Your investing questions answered with ATB Wealth
By ATB Wealth 22 June 2020 3 min read
You’ve got investing questions and we’ve got the answers. James Chisholm, senior vice president at ATB Wealth answers your questions about investing in our current financial landscape.
What do investment markets look like these days?
[0:11] “It's early June now, and 2020 has already given us a powerful reminder of an important investing lesson— how hard it is for humans to predict the short term movements of the markets, both down and now up. The decline became intense in March that caused central banks and governments to step in with an awful lot of stimulus. It quashed the volatility in the markets. It lifted asset prices, in fact, for investors who were able to hold through all of the volatility. They're looking at year-to-date returns of about flat."
What can investors do to protect their investments?
[0:53] “You can start by taking a look at how much risk you're taking in your investment portfolio. Risk is emotional, and for a lot of people, the value of understanding your emotions around money is tremendously important.
If you don't know what kind of investor you are, the market is a pretty expensive place to find out. We see investors taking not enough risk and that might be because they don't yet understand investing what it does for their portfolio over time—it limits unnecessarily the ability of their savings to create wealth.
On the flip side, we see investors taking too much risk. That could be because they don't yet understand investing or perhaps are trying to act like someone they know or a character in the movies or potentially someone they saw on TV yelling into the camera about stocks. Over time, that level of risk has a high potential of creating permanent damage.
In practice, we find a lot of people benefit from being able to sit down or talk on the phone with someone who can listen, who can ask good questions, and that gets you to a good spot.”
Is there a chance my portfolio goes down again in 2020?
[2:12] “It's possible. And, if investors aren't needing to spend most or all of their investment portfolio this year, it's not the most important question for an investor right now. What's more important is, is your portfolio ready for the next decline, whatever that might be? I say this because history teaches us that knowing in advance the direction of the next trend, the intensity or the duration is incredibly difficult.
Therefore, a good wealth plan doesn't look to ignore or somehow try and avoid market declines that are beyond our control. What it does is builds in resilience through things like diversification so that we're as ready as we can be.
This is a great time for investors to think about their mindset. And let's think about pro athletes. We're learning a lot today about what separates the people who end up winning. And what we're finding is, it doesn't matter how physically fit you are if your mental game isn't in the right place when the action starts.
The same holds in investing. You can have a great portfolio of amazing ideas. You can have a reasonable fee level. You can have a lot of technical things in place. But, if you don't have the mental game right as an investor to do the difficult things when those things need to be done emotionally, then it doesn't always matter in the end.”
What should I expect next?
[3:42] "That's a tough question to answer, as no two people are in the same situation. Generally speaking, investors should expect that it may or may not be exciting going forward. Now, if it is exciting regularly for years, that could be a signal to you that what's happening isn't actually investing. It's speculation and that's entertainment. That's short term. It's not about long-term value creation. Speculation is dangerous to most investors unless those investors have extra money laying around.
In contrast, investing is owning bonds and stocks in companies that tend to have resilient business models that create wealth over time, sustainably and sometimes slowly. It can be boring and it gets the results that investors want. We find that our clients have enough passions in their life without needing to be entertained by their investment portfolio. They're looking for their portfolio to play a different role.
If investors have a wealth plan that already captures their reality, then they probably don't need to do anything next. What they could do is continue to apply a great mindset. Control what you can control and make peace with the rest.”
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