If it feels like the stock market has been on a roller coaster lately, you're not imagining it.
Over the past several years, investors have experienced more ups and downs than many expected. The COVID-19 pandemic, inflation, rapidly changing interest rates, global conflicts, trade tensions, and advances in artificial intelligence have all influenced markets. One day headlines predict optimism, while the next warn of uncertainty.
It's enough to make even experienced investors wonder what they should do.
The good news is that market volatility is a normal part of investing. While today's headlines may feel unprecedented, history shows that markets have always experienced periods of uncertainty and have also recovered from them.
Here's why markets have been more volatile recently and how Canadian investors can stay focused on their long-term financial goals.
Several major events have combined to create an unusually uncertain environment.
Following the pandemic, inflation rose to levels not seen in decades. To slow inflation, central banks, including the Bank of Canada, raised interest rates rapidly. Higher borrowing costs affect consumers, businesses, housing markets, and corporate profits. As expectations change, stock prices often move sharply in response.
Wars, political instability, supply chain disruptions, and changing trade policies have all created uncertainty for businesses around the world. Canadian companies may operate locally, but many depend on international customers, suppliers, or markets. When global events change, investors often react quickly.
Higher prices have affected household budgets across Canada. Consumers spending less can reduce business revenues, while companies facing higher operating costs may earn smaller profits. Both factors can influence share prices.
Artificial intelligence and other emerging technologies have created excitement across financial markets. While some companies have benefited significantly, investor enthusiasm has also contributed to sharp swings in technology stocks as expectations continue to evolve.
Markets are driven by people as much as numbers. Fear can cause investors to sell quickly during downturns, while optimism can drive prices higher during rallies. News spreads faster than ever, and emotional reactions can amplify short-term market movements.
When markets become volatile, the most important decisions are often the ones you don't make.
History consistently shows that trying to predict short-term market movements is extremely difficult, even for professional investors. Missing just a handful of the market's strongest recovery days can significantly reduce long-term investment returns.
Instead, consider these principles.
Investing should be based on your financial goals, not today's headlines. Whether you're saving for retirement, a child's education, or another major milestone, your investment strategy should reflect your timeline. If your goals are years or decades away, short-term market movements become much less significant.
One of the best ways to manage risk is to avoid putting all your eggs in one basket. A well-diversified portfolio may include Canadian and international equities, fixed-income investments such as bonds, and cash or guaranteed investments like GICs. Different investments often perform differently under changing market conditions, helping reduce overall volatility. Diversification won't eliminate losses, but it can help smooth the ride.
Volatile markets can reveal whether your investment mix still matches your comfort level. If recent market swings have caused significant stress or sleepless nights, it may be worth reviewing your portfolio with an advisor. Your investments should reflect both your financial goals and your ability to tolerate market fluctuations.
Many investors continue investing through market downturns by making regular contributions.
This approach, often called dollar-cost averaging, means buying investments at various price levels over time. When prices fall, your regular contribution purchases more units; when prices rise, it purchases fewer. Over the long term, this can help reduce the impact of short-term price swings.
Having three to six months of living expenses in an accessible savings account can provide valuable peace of mind. An emergency fund helps prevent having to sell long-term investments during a market downturn to cover unexpected expenses.
It's natural to feel anxious when markets decline. However, selling investments after prices have already fallen can lock in losses and make it harder to benefit when markets recover. Likewise, rushing to invest because markets are soaring can expose you to unnecessary risk.
Instead of reacting to daily headlines, review your financial plan and consider whether anything has truly changed about your long-term objectives.
One of the greatest benefits of working with a financial advisor is having someone who helps you stay focused during uncertain times. An advisor can review your financial goals, explain what's happening in the markets, recommend adjustments when appropriate, and provide perspective when emotions are running high.
Periods of market volatility can feel uncomfortable, but they are not unusual. Every major market downturn has eventually been followed by recovery, even though no one can predict exactly when that recovery will occur.
Rather than trying to outguess the market, successful investing is often about maintaining a disciplined approach, staying diversified, and remaining focused on what matters most: your long-term financial wellbeing.
At Kindred, we believe money decisions are best made with perspective – not panic. Markets will continue to rise and fall. Your financial plan shouldn't have to.
If recent market volatility has left you wondering whether you’re still on the right track, it may be a good time to have a conversation. To discuss your investment portfolio, meet with a member of our Wealth and Investment team today!