Investing tips for unstable times

Today's cost-conscious consumers are wise to keep stricter control over their finances as they ride out economic instability, but that doesn't mean they should neglect to save for the future, says Cameron Hubling, FLMI with The Williamson Group.

In fact, depending on the objective of their investment, investors may discover that market volatility can be beneficial. "If an individual has a long term strategy, volatile markets can actually be a friend. This is because through dollar cost averaging an individual is purchasing a greater number of units in a down market, which in turn will lower their overall negative return as well as provide for a greater dollar value during an upturn in the market."

While he doesn't suggest people make rash decisions when it comes to their investment strategies, Hubling says reevaluating how their money is invested isn't a bad idea, especially if the rainy day they were saving for is in the near future. "An investor should never make an irrational decision with their money. If you are in need of the money within the short term, then certainly you must reevaluate your portfolio for protection of liquidity. Of course, if the plan was correctly constructed in the first place, you should have a cushion to draw upon.

"For those with a longer term strategy, burying your head in the sand should not be part of the process. Review your portfolio with your advisor to ensure it is still meeting your objectives and makes sense for you." With a daily barrage of news stories revolving around the current economic crisis, it's not unusual for investors to worry about how the recession will affect them. But now is not the time to panic, adds Hubling.

"Markets move in cycles, people's emotions should not. We've seen market downturns before and we're going to see them again. An investor should have realistic expectations as to how their portfolio should respond over a period of time so when we see a downturn as we've recently experienced, they will understand this is a normal event and as well, a rising market is a normal event. Historically bear markets have been short lived and tend to be followed by a longer bull market which produces strong returns."

For that reason savings strategies should continue to be part of a financial plan, even in a volatile market, says Hubling. "However, one must decide on which type of savings plan best fits their objectives as well as how it will impact them at the time of withdrawal. For example, a TFSA versus an RRSP might make more sense for a younger person who is in a low tax bracket versus someone later in life who is in a higher tax bracket.

"If the young person is only getting a 20 per cent tax break at the time of deposit into a RRSP but is taxed at 40 per cent when they withdraw the funds later in life, a TFSA might make more sense as it is tax-free upon withdrawal. One strategy is to build up your TFSA and RRSP room and then move the TFSA money into the RRSP later in life when you are in a higher tax bracket."

Investors looking for some stability in today's market do have several options, he added. "Today there are a number of products on the market that offer stability. Some of course offer low yields, however, for some people that is comfort rather than the volatility that other products may experience. It's important to talk to your advisor about your concerns, especially your risk tolerance to ensure you are invested comfortably."

Speaking with and working with their financial advisor can help give investors peace of mind. By educating themselves about current market conditions and investment options investors can be assured of an investment strategy that will serve their needs in the long run.

"Review your portfolio with your advisor to ensure your are well diversified to weather the storm," says Hubling. "And remember, short term negative impacts are just that and over the long term will have minimal effect on your portfolio."