Panic.
Dear Nancy Woods,
I recently put my wife and my savings into our TFSAs. We are both 32 years old. We invested $70,000 of the funds, into bluechip stocks, Canadian and U.S. We still have $12,000 left to invest. We know we still have many years before we need to touch it so our time horizon is long term. A couple of weeks after we made the purchases. the stock market took the deep dive. I'm ready to panic and throw in the towel. As new investors, we are in shock. What do we do?
Jon
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Dear Jon,
First of all, take a deep breath. It is not the end of the world, even though it may feel like it. From my 36 years of watching the markets, I personally have experience this a couple of times. In the long run, the market will rise, and if you truly are owning good quality blue chip large capitalized companies, they too will rise.
Hopefully, the stocks you picked are paying you a dividend. You may want to consider, if you already haven't, reinvesting those dividends. You can elect to enroll in a dividend reinvestment program (DRIP). This will automatically purchase you more shares at possibly a lower price and without commission costs. It is a good way to slightly lower your average price per share when the price is lower than when you bought them.
In the meantime, if you are using an investment advisor, call them and have a conversation with them about your concerns. Assuming they are experienced enough they will review things with you, re-check for suitability and hold your hand a bit during this volatility.
Consider your investments as though you bought a rental investment property. Let's say you owned a house as an investment and rented it out. Then the real estate market bubble bursts and there is suddenly a 15-per-cent decrease in property values. Usually the owner doesn't rush to put a "For Sale" sign on the lawn. As long as they are continuing to collect the rent and there has not been any structural damage to the property, they will hold onto it. Only if the house suddenly develops a crack in the foundation or there is another major weakness would the owner consider selling it. In the meantime, the owner will continue to own it and collect the rent. See your portfolio in the same light. As long as you are collecting the dividend and you own quality stocks, continue to own them and ride the correction out. With the ease of selling a stock versus selling a property, people tend to panic and pull the trigger too quickly to sell. In times like this you need to really exercise patience.
Consider that most stocks are now on sale. If you're really brave, look to invest some or all of your remaining cash balance. You will be thankful in the future and this relatively short period of time will seem to be a non-event.
Nancy
Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com. You can also send your questions to asknancy@rbc.com.