7 New Year's resolutions to make your finances less daunting

How COVID-19 impacts your investments depends a lot on you.


How- and whether- you should react depends on what type of investor you are.

Although 2020 is only a few months old, it’s safe to say that when we made our plans and resolutions for the new year, most of us didn’t anticipate the circumstances we’re now facing.

The COVID-19 virus has affected the whole world, and the resulting uncertainty led to significant declines in global stock markets. Those declines are likely reflected in your investment accounts.

While these circumstances may look bleak, compared to the financial crisis of 2008, the world’s financial institutions are stronger and more resilient, which means they’re better prepared to help us withstand the current situation. This is especially true for credit unions like Vancity, which is part of why we want to, and can help.

To help you make sense of what’s going on in global stock markets and your investments, we’ve asked our Wealth Professionals to break down some best practices for all types of investors.

There are a wide range of approaches to investing – from pretty simple to very complex. Whatever approach you choose, know that we’re always available for a no-strings-attached conversation about how to set and reach your investment goals.

If you’ve never invested before, now could be the right time to start.

Although it may not seem like it, now may not be a bad time to get into investing.

Since the COVID-19 pandemic, global markets have dropped in value. That means if you act “now,” you might be able to buy in at a low point – allowing you to implement one of the most fundamental investing rules for investment success: buy low, and sell high.

Before you start taking your first steps, however, take the time to confirm you have a strong financial foundation in place, with an emergency fund saved up, and the right insurance policies (life, home, car) in place.

In addition, if you have credit card debt at high rates of interest, you should have a plan to pay that debt off before starting to invest (as it’s unlikely you’d earn more from your investments than you’re already paying in interest). Both high-interest debt, and being hit by an unforeseen disaster without insurance to cover you, can be financially devastating.

If you’re largely debt-free and protected consider speaking with a Vancity wealth professional about how to create the best setup for you to start investing.

Your plan will mostly be set by your goals and timeline, which will determine how much risk you’ll take in order to meet your goals.

Keep in mind: Some good news in all this hardship is that socially responsible investing (SRI), is proving more resilient than other fund types – meaning opting for investment choices that are aligned with socially responsible goals can also mean optimizing your financial health, too.

If you just started investing, hang in there.

When you’re faced with market downturns it can be difficult not to react emotionally, but your response should be driven by your financial goals, not your emotions.

For example, if you’re young – say, in your 20s – you probably expect to work and contribute to your investment accounts for many more decades, and your diversified portfolio will be able to “ride out” these ups and downs on your way to retirement.

What you don’t want to do is panic and sell your holdings at a relatively low point, only to buy back in once the market has rebounded.

But just like someone who is new to investing, first make sure you’ve got an emergency fund, a plan to pay off your debt, and you and any loved ones are appropriately insured. If you’ve already fulfilled those goals, great work! Keep up your long-term investing plan.

If you’re a passive investor, keep riding the market.

If you’re a passive investor, who creates and maintains a diversified portfolio but doesn’t trade frequently (like active investors do), keep funding your account. Well-crafted, diversified portfolios are built to withstand market downturns. Just be sure you’re not funding your investment account while you still have high-interest debt and no emergency fund or insurance.

Keep in mind: Look at how much cash or fixed-income funds you have in your portfolio, compared to your stock-based funds. If you’re now “overweight” in cash or fixed-income funds (because the value of your stock-based funds has fallen since February 2020), you may want to invest the surplus amount in equities – following the buy low, sell high philosophy.

If you’re an active investor, consider your personal goals as you trade.

If you’re an active investor, who selects individual stocks and funds and trades them frequently, you’re likely tracking the upwards and downwards movement of the holdings in your portfolio already. While we can’t predict the future, many valuable companies and funds are down significantly, which means this might be the right opportunity to add them to your portfolio.

Keep in mind: Over the long term, equity markets are expected to produce higher returns than fixed-income and bond markets – so when equities are down, as long as you’re investing over the long term, it can be a great time to add to your holdings.

