It has been a brutal year for investors.
It has been tough to watch your portfolio crumble with stocks and bonds all headed lower, inflation remaining stubbornly high, and central banks all around the globe raising interest rates. And while you have zero control over how the markets will perform, nor can you single handily beat down inflation. Even if you think the Bank of Canada may overshoot on interest rate increases. Once again, that is out of your control.
Given all the financial challenges, you may feel frustrated, and even a little fearful, which is completely understandable. However, the one thing you can control is how you respond to this situation.
Let’s begin by highlighting a few behaviours that may be harmful to your financial situation:
1) Not paying attention to your asset allocation. In other words, how much money you have invested in stocks, bonds and sitting in cash? Your portfolio’s composition needs to align with you as an investor. For many, wealth preservation is key and while bonds have suffered their worst performance since World War II, that may change as rates head higher. This asset class could once again provide the balance in your portfolio you may have been lacking. If you haven’t already, now is a good time to rebalance your portfolio to ensure it lines up with your tolerance for risk and time horizon.
2) Regardless of your stage in life, you need to have a plan. Your financial plan. And if you do have a plan, you need to try to stick to the plan and only take corrective action if there has been a major detour from when you put the plan in place.
3) Try not to adopt a herd mentality. Just because everyone else is buying a particular stock it doesn’t mean you should. The same applies when everyone else is selling; it doesn’t mean you should sell either. I often say, “try to keep the emotions out of investing and never fall in love with your assets, they will never love you back”. Sometimes, through difficult periods of volatility, the best course of action is to do nothing.
It is time to take charge now by developing a millionaire mentality.
Of course, you don’t have to be a millionaire to think like one. Throughout my career, I’ve been able to observe what the rich do differently than the rest of us:
1) They don’t spend frivolously, are razor-sharp on their financial numbers, and always have an emergency fund they can tap into should they need cash in a hurry.
2) Their focus is on asset accumulation, they never borrow to consume, only invest, and rarely do they let cash sit idly.
3) They never abdicate financial responsibility for their financial future to anyone else. This doesn’t mean they have to manage their money alone. It does mean they are actively involved in the decision-making to always ensure they are being financially realistic. No one wants to save until it hurts their lifestyle, nor should they spend as if there is no tomorrow. It is all about balance.
We have been in this sort of financial situation before, and we have gotten through it. I believe we will get through this as well. However, it is going to take time and while patience is a virtue, like you, I too am beginning to get a little impatient, but plan to maintain a steady-as-she-goes mentality. I repeat, “sometimes the best course of action is to do nothing”.
If you didn’t have a chance to join me at the Toronto Zoomer Show, presented by HomeEquity Bank, provider of the CHIP Reverse Mortgage, don’t worry! Stay tuned for a video recap of my talk and learn how to develop a “millionaire mentality.”
~ Pattie Lovett-Reid
Chief Financial Commentator