Milan Cacic
April 29, 2022
Money Financial literacy Social media Economy Women & wealth In the news Weekly update Weekly commentaryWHAT SHOULD WE DO DURING UNCERTAIN TIMES?
At the time of writing the NASDAQ and the S&P 500 were down 20.2% and 11.7% year to date respectively. To make matters worse, the iShares core Canadian government bond index (a basket of government bonds with staggered maturities) was down 11.1% year to date. Worries about economic growth, inflation, and higher interest rates have been the primary reason for the market volatility this year. Additionally, China's zero-Covid policy lockdown has hindered growth, and of course, the war in the Ukraine has added to supply shortages as well as global uncertainty.
Based on emotions and world events, it's easy to construct a view to sell all of your investments, and go to cash. Interest rate tightening by the Fed, China’s lockdown policies, and the war in the Ukraine are all events affecting us right now. However, in the 30 years that I've been doing this, there have been many times that I've heard convincing stories that have ended up being exceptionally wrong!
- In the early 1990s, we were told to sell the Japanese yen in response to the country’s collapsing real estate industry. The yen immediately began to rise and continued to make new highs for years.
- In the late 90s, the dotcom era told us that valuations didn't matter because of the power of the Internet. That didn't end up so well.
- In 2005, we were told that buying a diversified basket of US real estate (Mortgage Backed Securities) was considered safe. This led to the financial collapse in 2008.
- We were also told that bond yields could never go negative. Shortly after, trillions of dollars of government bonds traded at negative interest rates.
- And finally in April 2020, we were told that the travel industry, as well as oil and gas wouldn’t make a comeback. That prediction also appears to be wrong.
The point is, no matter how sure we may think we are with our understanding of the markets, we can still end up being completely wrong. What I have learnt through the years is that you should have a plan, stick with the plan, and use diversification during uncertain times. Through history, this strategy has been proven over and over again.
I have also included a piece from our CIBC Economics team entitled "Powell’s tricky task."
As always, if you have any questions please feel free to give us a call at any time.
Have a great weekend.
Milan