COVID-19 has forced everyone to alter their behaviour, but none of our new habits were as unique as the urge to stock up on everyday essentials. Yet, for all the anxiety about running out of some day-to-day necessities, the rush was somewhat short-lived.

If emotions can compel us to overstock our shelves, it’s not surprising that they can also impact our investment decisions. Stress and anxiety can be hard to resist when money is on the line, even if you know you’re acting against your best interests. Still, it’s important to try. Allowing fear to drive your investment decisions can be costly.

Don’t just roll with your emotions

How you’re feeling can play a big role in investing. When markets are rising, investors may get a sense of optimism and euphoria. Then, at the first sign of a looming crisis, investors anxiously try to gauge which way the market will turn. Often by the time they have their answer, markets have already retreated, causing investors to panic and feel an urge to sell to avoid additional losses. This phase is typically followed by a sense of scepticism that prevents them from investing when they see evidence that markets are recovering.

As painful as losses can be during those volatile periods, a rash decision could be even more devastating. Selling in a panic after markets have already moved will not only lock in losses, but also means you may miss opportunities to recoup them when prices recover.

Stay true to your plan

Sticking with your investment plan is one of the best ways to rein in your emotions and avoid making a rash mid-course correction that may undermine your long-term goals. An event like COVID-19 can be hard to plan for; however, maintaining a diversified investment portfolio with assets—like stocks and bonds—spread across a variety of sectors in Canada and around the world can help. Also keep in mind, your investment portfolio is built based on your time horizon, risk appetite and goals.

Different investments will have different reactions to a shock like COVID-19, explains Avery Shenfeld, Chief Economist, CIBC World Markets. “Some segments of the market won’t be as affected as others. While demand for oil is down due to COVID-19, demand for groceries has gone up,” he says. “As market volatility has taught us time and again, there is no better protection than a diversified portfolio.”

Additional Insights

A shock to the system – CIBC Asset Management experts provide their market and economic outlook for the 12-month period beginning April 1, 2020.

Manage the noise

Knowing that you’re better off to stick to your investment plan is one thing, stomaching the volatility is another. The constant stream of news may add to your anxiety and reinforce the urge to sell.

Limiting how often you look at your portfolio is one way to resist that urge. Having confidence in your diversified portfolio and sticking to your investment plan will also allow you to tune out some of the negative headlines.

A short-term setback, even like the one we’re experiencing now, likely won’t have much of an impact on your long-term goals. Remember, markets tend to be cyclical. Whenever markets have fallen in the past—whether it was due to the 2008 Financial Crisis, the Spanish Flu or the Great Depression—they’ve always bounced back.

It’s hard to say where we are in the market cycle today, which is what makes emotional investing so risky. “We may be close to the bottom, but it's possible that there will be another wave,” says Benjamin Tal, Deputy Chief Economist, CIBC World Markets. “This is a temporary crisis. It will pass. And now what we are doing is simply buying time.”

Break the emotional attachment

Markets don’t need to be falling for emotional investing to influence your decisions. It can be just as hard to let go of an investment that has outperformed for an extended time. The same goes for a company that you feel strongly about.

At times, an attachment to an investment can blind you to a material change that may affect its outlook. We can help you put the situation in perspective and avoid forming emotional attachments that may undermine the way your portfolio performs.

Having an impartial source can help you, especially in times like these. Keeping your feelings in check can be hard, but we can help you stay on track to financial success. Contact us if you’d like to discuss your investment portfolio and long-term goals. We look forward to connecting with you.