The secret to smart investing in uncertain times | Canada Voices

Planning for retirement can feel like trying to solve a giant puzzle with moving pieces. In this new series, we’re here to help simplify the process, delivering actionable insights to help you confidently manage your financial future.

When the market gets tough, tough investors hold steady.

Though it may be difficult to watch retirement savings dwindle in volatile markets, experts suggest that your investment strategy shouldn’t be moved by the market, but rather adjusted based on changing personal goals and financial needs.

According to Fidelity Investments’ 2024 Retirement Report, 45 per cent of Canadian retirees believe market volatility is having a negative impact on their finances.

“Along with increases to the cost of living and inflation, challenging economic growth and higher interest rates are contributing to a decline in the outlook that Canadians aged 45-plus have for retirement,” says Peter Bowen, the vice-president of tax and retirement research at Fidelity Investments Canada.

In stronger economic times many investors take on more risk, and when the market shows signs of weakness, they often feel tempted to move their money into what they feel are safer asset classes, neither of which are advised by the experts. For example, 48 per cent of respondents to the survey from early this year said they would only invest in safe assets after the market fluctuations of late 2023.

“These respondents may have missed out on what has been a phenomenal bull market since the survey was fielded in January of 2024,” adds Brown. “This speaks to the importance of staying invested.”

At the same time, experts also warn against placing risky bets on trending stocks or marketplace rumours, especially with their retirement savings, which tends to happen in stronger market conditions.

“If you are taking aggressive bets, concentrated positions, you are not investing, you’re gambling, and that kind of volatility usually doesn’t pay off,” explains Damir Alnsour, a financial adviser with Wealthsimple.

Instead, both Alnsour and Brown recommend creating a retirement savings plan, and letting that long-term strategy dictate market positions. Those plans should outline potential sources of income, savings needs, spending budgets, and retirement goals, as well as an investment strategy that reduces risk exposure in the years leading up to retirement.

According to the Fidelity survey, 95 per cent of retirees and 78 per cent of those nearing retirement with a defined retirement plan felt financially prepared, compared with 72 per cent of retirees and 41 per cent of pre-retirees without one.

Rather than making investment decisions based on the market, Alnsour recommends making investment decisions based on changes to life goals, income sources, spending needs, and other elements outlined in the retirement plan.

“If my goals have changed, if my life circumstances have changed, if my goal attainment has come into question based on how much I’m able to save – in those circumstances, a change might very well make sense,” he says.

Alnsour adds that retirement planning should also include other financial instruments that most don’t consider part of their investing strategies.

“If I don’t have a good disability policy in place, if I don’t have a critical illness coverage, if I don’t have a will in place, and if God forbid something happens to me, everything that I’ve done is for nought,” he says. “A fundamental part of financial security happens outside of the portfolio completely, and I think that is often overlooked.”

In the meantime, however, Alnsour encourages Canadians to reframe their relationship with market fluctuations. “Volatility is your friend, not your foe,” he says, explaining that when it comes to long-term investing, the greatest risk Canadians can take is not taking any risks at all, and risking missing out on the upsides of the volatility.

To better weather those short-term market changes, experts recommend taking advantage of the financial instruments Canadians have at their disposal, such as RRSP, TFSA, and other tax-free savings accounts, as well as any employer-sponsored savings programs they can access.

“Another key fundamental is diversification; not putting all your eggs in one basket,” explains Teresa Palandra, the president of investment consultants Mercer Canada. “Diversification has historically been very effective in moderating fluctuations, so ensuring that you have that diversified portfolio can provide you with stability during periods of market volatility.”

That includes investing in diverse financial products, but also diverse markets, industries, and asset classes.

Palandra adds that as Canadians near retirement age they should give serious consideration to moving more of their savings into so-called “defensive” assets like cash and government bonds.

“There’s going to be fluctuations, and over time, investors should earn a positive return, if they’re in it for the long term,” she says. “However, if you’re invested in the short-term, there could be a huge market upswing, but you could also get caught in a downward spiral, so it’s really important to revisit your plan over time to ensure that you are taking the appropriate amount of risk based on your time-horizon.”