What are the best investment strategies in the current market?

Investors should have well-defined investment strategies tailored to their goals and financial situation

What are the best investment strategies in the current market?

Despite sharp pullbacks in the equity markets recently, the global economy remains in good shape. While stocks should reflect the economic upswing, rising interest rates courtesy of the US Federal Reserve and other central banks, along with other risks such as the US-China trade war, cloud the picture. For Canada, given its close trade ties with the US, the success of the US economy remains of utmost importance.

Canada may have to slow somewhat this year, impeded in part by global trends, but also by competitiveness challenges and a mixed housing market, said Eric Lascelles, RBC Global Asset Management's chief economist. Meanwhile, while expecting the upcoming federal election to cause some duress, Brian Belski, BMO Capital Markets’ chief investment strategist, sees the potential for Canadian stocks to post some surprise gains, according to a MoneySense article.

With more volatility expected for 2019, investors should be prepared by having well-defined investment strategies tailored to their goals and financial situation. Here are some strategies that can help:

Keep calm when investing
If investors are nervous when the market goes down, the risk level of their portfolio may not be an appropriate fit for them. Their time horizon, goals, and risk tolerance are key factors in ensuring that they have an investment strategy that works for them.

Even if their time horizon is long enough to guarantee an aggressive portfolio, investors have to be comfortable with the short-term ups and downs they will encounter. If watching their balances fluctuate is too nerve-racking for them, they should think about reassessing their investment mix to find the right one.

However, investors should be wary of being too conservative, especially if they have a long time horizon, as more conservative investment strategies may not provide the growth potential they need to achieve their goals. They should set realistic expectations, too, so that it may be easier for them to stick with their long-term investment strategy.

Avoid market timing
Trying to move in and out of the market can be costly. Morningstar research shows that the decisions investors make about when to buy and sell funds cause them to perform worse than they would have had if they simply bought and held the same investments.

If investors could avoid the bad days and invest during the good ones, that would be great. However, it is impossible to predict consistently when those good and bad days will come. Moreover, if they miss even a few of the best days, it can have a lingering impact on their portfolio.

Invest consistently
Investors who invest regularly over months, years and decades will not feel much the impact of short-term downturns on their ultimate performance. As they take a disciplined approach of making investments weekly, monthly or quarterly – instead of trying to judge when to buy and sell based on market conditions – they can avoid the dangers of market timing.

While continually investing through downturns will not guarantee gains or that investors will never experience a loss, when prices do fall, they may benefit in the long run. When market declines occur, investment prices fall, and so their regular contributions will allow them to buy a larger number of shares.

For instance, what seemed to be the worst times to invest in stocks – such as the Great Depression in May 1932 and the Severe Recession in July 1982 – turned out to be the best times, according to Fidelity.

Maximize rare opportunities
There are a few actions that investors can take while the markets are down to help put them in a better position for the long term. For investors who have investments that they want to sell, a downturn may provide the opportunity for tax-loss harvesting – when selling an investment and realizing a loss.

Additionally, if market movements have changed their mix of stocks (which may include large-cap, small-cap, foreign and domestic stocks), bonds and cash, investors may want to rebalance to get back to their target asset mix. Doing so could provide a disciplined approach that helps them take advantage of lower prices.

These strategies are a bit complex, so it is advisable to consult a professional before making any tax or investment decisions.

Try being hands-off
To help ease the pressure of managing investments in a volatile market, investors may want to consider all-in-one funds or professionally managed accounts for long-term goals such as retirement. These accounts offer a range of different services for different costs and, depending on the specific option, may provide professional asset allocation, investment management and ongoing tax management.

Volatility is a characteristic of the market cycle, so it is inevitable. Instead of focusing on market volatility and being reactive to market conditions, thinking about what to do now or how the market will do tomorrow, investors should focus on developing and maintaining sound investment strategies, which can help them ride out the highs and lows of the market and achieve their investment goals.