Stair Climbing & the Financial Markets
If you haven’t tried it yet, it can be a bit nerve-wracking going up a flight of stairs playing with a yo-yo at the same time. The secret is to climb slowly focusing on taking one step at a time. The moment you switch your focus to the yo-yo, you could easily lose your balance, trip & fall.
If you have not already guessed, the yo-yo in this analogy represents volatility and the staircase represents the long term direction of the financial markets.
I wrote this back in August 2015 when we were in the grip of a worldwide, industrial-led recession that saw the S&P/TSX down 11% that year. We have gone through many ups and downs in the market since then including the one we are going through now.
In the last 20 years alone, we have suffered through five of them: a recession in 2002 with the S&P/TSX down 14%; a 35% drop in in 2008 from the global credit crisis; and 11% declines in 2011, 2015 and 2018 from recessionary-led bear market pullbacks.
The key to building wealth is time in, not timing the market.
Annualized total returns on the S&P/TSX, based on daily data from January 4, 1988 to February 28, 2020 (Total 11,371 days)
7.1% - All days
5.2% - Excluding 10 best days
3.3% - Excluding 25 best days
0.7% - Excluding 50 best days
Source: Bloomberg, Guardian Capital
COVID-19 is a deep human tragedy that may get worse before it gets better but the world is now experiencing the largest stimulus forces – ever. Lower interest rates, lower oil prices and governments and central banks ready to launch additional fiscal and monetary policies if and when needed will lead to a U-shaped recovery.
Fear is a poor adviser. Selling into a panic is rarely rewarded. Remember, it is important to keep focused on climbing the stairs and not on the yo-yo.
Family Wealth Counsel is a financial advisory group with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This commentary is for information only. Raymond James Ltd., Member - Canadian Investor Protection Fund.
