Investors are dealing with a multitude of concerns, including the war, interest rate hiking policies, and even the ever-lingering threat of a COVID resurgence. In general, during uncertain periods, investors may panic and opt to convert their investments into cash to avoid any further volatility. Although this may be appropriate for funds that are earmarked for shorter-term liquidity needs or as part of a tactical investment strategy to raise ‘dry powder’ for future investment opportunities, our investment philosophy does not often recommend a full firesale of one’s long-term investments. Throughout all the previous bear markets and crises, North American stock indices have always proven resilient and able to recover over time. Some attribute this to the idea of “North American exceptionalism.” But perhaps a more helpful framework is to understand that North America is home to the strongest companies in the world, backed by a reserve currency that is desired globally and priced by a mostly efficient market that will place a fair valuation on corporate earnings. Periods of stress and heightened uncertainty can cause lengthy stays for the market at oversold levels, however, there has never been an event or precedent for corporate earnings to not recover.

A long-time horizon is one of the few advantages investors can have, but this is squandered if investors frequently trade in and out of their long-term positions in an attempt to avoid or catch market lows and highs.

For longer-term investment periods, it may be surprising to investors how non-consequential the net benefit of correctly timing the market can be. This is not to say that a successful market timer will not yield higher returns, but rather, even poor market timers make handsome returns over the long term. The diagram below illustrates this by comparing 3 investors into the RBC Select Balanced Fund. The first has been able to consistently add to their investment at short-term market lows. The second simply decides to implement a dollar-cost averaging strategy and adds to their portfolio on a monthly basis. The third investor may be considered the most ‘unskilled’ and has consistently added to their portfolio at short-term market highs. As one can see, all 3 investors are able to make money.

Most investors will submit that consistently spotting market bottoms is difficult and perhaps not a realistic expectation. Hence, what matters most for one’s long-term investments is that they are invested. This supports the industry adage that ‘Time in the market beats timing the market”.

All investors can attest to feeling anxious when they see their portfolio values coming down. This is only a natural response, as losses can have a larger emotional impact than gains. Rather than being discouraged, work with an advisor to determine whether the market has pulled back enough to be considered a discount. Moreover, although it pays to be a long-term investor, this does not excuse one from rebalancing their asset and geographic mix to strive for the best risk-adjusted returns. Finally, reviewing or completing a financial plan to ensure that the size of your long-term investment bucket is appropriate will confirm that one can hold true to their long-term investment strategy, even during the most uncertain times.