Strategic Investing During Turbulent Times: 5 Easy Principles to Navigate Market Uncertainty

Throughout history, the world has witnessed (and recovered) from innumerable financial crises, economic meltdowns, and market crashes. Against the current backdrop of the Ukraine War, it’s important to remember that geopolitical events have a short-term impact on markets. Faced with the prospect of doom and gloom, it’s easy for the fight-or-flight instinct to hijack rational decision-making, causing investors to overreact and dump stocks, or worse— sell off entire portfolios. While some uncertainty and volatility may continue to persist, research shows that the equity markets quickly recover from war. Investors who fail to keep a long-term perspective are lured into the unforgiving trenches of panic selling, defined as the rapid increase in sales orders for certain investments, leading to a sharp decline in stock prices.

At Bellwether Investment Management, we consistently review our investment strategy whether it’s increasing allocations to defensive assets (like real estate, infrastructure, and certain Canadian equities) or redeploying assets into more rewarding opportunities like private lending. No matter the investment climate, we have a proven and robust investment plan that safeguards investments and shields against market turmoil.

In this blog, we’ll walk you through a few easy steps you can take to avoid panic selling by shifting your perspective, challenging you to reinforce foundations for a rewarding investment philosophy.

Here are some key principles to navigate a turbulent market:

1. Emotional decision-making leads to loss: The investment process is rife with psychological pitfalls. It’s not uncommon to experience a range of emotions, from overconfidence to fear of loss. To avoid loss, get out of your own way. Gain self-awareness by noticing your behavioral patterns or by speaking with a professional. Gaining awareness in the short-term will help you avoid making emotional decisions in the long run.

2. Be prepared: In light of market uncertainty and volatility, shield your assets by mentally preparing yourself for the unexpected by taking tangible steps. Implement a diversification strategy, which not only protects your portfolio against shocks but also lowers overall risk. Speak to your financial advisor before making any decisions.

3. Maintain a long-term outlook: When you’re focused on the day-to-day headlines, it’s easy to lose sight of long-term results. History shows that market reactions to geopolitical events like the Russia-Ukraine war have a short-term impact on stock valuations over the long term. If you’re a long-term investor, remember that your investments are a long-term play, with a time horizon of over a decade or two. Whether you’re in it for the long-term or short-term, a strong investment strategy will help you achieve your investment goals.

4. Recovery is inevitable: A review of long-term trends reveals that recovery is always on the table. Ultimately, markets are cyclical: they can spiral downward and quickly recover with minimal impact. If you’re in doubt, recall the recent coronavirus outbreak and the resulting impact on equity markets: This study showed that stocks gained 79% in only one year from pandemic lows. Markets are resilient; and while headlines and political events can shake them, it’s clear that they inevitably return to growth.

5. Believe in your investment plan: All types of assets, from stocks to bonds, and real estate to alternative lending opportunities, offer the potential for returns. Because they don’t always move in the same direction, it’s important to have a strong investment plan: one that’s right for your unique circumstances.

Giving into emotions, like fear and greed, leads to irrational decision making which only serves to harm your portfolio. Instead, aim to understand long-term fundamentals and adjust your perspective by maintaining a long-term investment horizon. In other words, ignore the masses, have a strong diversification strategy, and take defensive positions to protect portfolios against market shocks. If you’d like to discuss your portfolio, please contact us.