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Investors should look past current U.S. turmoil to the long term

Worries about the debt ceiling deadline sent tech stocks tumbling yesterday.

BRENDAN MCDERMID/REUTERS

Investors can be forgiven if turmoil south of the border is causing some jitters, but portfolio managers say it's important to keep a cool head and focus on the long term.

"Just because the U.S. is doing something stupid, the investor should try not to do something stupid himself," said Adrian Mastracci at KCM Wealth Management in Vancouver.

The U.S. government has been in partial shutdown mode for more than a week over a budget impasse. Adding to the market volatility is an impending Oct. 17 deadline, when the government hits its debt ceiling.

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Mastracci said investors shouldn't be "drawn into the vortex" of political events, but instead make sure that their portfolios are diversified enough to weather the ups and downs over the long haul.

"You can worry about all this stuff, but you can't do anything about it," he said.

"You've got to keep your patience. You've got to keep your calm. Don't get attached to anything you've got. Don't make that rash decision, that knee-jerk decision."

Aside from the market reaction, First Asset Investment Management's John Stephenson said he doesn't see much of an impact from the government shutdown itself.

"At most, it's going to shave off a tenth of a per cent of the U.S. GDP," he said, noting that there's been 17 shutdowns since 1976.

"In virtually every case, certainly in the last 10 anyhow, the S&P has rebounded two months later and recouped not only all the loss but posted some gains as well," said Stephenson.

"So I'm not overly bearish. I think ultimately things look better and that's good news."

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Garey Aitken, chief investment officer and portfolio manager at Franklin Bissett Investment Management, said right now markets are more focused on whether a deal can be reached to increase the U.S. debt limit.

A debt default could have "fairly significant ramifications" on capital markets and economic growth, he said.

"Typically with these things, you're best served to take that longer term perspective," said Aitken. "Our view would be that in all likelihood cooler heads prevail."

If anything, Aitken said now might be a good time for investors to take advantage of buying opportunities. The current volatility might be weighing on stock prices of companies whose underlying businesses are strong and prospects are bright.

"Be positioned to take advantage of what could be an opportunity. If the market continues to sell off, those are the sorts of things that we get really intrigued by," said Aitken.

"That's probably the opposite of what some people might say and they might be wringing their hands over this and fretting about it, getting caught up in the minutia. That's really not our approach."

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Paul Taylor, chief investment officer of fundamental equities at BMO Asset Management Inc., said investors are right to stay attuned to the U.S. situation, since a default isn't a "zero probability."

For investors looking to invest a large chunk of money at once with a shorter time horizon, it might be a good ideal to hold off for a few weeks until the debt situation shakes out, he said.

"Does it make sense for them to fundamentally alter their investment risk profile? I would argue not," he said. "But I do think it's time for investors to monitor their portfolios a little more closely."

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