Of course, your investment plans should be driven by your personal goals and risk tolerance. As it may take a long time for markets to rebound from their COVID-19 lows, your careful attention to the risk in your portfolio is necessary now.

If you were investing for a big expense e.g. a home, double check that your money is in low-risk assets.

Many people invest in hopes of funding a large purchase, such as the down payment on a home. If that’s your situation today, it may feel like you’ve been punched in the gut. While your goals may be set back a bit, the drop in value doesn’t necessarily mean your plans are knocked completely off-course. It just means that it could take longer to get where you’d hoped to go.

It’s wise to revisit your overall investing plans to ensure you’re not taking more risk than necessary. If your investing timeline is short, make sure you have allocated most of your investments to lower-risk assets, such as fixed-income and bond funds. Although these types of investments aren’t expected to gain as much over the long term as stock-based investments, they also aren’t expected to fluctuate downwards in value at volatile times like these.

Keep in mind: If your investments were held in taxable accounts (that is, they are not in a Registered Retirement Savings Plan, Registered Retirement Income Fund, or Tax-Free Savings Account), and their value has dropped, you may be able to reduce the financial impact through “tax loss harvesting.” That’s when you sell an investment at a loss, and then apply the loss to reduce taxable capital gains on other investments. Even if you can’t apply it today, you can “carry forward” the loss to reduce or eliminate future capital gains taxes owing.

If you’re about to retire, look before you leap.

If you’re closer to retirement, you may be more concerned if you see the value of your invested funds dropping – as you know that you plan to start withdrawing from your investments to help fund your retirement. Retirement doesn’t mean withdrawing all of your invested funds, however, and it’s likely you’ll still have investments for many more years.

And remember that even if your portfolios have gone down in value, they haven’t really “lost money” unless you sell your investments at a lower price than you paid for them.

Just like someone who is investing to earn money to afford a big expense, aim for low-risk assets. Now is a good time to review your personal goals and be sure the allocation of assets in your diversified portfolio is set to achieve them.

Keep in mind: While the federal government can’t control the movements of global stock markets, it can help soften the blow on retirees who count on their investments for income. In March 2020, the federal government passed legislation to reduce, by 25 percent, the amount retirees are required to withdraw in 2020 from their Registered Retirement Income Funds (RRIFs). If you’ve converted your Registered Retirement Savings Plan to a RRIF and are facing a minimum required withdrawal amount, you can take heart that the amount has been reduced in recognition of the market impacts of the COVID-19 pandemic.

Don’t lose sight of your goals.

For many Canadians, the global pandemic is causing a lot of investment plans to be revisited, but in our view, stock markets – and thus the value of portfolios – will rebound. As a result, for many people, we believe that “staying put” and keeping your existing investments in place will be the best strategy.

For others, changes to how your investments are allocated between cash, stocks, and bonds may be appropriate. Any changes to your portfolio allocations, however, should be made in light of your personal circumstances and timeline – how long you expect to be invested, and how comfortable and willing you are to “ride out” unexpected downturns, such as the one we’re all experiencing now. Again, Vancity’s typical portfolio is built to withstand market downturns. Above all, your personal goals should always take priority in determining how you’re invested.

At Vancity, our Wealth Professionals can work with you to ensure your investments are aligned with your circumstances and overall financial plan, helping you keep your bearings in the coming months. If you are concerned that you may not be able to fulfill your personal financial plans due to the recent market turmoil, a Vancity Wealth Professional can help provide an objective view and personalized recommendations to reset your plan. To start the conversation, book an appointment now.

This article is part of a Vancity series to help breakdown and explain COVID-19 economic stimulus measures and other forms of financial assistance for individuals and families, businesses, and investors – so they can endure and thrive during these difficult times.

Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities; a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.  Vancity Investment Management provides discretionary investment management services to individual and institutional clients.  Vancity Life Insurance Services Ltd. provide products, service and advice related to insurance.

This blog post provides general information only, and does not constitute financial, accounting, tax, legal or other professional advice. We encourage you to obtain personalized advice from qualified professionals regarding your particular circumstances. Please see our Terms of Use.  

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