Over the years, I have spoken with many clients and advisors about how best to navigate the ups and downs that come with investing. From these conversations, I was inspired to write down what I believe are some basic truths of investing that all investors should keep in mind. These are especially important during periods of market volatility when emotions can override rational decision making. While this list has evolved over time, I believe these are the 10 most relevant principles for today’s environment.
1. Diversification is your most important investment strategy.
No matter what happens in markets, I think this one will always be at the top of the list! Diversification remains one of the best ways to manage volatility in your portfolio. Different asset classes, markets and strategies go up and down at different times, so combining them into a well-diversified portfolio will smooth out investment returns. This can help you manage through volatile markets and keep you focused on your long-term investment plan.
2. What’s safe in the short term can be risky in the long term.
Many investors try to escape the shorter-term risk of market drawdowns by investing in more conservative assets (or selling out of their investments). This might feel safer to investors over the short term, especially if we are moving through periods of uncertainty. However, not being invested in the market or holding large allocations in low-risk, low-return investments may unintentionally cost you. Doing so reduces your ability to generate an adequate return to support your investment goals. It’s important to remain focused on your long-term goals and not be overly focused on the threat of near-term loss. We explored this concept in our paper ‘Investing for, and during, retirement: what’s safe in the short-term can be risky in the long-term’.
3. It’s time in the market that matters, not timing the market.
One thing I have learned along the way is that it is extremely difficult to successfully time the market. It involves making two decisions – when to get out and when to get back in. Even if you manage to find the right time to get out of the market, it’s highly unlikely that you’ll be able (or willing) to get back in at the right time. As difficult as it might be to withstand market drawdowns, sitting on the sidelines means you will likely miss out on the strong recovery that inevitably follows. Missing even a few of the strongest days in the market (which generally occur at the beginning of a new cycle) can have a significant impact on your overall investment returns.
Missing just the 10 best days in the market over the past 10 years would have reduced your returns
Based on the annualized returns of the S&P/TSX Composite Index for 10 years, ending December 31, 2025. Source: Morningstar, RBC Global Asset Management.
4. Focus on where markets are going, not on where they have been.
There’s a standard footnote at the bottom of every performance report that says “past performance is not indicative of future results”. So why then would you make investment decisions based on how markets have behaved over the past weeks and months instead of focusing on future potential? While market volatility can create uncertainty and downturns can be painful, it is always important to remember that being overly focused on past gains or losses can distract you from emerging opportunities or risks.
5. What matters isn’t what the market does, but what you do in response.
Being aware of how your emotions can impact your investment decisions during volatile periods can help you avoid making poorly timed changes to your portfolio (see #3). This is easier said than done, even for professional investors. Ignoring the short-term noise in markets is key, as is sticking to the solid financial plan that you put together with your advisor. It’s what you do – or rather what you don’t do - during these volatile times that can make all the difference.
6. You can’t predict. You can prepare.1
Predicting what will drive the direction of markets over the short term is impossible. But preparing for it is not. With a well-structured plan in place, you will have more confidence that day-to-day market fluctuations won’t have a lasting impact on your longer-term objectives or on the investment strategy designed to get you there.
7. You need to take risk to earn a return, so manage risk – don’t avoid it.
All investments carry some degree of risk. If you want to earn a higher return on your investment, you have to be willing to accept more risk or volatility. If your tolerance for risk is low, then you will have to give up some return to achieve that. Understanding this relationship is a fundamental part of investing. That said, the volatility that comes from taking on more risk in your portfolio tends to decrease over time…especially if you are invested in a well-diversified portfolio (see #1).
The volatility of a diversified portfolio decreases over time
Rolling 1-, 3-, 5-, 10-, 20- and 30-year average annual returns from January 1, 1988 to December 31, 2025. All returns are total returns in Canadian dollars, unless otherwise noted. Diversified Portfolio represented by 2% Cash, 38% Fixed Income, 15% Canadian Equities, 25% U.S. Equities, 15% International Equities and 5% Emerging Markets Equities. Cash represented by FTSE Canada 30 Day TBill Index; Fixed Income represented by FTSE Canada Universe Bond Index; Canadian Equities represented by S&P/TSX Composite Index; U.S. Equities represented by S&P 500 Index; International Equities represented by MSCI EAFE Index; Emerging Markets represented by MSCI Emerging Markets Index. Note: you cannot invest directly in an index. Source: Bloomberg, RBC Global Asset Management.
8. The more frequently you check your portfolio, the more volatile it will feel.
It has never been easier to get up-to-date information on the status of your portfolio. But you must also remember that the more often you check it, the more volatile it will feel. That is because on a day-to-day basis, there is a 50-50 chance that it will have a positive or negative return. Watching your portfolio every day can lead you to think your investments are riskier than they really are. Instead, stay focused on your long-term investing goals and review your portfolio less frequently. It reminds me of an old TV ad: “Just set it and forget it”!
Historical odds of earning a positive return increases over time
Source: Morningstar, RBC GAM. RBC Select Balanced Portfolio, Series A. Daily returns are based on time period of January 01, 2000 to December 31, 2025. All other periods are based on monthly data from January 01, 1987 to December 31, 2025. RBC Select Balanced Portfolio, Series A annualized performance as of December 31, 2025 1Yr: 11.6%, 3Yr: 11.9%, 5Yr: 6.2%, 10Yr: 6.4%. Inception date: Dec 31, 1986. Past performance is not a guarantee of future results.
9. Your goal should be to outperform over time, not all of the time.
Markets do not simply go up in a straight line. They experience many ups and downs, driven by a host of different factors. Some of these are fairly small and are resolved quickly, while others are larger and can take longer for markets to digest. What is important to remember is that downturns have happened before, and will happen again, but they are not a reason to panic. Markets have always recovered and trended higher over the long term.
Markets have always trended higher over time
RBC Select Balanced Portfolio – growth of $100K
Source: RBC GAM, Morningstar Direct. Returns are reflective of Series A performance since January 1, 1987 to December 31, 2025. As of December 31, 2025 annualized returns 1 year =11.6%, 3 year = 11.9%, 5 year = 6.2%, 10 year = 6.4%. Inception date: Dec 31, 1986. Bear markets starts from when a stock market index closes at least 20% down from its previous high. Recession starts when there are two consecutive quarters of declining GDP.
10. A product is not a portfolio, and a portfolio is not a plan.
In simple terms, a product is a single investment, a portfolio is a collection of investments, and a plan is your overall strategy for reaching your financial goals. Think of a product as a single tool in your investment toolbox. It could be a stock, a bond, or a mutual fund. While products are essential to investing, they are just one piece of the puzzle and don't provide a complete investment strategy on their own.
A portfolio is like a well-organized toolbox that contains a variety of tools. A diversified selection of tools reduces the likelihood of any single product's performance having an outsized impact on your overall financial picture.
Lastly, an investment plan is like the blueprint for building your financial future. It considers your entire financial situation, including your income, expenses and long-term objectives. A plan ensures that your toolbox is not only well-stocked but also used in a way that helps you achieve your financial dreams, whether it's buying a home or saving for the future.
Ultimately, investors need both a well-equipped toolbox and a detailed blueprint to build a successful financial future. Relying on a single product is like trying to construct a house with just a hammer – it's not enough to achieve your financial goals.
1. Howard Marks, co-founder of Oaktree Capital Management
Talk to your advisor about creating a diversified portfolio that matches your financial goals.