Watching the news, you’ll see that the doom and gloom is even more prevalent than usual, with the stock market riding like a roller coaster, free falling one day only to rally the next. Investors are uneasy as they see the value of their investments decline, especially since the start of the new year.

The factors contributing to this volatile situation are varied as the financial stocks, a major component of most portfolios, had less than a stellar year due to the ramifications of the credit crisis initiated by the US real estate and mortgage sector. The energy sector with the increase in prices of resources and commodities, especially gold and oil had compensated for a time, spurring performance on the TSX stock exchange. But with concerns over a US and global slowdown and the resulting decreasing demand for our resources and commodities, this sector is also giving up some of its gains. This decline in the demand for our resources is further hampered by our strong dollar which makes what we sell across the border or overseas less competitive.

With the market volatility as we have seen in the last few months, we tend to look at the short-term effects of the downturn in our portfolios and lose sight of our long-term goal of wealth accumulation. Preservation is certainly a key component of any investment plan, but is the worst thing to focus on in a bear market. The reality of the marketplace is that there will always be fluctuations. The key is not to overreact to the short-term noise.

This is where you and your financial advisor need to work together to ensure that you are on the right track. Investing is a long-term process and requires complete dedication to your investment plan. Many portfolios will experience ups and downs. That is inevitable. But remember, historically markets do recover, rewarding patient, disciplined investors who stay the course. Long-term planning brings the biggest payoff.

We are in for some uncertain times in 2008 as the US Federal Reserve drops interest rates in an attempt to kick start their economy. The Bank of Canada has reluctantly followed suit if only to a lesser degree in what is already a low interest rate environment making investment decisions even more difficult.

A downturn is not a time to make a hasty decision to sell, but an opportunity to re-evaluate your portfolio and re-focus on your long-term goals.

January 30, 2008