Managing Volatility

Strategies and insights to help manage through market uncertainty

Managing Volatility

Volatility is inevitable, and its effects can be broadly felt by investors. Monetary or fiscal policy changes, economic uncertainty and geopolitical issues can create a lack of confidence in markets that impact investor behavior and psychology, leading to sentiment-driven reactions.

When investors experience spikes in market volatility, it helps to know what may be the cause of these fluctuations and ways to navigate through them.

Investors can be their own worst enemy

Past performance may not be a guarantee of future results, but emotions do tend to creep in when markets are volatile. A bias of loss aversion can sway some investors to want to cash out, but if they have been invested over the long-term, cashing out could lead to a loss over the long term.

There’s also the opportunity cost to consider. Staying the course over the long term has proven to be the better option, historically.

 

emotional rollercoaster

Sources: Morningstar Direct Data and AGF Investments Inc. S&P/TSX Composite Total Return Index data to December 31, 2020. This information is for illustrative purposes only and is not meant to provide investment advice. You cannot directly invest in an index. Past returns are not indicative of future results. All values are in Canadian dollars. *Annualized return for S&P/TSX Composite Total Return Index.   

An investor’s emotionally-driven reaction to volatility in the short term can have negative consequences to their long-term investment objectives. When market volatility occurs, it may be tempting to pull your money out of the market. But that can have a significant impact on your investments. 

market timing

$10,000 investment in the S&P/TSX Composite Total Return Index for the 20 years ended December 31, 2020.

Source: AGF Investments Inc. as at December 31, 2020. For illustrative purposes only. All values are in Canadian dollars. You cannot invest directly into an index. Past returns are not indicative of future results. 

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