How investors should weather a stock market storm

Weathering a financial storm

Nobody can time the market—but you can control how you react to it and how you structure your portfolio


“Sell everything!” This  harrowing warning from the Royal Bank of Scotland, advising its clients to off-load all investments in the face of a “cataclysmic year,” recently grabbed international headlines. Andrew Roberts, the bank’s credit chief, cautioned that major stock markets could fall by 20% and oil may reach lows of US$16 a barrel—no doubt sending many investors reeling with fear and indecision about what to do with their portfolios. So, is 2016, in fact, the year you should abandon your investment strategy and cash out? In a word: no.

“Anytime you make a hugely dramatic move—everything to cash or one asset class—chances are you’re making a big mistake,” says MoneySense columnist and certified financial planner Dan Bortolotti. “A 20% decline is just a garden variety bear market, which happens about once every three years, on average. And yet every time it happens people seem shocked by it. There’s a tendency to get emotional and overreact. Always take a balanced, rational approach to situations like this.”

That means sticking with a sound financial strategy that lines up with the goals you’re trying to achieve over the time frame you’re investing for, says Dan Hallett, director of asset management for HighView Financial Group in Oakville, Ont.

So rather than trying to predict an unpredictable market, focus on controlling what you can: Stock pickers should review their portfolios for neglected stocks that don’t fit their approach. Active mutual fund investors should strike a balance between diversification and concentration. Indexers should focus on broad diversification and rebalance by buying what’s most beaten up. And regardless of your portfolio’s investment approach, always try to chip away at fees.

“I know it sounds like the same boring and predictable advice all the time,” says Bortolotti, “but it’s still good advice.”

Also bear in mind, Hallett adds, that nobody actually knows what’s going to happen to the market in 2016—even someone as distinguished as Roberts. “If you wait long enough you’ll hear another opinion that contradicts it but sounds just as authoritative.”