‘picks’, At the time, there was an investment thesis, and businesses do fail. It is about mitigating risk and having the opportunity to move on and reposition.

3. What if the market goes back up or near to its 2020 high, should we sell?

No, but we will be constantly rebalancing and ensuring that our risk exposures don’t climb in lock step with the market. Remember that the market hits new highs all the time. The market at its core trades on valuation multiples of things like cash flow, earnings per share, future growth into TAM, EBITDA, and other various metrics. When companies are growing there is opportunity, and when they are not, mis-pricings can present themselves for counter-cyclical positioning. The key is rotating within sectors, geographies and currencies is to maximize reward while minimizing risk.

4. Do you recommend we do any options or active trading?

Active investment can be a very successful strategy. Within your portfolio, we are tactically using options and other tools available to us as portfolio managers to mitigate risk. Within our core portfolios we are actively hedging, actively taking positions within companies that have been oversold, etc.

When volatility increases, the flexibility of active investing can be especially rewarding compared to the rigid allocations of passive investments. In particular, ‘volatility’ can introduce opportunities for bottom-up stock pickers, especially during times of market dislocation.

5. How much cash should I have?

Cash is an asset class. In a bull market, clients may complain about having cash in their accounts and that it’s not invested, I’ve heard this for my entire career. Then a market crash happens and then they want to hold cash… does this not seem counterproductive? We manage cash within the various accounts and portfolios. At times you can’t see that cash as it is embedded in our fund(s), but know that we are actively tilting our liquidity position given the market conditions. For example, going into this correction, we had over 10% cash, and over 30% in liquid treasuries to be able to A. weather the storm B. ensure liquidity to capture opportunities.

6. Where should I keep it?

Rest assured that your cash is segregated and held in your benefit and is not co-mingled with the balance sheet of your broker dealer and the CSA Canadian securities agency is backed by the Canadian government. Your securities and cash are safe. There is also the CIPF Canadian Investor Protection fund for a third layer of security.

7. How do we know that our custodian is a safe place for our money?

Your funds and securities are protected by the CSA or Canadian Securities Agency which is backed and funded by the Canadian Government. Securities legislation in Canada is one of the globes most rigorous and strict. There is also the CIPF, Canadian Investor Protection Fund as a third layer of security.

8. Should we be buying gold?

We own it; it is a tactical and structural holding of our core portfolio today, during periods of uncertainty, investors flock to safe havens like gold, the yen and treasury bonds. We have exposure to all those assets and we flex those positions up and down depending on our own internal risk barometer.

9. Are there other planning items we should be considering?

Save- If you are still in the accumulation stage of your financial life, implement or continue with a regular ongoing savings strategy, that is independent of timing market events.

Tax- Review and optimize your tax situation. For the majority of our clients, tax is their single largest financial expense. We implement tax advantaged strategies in your investment portfolio, ensure you are well positioned in all other areas to minimize the level of tax you pay.

Risk Management- Review your existing insurance to ensure you are well positioned to weather unexpected life events, where the financial impact can be avoided or reduced through use of insurance. We have a team of experts to assist in reviewing these critical areas.

10. Have you reviewed my plan, and do I have the right amount of liquidity to manage through this crisis?

We monitor all financial plans on a regular basis and design your investment portfolio to achieve your required Family Index number overtime, anticipating periods of heightened volatility, which is a normal part of long-term investing.
For clients who enjoy regular income from their investment portfolio, we deploy an income and cash management strategy to align with the needs of your family, so that we are never selling down investments at inopportune times to fund required cash flow.

For more information, please contact:

Mayert, Larson & Derlago Wealth Management
mld.wealth@cgf.com
403.691.7815

CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA

This newsletter is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Genuity Corp., this is not an official publication of Canaccord Genuity Corp. and the author is not a Canaccord Genuity Corp. analyst. The views (including any recommendation) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Genuity Corp. The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability. This information is given as of the date appearing on this newsletter, and neither the author nor Canaccord Genuity Corp. assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and Canaccord Genuity Corp. are registered to do business in securities.

Any distribution or dissemination of this newsletter in any other jurisdiction is prohibited. The holdings of the author, Canaccord Genuity Corp., its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the securities mentioned in this newsletter.

The preceding information is for general information only and does not constitute tax advice. All investors should consult with a qualified tax accountant.

Tax Estate advice offered through Canaccord Genuity Wealth & Estate Planning Services.