1. Denis Galbraith & Associates
STAYING THE COURSE
Strategies to Help You Maintain Confidence Through All Types of Markets
Daily market fluctuations highlight why maintaining a combination of discipline and perspective is so important. One way to achieve this fine balance is by having a plan and sticking to it through all types of market conditions. This may sound easy, but investors have been put to the test in recent years. Veering off course from a carefully thought-out plan can turn a loss of confidence, as reflected by market value declines, into a realized loss on an investment portfolio. With an investment plan, you are better able to navigate through turbulent markets and turn uncertainty into opportunity.
Here are five strategies that can help you minimize the impact of market fluctuations and help you feel confident about reaching your long-term goals:
1 Use Time to Your Advantage 2 Maintain Discipline 3 Diversify Your Portfolio 4 Regularly Rebalance 5 Invest Regularly
Summer, 2013

2. Use Time to Your Advantage
Investors who maintain perspective and stay mindful of their investment time horizon likely have a better chanceof reaching their investment goals than those who reactto short-term market fluctuations.
Staying invested and trying not to “enter and exit” when market volatility increases can help reduce fluctuations over the long term. The longer an investment is held in a portfolio, the less chance it has of incurring a negative rate of return. This is because fluctuations in value tend to smooth out over time as the impact of market volatility diminishes.
Volatility Has Less Impact Over Longer Time Horizons
Years of strong equity markets can outweigh periods of decline, resulting in long-term returns that consistently outperform other asset classes.
As the chart to the right highlights, returns can range widely over the short term. Average one-year rolling returns for a diversified portfolio ranged from a high of 58% to a low of -27% between 1980 and However, if an investor was to hold the same portfolio for a longer period of time, the range of potential returns decreases: the 30-year average rolling return has a high of 11% and a low of 9% – a difference of only 2%. These figures demonstrate that the longer you hold an investment, the more likely you are to achieve lower portfolio volatility and a rate of return similar to its long-term average.
July 1, 2018
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3. Maintain Discipline 2 Maintain Discipline
Reacting to short-term market “noise” by making dramatic portfolio changes can have a negative impact on achieving your long-term investment goals. History shows that by maintaining discipline and perspective during market downturns, a patient investor will often be the one rewarded when markets return to an upward path.
As market volatility increases, investors have a natural tendency to want to move into safer investments, hoping to avoid further losses. However, this move can result in needlessly locking in losses on investments that, given time, are likely to recover. A key to overcoming this emotional reaction is to refrain from timing the market. Selling at the wrong time and missing just a few days of a market recovery could have a significant long-term impact on your portfolio, as the chart to the right highlights.

4. Diversify Your Portfolio
Diversification, long considered the golden rule of investing, remains key to reducing risk.
Diversification means combining in your portfolio a number of investments across different asset classes, including cash, fixed income and equities; industry sectors; geographic areas; and investment styles. Financial markets do not move in concert with one another and individual asset classes will perform differently in any given year; at any time, one asset class may be leading the market, while the others lag. Diversification can help reduce the impact of market volatility on your overall portfolio by combining assets that react differently to changing market conditions. As the chart below shows, it can be difficult to predict which asset classes will lead the market each year and which ones will underperform. By including a mix of assets, the overall risk impact can be minimized over time.

5. A Diversified Portfolio Can Deliver Attractive Returns With Lower Volatility
Markets will always go up and down in the short term. Investing in a diversified mix of equities, fixed income and cash can help steer you through every market condition and reduce the impact of short-term market declines.
By holding a combination of different asset classes in your portfolio, you can strike an appropriate balance between the growth potential of investing in stocks and the relative stability of bonds. The chart to the right highlights how diversification can provide upside return potential while also reducing the overall level of volatility within an investment portfolio.

6. Regularly Rebalance 4 Regularly Rebalance
Market fluctuations can often cause a shift in how your assets are divided in your portfolio (also known as asset mix drift), leading to a very different mix – and investment experience – than originally intended.
Rebalancing is one of the more effective ways to stay on track to reach your investment objectives. Not only does it help keep your portfolio aligned with your investment goals,it also gives you the opportunity to lock in gains from one asset class and redeploy them to other asset classes that have become relatively inexpensive.
The chart to the right illustrates two portfolios that were initially split equally between Canadian equities and fixed income securities: over a 20-year period, the annual rebalancing strategy outperformed the buy-and-hold strategy by over 8%. Left untouched, asset mix drift can result in exposure to unexpected risks or missed opportunities.

7. Invest Regularly 5 Invest Regularly
Investing a fixed amount on a regular basis ensures the priority of your investment strategy. Regular investing reduces portfolio volatility and helps to keep long-term goals on track through disciplined contributions.
Investing regularly helps reduce the uncertainty that comes with lump-sum investing, where market timing may play a role. By investing smaller amounts of money on an ongoing basis, regular investing provides financial flexibility and allows investors to smooth out returns over time, reducing overall portfolio volatility (see chart to the right).
Other notable advantages of regular investing are that your capital starts working right away and it can help ensure your portfolio has the potential to grow along with the market over the long term. Investing regularly also gives investors a chance to buy more investment units when prices are low, reducing the average cost of the investment.

8. Thank you.
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information.
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