For every worry investors have, there's a solution.
The Investor Education Fund – they run the GetSmarterAboutMoney.ca website - commissioned a survey recently that asked investors what made them most nervous. Here are the top five answers, with some ideas on how to find some peace of mind.
Interesting to see this crop up as the top worry, given that inflation has been tame for years. Investors, quite sensibly, seem to be worried about a snap back at some point. Owning stocks is an obvious way to prepare – if prices rise, then corporate earnings should do likewise. Commodity stocks, which now comprise about 37 per cent of the S&P/TSX composite index, would do particularly well in an inflationary world. Another thought is to own real-return bonds, which adjust their interest payments and the amount you get on maturity if inflation flares.
2.) Low earnings for retirement
Ramping up your saving is an obvious solution if you're worried about not having enough money when you leave the workforce, and the easiest way to get started is an automatic contribution plan that transfers money out of your chequing accounts each time you're paid. Also, check your asset mix and see if you're taking on an appropriate level of risk. There used to be a rule of thumb that your stocks allocation should be 100 minus your age, but some experts believe 110 or even 120 minus your age is more in synch with today's long lifespans.
The average Canadian neutral balanced mutual fund, with a roughly even mix of stocks and bonds, made an average 5.1 per cent over the 10 years to Feb. 28 after fees. Right in the middle of that period was the worst stock market plunge since the Great Depression. The lesson here is that a diversified portfolio will recover.
4.) Global events
Own bonds in your portfolio to provide a cushion from the sort of global happenings that send investors running for safety. Investors who avoid bonds because of the rising interest rate outlook are forgetting that the prime reason to hold fixed income is as a hedge against shocks to the financial system.
5.) Stock market downturn
Remember the last stock market crash? The S&P/TSX composite index is up about 65 per cent from its March 2009 bottom on a cumulative basis, while the S&P 500 is up about 139 per cent in U.S. dollars. What these numbers tell you is that a stock market downturn is an opportunity. Don't miss out.