March 1, 2022

Focus on Volatility

Should you abandon your investment plan in these volatile times?

Investing will always involve some level of risk. No one ever knows when the market will turn. History reveals that equity markets usually recover strongly two years after a major crisis.

During a period of volatility it is all too easy to allow your emotions to dictate your investment decisions. To enjoy the potential for future gain, you may have to endure the pain of short-term volatility, and remain rational through periods of turmoil.


Your investment plan has been created with your long-term financial goals in mind. So, before you make any irrational decisions, consider the following:


  • Your recommended portfolio was compatible with your long-term investment objectives and time horizon when created. Has your long-term objective changed?
  • Will switching to a short-term investment strategy impact your long-term financial goals?
  • Has your tolerance for risk and expectation for reward changed? How will diving into a ‘hot market favourite’ impact your long-term investment strategy?
  • Will changing your investment portfolio result in the narrowing of your asset class diversification, thereby lowering your long-term return potential? Will it change your tolerance level? Will a change improve your asset class diversification and improve your potential for return relative to risk?
  • Will your asset class diversification strategy and globally diversified portfolio benefit your long-term investment objective?

Table 1: Despite short-term turmoil, markets historically tend to move higher over time


Performance of Down Jones Industrial Average through 12 Major Postwar Crises(1)
Number Date of Market Low (After crisis) 1-year Return After Crisis 2-year Return After Crisis
Berlin Blockade 13 Jun 1949 46.1% 70.1%
Korean War 13 Jul 1950 34.8% 35.5%
Cuban Missile Crisis 26 Jun 1962 37.3% 67.8%
Kennedy Assassination 22 Nov 1963 30.2% 44.8%
Gulf of Tonkin 08 Jun 1964 16.1% 20.6%
1969 Stock Market Break 26 May 1970 49.6% 69.3%
1973-74 Stock Market Break 06 Dec 1974 47.8% 82.4%
Iran Hostage/Oil Crisis 21 Apr 1980 37.5% 22.2%
1987 Stock Market Crash 19 Oct 1987 28.9% 69.6%
1990 Gulf War 11 Oct 1990 29.2% 39.6%
Russian Bond Default 31 Aug 1998 46.1% 53.6%
Dot.com Crash 09 Oct 2002 36.1% 44.4%
2008-2009 Liquidity Crisis 05 Mar 2009 65.0% 95.1%
Covid-19 Pandemic 20 Mar 2020 70.2% tbd
Average Return 41.1% 54.6%

Given that timing the market is always difficult, investors generally stand to lose more if they exit the market and stay out while waiting for the turn. In fact, missing the rising tide may cause more damage to their long-term investment plan.

Table 2: It’s best to stay invested

10-years ended Dec 31, 2021 Annual Returns
Staying Invested 9.14%
Missing the 10 best trading days 3.94%
Missing the 30 best trading days -0.68%
Missing the 50 best trading days -4.01%

Source: Counsel Portfolio Services, Morningstar Direct. January 2022. (Based on the S&P/TSX Composite Total Return Index)

Discuss your investment strategy with an IPC Advisor today.

Chart 1 represents performance of the Dow Jones Industrial Average through major post-war crises. The Dow Jones Industrial Average (DJIA) is generally accepted as a measure of U.S. stock market performance. Returns assume reinvestment of all distributions, and, unlike fund returns, do not reflect fees or expenses. It is not possible to invest directly in the DJIA. The original chart can be found in Contrarian Investment Strategies: The Next Generation, 1998, by David Dreman.