In the past year, investors experienced the fastest bear market and the fastest recovery in history. After bottoming in March of 2020, the SP500 made new all-time highs by August. Since then, markets continued to climb to new highs off the back of low-interest rates, government stimulus, and the expectations for strong corporate margins and earnings within a post-covid environment.

Investors that did not have the willingness to stay invested through 2020 may have decided to go to the sidelines by transitioning some of their equity investments into cash, GICs, and T-bills. With the low-interest rate environment, those investments will provide little in return which may compromise the ability to meet one’s investment and financial goals. For those investors, the question often becomes, ‘how do I get back into the markets to achieve my long-term goals.

This is an important time to reevaluate your goals and risk tolerance.  Short-term volatility should not cause investors to deviate from achieving their long-term goals. However, if your goals and risk tolerance have changed, it is best to speak to us to review your plan.

If you have made the decision that re-entering the markets is the best way to meet your financial goals, the more difficult decision lies in when to enter the markets. Understandably, as we hover around all-time highs, most investors are hesitant to enter the markets at this time in the fear that there could be a pending collapse. That being said, our previous blog demystifies this perception with historical data that shows that all-time-highs are common occurrences with a continued high probability of future positive returns 1 to 3 years later.

RBC Global Asset Management published a study on two methods of shifting money back into the markets: 1) Lump sum: deploying cash back into equities in one amount or 2) Dollar-cost averaging (DCA): deploying smaller portions in equal amounts over a period of time. The results were intriguing. As one can see in the chart below, historically, the lump sum strategy yielded a higher return over different periods within a year. That being said, the DCA strategy might be a better approach for those who prefer a more gradual method to deploying capital. It is also important to determine what you are invested in.

The investment playbook used in 2020 is very different compared to 2021. Last year, the structural factors were falling inflation, falling rates, an economy in ruins, and de-regulation efforts by the White House. This is the reverse of what has transpired thus far in 2021. Therefore, it should not be a surprise to investors that the winners of 2021 could be different from the winners of 2020.  If you are sitting on cash, speak to us and we can reassess your investment plan and determine the best approach towards re-entering the markets.