5 questions to ask an advisor when the market is volatile

Markets have always had volatile moments in reaction to the economy. This happened with Black Monday in 1987, the Global Financial Crisis in 2008, and most recently in 2020 with the COVID-19 pandemic. When markets are volatile, investments fall and rise rapidly and unpredictably. Instead of making an emotional decision to buy or sell your investments, here are some best practices for managing volatilityVolatility The rate at which the price of a security increases or decreases for a given set of returns. A stock price that changes quickly and by a lot is more volatile. Volatility can be measured using standard deviation and beta.+ read full definition and suggestions for what to ask your advisor at your next meeting:

1. What should I do?

You and your financial advisor should already have a financial planFinancial plan Your financial plan should cover every aspect of your finances: saving and investing, paying down debt, insurance, taxes, retirement planning and estate planning.+ read full definition that includes your short- and long-term goals. Revisiting this plan during a volatile market can help confirm if your plan still matches your financial goals and situation, or provide an opportunity to make needed adjustments.

2. Should I reassess my risk tolerance?

Risk tolerance is your willingness and financial ability to handle investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition losses. Some people can handle more changes to their portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition value than others. If your portfolio causes you stress, especially during a period of market volatility, you and your advisor can assess whether adjustments to reduce risk are needed.

3. Should I rebalance my portfolio? 

Look at whether your allocation between types of investments—such as between fixed incomeFixed income An investment that pays regular income to you. Examples: Guaranteed Investment Certificates, Canada Savings Bonds and types of other bonds.+ read full definition and equitiesEquities Another word for investments in the stock market.+ read full definition—is still appropriate and aligned with your risk tolerance, age, remaining working years, and goals. You and your advisor may determine that your portfolio should be rebalanced to help you meet your financial objectives. These objectives could include target income during retirement or expected returns upon your retirement date.

In addition, given that different assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition classes produce different returns over time, it is important to regularly rebalance your portfolio to make sure it meets your goals. This may be done periodically (e.g. twice a year) or using benchmarks (e.g. if an asset classAsset class A group of securities that have similar characteristics. Examples of asset classes include, such as stocks, bonds, real estate or cash.+ read full definition exceeds or declines beyond a certain threshold, say 20%).

4. Should I buy (or sell) now?

The answer to this question is unique to each investor. Before you make a decision, discuss your financial goals, any changes in your life such as employment, marriage, children, and health with your financial advisor and the reasons for the specific tradeTrade The process where one person or party buys an investment from another.+ read full definition. They can help you assess whether you should act now or wait.

5. What happens if I withdraw from my investments? 

This is especially important if you’re retired, close to retirement, or need the money due to job loss. An advisor will let you know of any penalties, redemption fees, or capital gains taxes or losses (if you hold a non-registered accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition) you may incur. They can also tell you whether the withdrawal will be taxable. For example, withdrawals from an RRSPRRSP See Registered Retirement Savings Plan.+ read full definition are taxable whereas from a TFSATFSA See Tax-Free Savings Account.+ read full definition they are not. If the reason for selling is financial hardship, ask your advisor if any penalties or redemption fees associated with the sale of an investment and its withdrawal can be waived.

Last updated