Market volatility does not need to lead to cold sweats, nightmares, and nausea.  Although the market has not been friendly to investors lately, a well balanced portfolio of fixed income (cash, bonds, term deposits, and guaranteed investment certificates) and equity investments can decrease the anxiety.  This balance can lead to a portfolio than can endure severe declines and not cause financial hardships. 

There are very few investors who enjoy seeing a decline in their portfolio’s value.  An investor who has the right mix of fixed income and equities may still see some portfolio declines after the market falls, but this will be far less than a portfolio with all equities.

As an investor gets closer to retirement (or liquidating investments in a portfolio other than for retirement), action needs to be taken to re-balance the portfolio.  There is no particular time frame when this needs to be done, but the closer to a market peak the better.  History has shown us that a normal market cycle lasts 5 to 6 years.  As long as an investor has a long time frame (over 10 years), he or she will have time for the market to recover in case of a decline. 

Patience needs to be shown when the market has declined to allow for recovery.  If a withdrawal is needed when the market is low, these funds should come from fixed income portion of the portfolio which has not been affected as much.  Once the market has recovered, the portfolio can be rebalanced to a previously agreed upon position.  Selling an investment when the market is high is very difficult to do, but avoiding selling when the market is low just requires a little patience.

During the market decline of the last several months, the investors most affected are the ones who have too much of their portfolio aggressively invested in equities.  If these investors do not need to liquidate, they could wait until the market rebounds.  This only emphasizes the need to keep a balanced portfolio that matches your time horizon.

At PlanWright Financial, our Credential® Investment Professionals believe that regular meetings to review your portfolio are the key to making sure your portfolio is balanced properly.  These meetings can also be used to discuss market and economic circumstances, and answer other financial concerns that you have.  With a little assistance, your portfolio can be prepared to handle market volatility before it happens.

Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. This article is provided as a general source of information and should not be considered personal investment advice, tax advice, or solicitation to buy or sell any mutual funds and other securities. ^®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.

April 3, 2009