Markets sell off

BY: FAZAAD BACCHUS 

It’s certainly been a roller coaster year for the investment markets. In February we saw the markets losing as much as 5% and even though it regained most of the losses during the year, we are still not in the clear as yet. Two weeks ago there was another major jolt in the markets where values in equity fell approximately 4-5% wiping out most of the gains that were recovered from about April to August.

Most values are negative for the year with a few indices doing okay. The Toronto Stock Exchange (TSX) is down minus 4.6% year to date while last year it performed at 6.03%. The Dow is only at 2.9% with a performance 25.08% last year. The S&P 500 is performing at 3.5% for the year so far but performed at 19.42% last year. The more challenging markets have been the international and emerging markets. The MSCI EM is performing at minus 16% when it performed at 34.24% last year. The Hang Seng which has also been hit hard is down at minus 12.59% where it performed at 38.59% last year.

When markets perform like this or when there is a selloff, it can be due to many things. Perhaps it’s a correction in an overpriced market or perhaps it’s due to all of the trade tariffs being implemented. The latter causes the markets to react uncontrollably. Only this week I read of a company in China by the name of LENS that has lost 66% of its value due to the trade negotiations between USA and China. As I said earlier, the international markets have seen a rough time this year. What’s worse is the situation where there is an overpriced market, which needs cooling, compounded by the uncertainty of the political and economic policies of Governments.

This was the case two weeks ago where trade war and selloffs happened but were further compounded by rising interest rates. As more money went into the bond market, equities suffered.

What then do you do as an investor? Do you sell off all of your equities and invest all into bonds? Do you stay in the market and hope or wonder if it will recover? Well first if you are close to retirement or have little money and have invested it all, then it should not all be in equities or it should be in low-medium risk investments, your advisor should know. But the thing that investors must be most wary of, is the decision to sell off their investments when it has fallen. This is the typical mistake, where you cut your losses.

I like to draw this analogy, if you were to buy a house and the value drops, do you sell or do you try to buy more? You try to buy more of course, why is that, because you know that the value of houses will start rising in time, and that’s when you sell. The same principle with investments, when the value goes down, it’s only the value that goes down, you still have the same amount of units you bought, soon those units will start creeping up in value again.

The markets are tough right now, find a good advisor to help you navigate through.