Reacting to short-term market events by making dramatic portfolio changes makes it difficult to stay on course to achieve your investment goals.
While many investors feel they have to do something during a market downturn, history shows that the disciplined, patient investor will often be the one rewarded when markets return to their upward path. As the chart below shows, major declines have generally been followed by major recoveries.
| Calendar return (%) | Return in following year (%) | Annualized return for next 5 years (%) | |
|---|---|---|---|
| 1974 (Oil embargo) |
-25.0 | +18.5 | +22.3 |
| 1981 (Double-digit inflation) |
-10.2 | +5.5 | +13.7 |
| 1990 (Gulf war) |
-14.8 | +12.0 | +10.8 |
| 2002 (Tech wreck) |
-12.4 | +26.7 | +18.3 |
| 2008 (Financial crisis) |
-33.0 | +35.1 | +11.9 |
| 2011 (Eurozone debt crisis) |
-8.7 | +7.2 | +8.3 |
Based on returns of the S&P/TSX Composite Total Return Index.
1. Reacting to a market decline by selling an investment guarantees a loss that otherwise only existed on paper.
2. Being out of the market can prevent you from participating in any gains when the market bounces back.