Time to buy stocks in 'economic recovery' sectors: Canaccord chief strategist
If COVID-19 has you stressed out over your investments, you’re not alone.
A study from the Ontario Securities Commission (OSC) last month found 47 per cent of retail investors are experiencing increased levels of stress as a potential second wave of the pandemic looms.
The OSC says stress can dramatically affect investment decisions by decreasing the willingness to take risks; either opting to stay out of the market or selling potentially lucrative investments. That could spell trouble for investors counting on steady returns to meet their retirement goals.
Fortunately, the survey also found 85 per cent of investors have held all their investments throughout the lockdown and social restrictions that have severely crippled the economy.
A much smaller seven per cent of respondents hit the panic button and sold 20 per cent or more of their portfolios, even though broader equity markets have recovered most of their value since originally selling off in February.
Not surprisingly, those who did most of the selling also claimed to be suffering from higher stress levels. Stress is running high among the population in general but if you find yourself tossing and turning over your retirement savings “portfolio therapy” is probably not the answer.
Past experience shows that making a hasty decision when markets are down could lead to selling good investments at low prices. Markets in general have always re-gained losses and moved on to new highs.
The cause of stress often runs deeper than money and the solution could involve consulting a mental health professional.
- Sign up for BNN Bloomberg's new weekly newsletter, Home Economics, here: https://www.bnnbloomberg.ca/subscribe
If you are in – or near – retirement and short-term cash is an issue, other solutions could be available including government relief or a short-term loan from your financial institution.
One positive outcome from the pandemic is incredibly low borrowing rates. Rates on a secured home equity line of credit (HELOC) are tied to the bank’s prime lending rate, which has fallen to 2.45 per cent.
While the overwhelming majority of investors have discussed their portfolios with their advisors or robo-advisors since the outbreak of the pandemic, a stunning 26 per cent have had no communication with their advisors, according to the OSC.
Cost and trust issues could be attributed to the finding that the majority (68 per cent) of investors own mutual funds, which have come under intense criticism for high fees and a lack of transparency. Nearly half (48 per cent) of investors surveyed own stocks and 46 per cent have a pension plan through their employers.
In a twist to the findings relating to stress levels, 37 per cent own guaranteed investment certificates (GICs). It’s hard to determine if the comfort of a guaranteed return is being undermined by the fact that rock-bottom interest rates have sunk GIC returns to about one per cent.
The realization that your investments aren’t even keeping up with inflation is enough to keep anybody awake at night.
Payback Time is a weekly column by personal finance columnist Dale Jackson about how to prepare your finances for retirement. Have a question you want answered? Email email@example.com.