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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROB: Stocks rise, and you feel like a superstar who knows how to pick them. Suddenly they drop. Now you’re in a cold panic.

ROMA: If you get anxious just thinking about the ups and downs of investing, well, you’re not the only one. It’s tough to save money to invest in the first place. So it stinks to watch your investments evaporate.

ROB: Welcome to Stress Test, a personal finance podcast for millennials and Gen Z. I’m Rob Carrick, a personal finance columnist at the Globe and Mail.

ROMAL And I’m Roma Luciw, a personal finance editor at the Globe. Today we’re talking about the ups and downs of investing in the stock market. If you’re one of the many new investors who jumped into the market during the pandemic, you’ve now lived through your first bit of market turbulence. You could be dealing with a whole lot of emotions nervousness, anxiety, and uncertainty. Rob, have you ever been swayed by stock market volatility?

ROB: Well, yeah. You know, I remember when tech stocks were first a big thing. I remember buying all kinds of junk. You know, I thought I was missing out. I wanted to be part of it. You know, I did make a little money at first, but that’s always the way it is. You always succeed early on. And then I had my lunch handed to me by the stock markets, and I learned that you know, to sit it out when things get really crazy. But, you know, I do feel the pressure to sell when stocks are falling. And I do feel like missing out when stocks rise. It’s that’s human nature. I don’t believe anyone who says that they don’t fall victim to that rumor. How often do you check your your investments?

ROMA: Not too often. Not daily or weekly. I’m a busy woman. I have a job and a family, and a life. And frankly, I don’t have the stomach for daily check-ins like that. Now, I did have a look a few weeks ago, and like most people, my investments took a hit in 2022 and not a small one, but they’ve rebounded nicely so far this year. The reality is that I’m still young, and I don’t need to access that money any time soon. I’m going to leave it there and hope it keeps growing. But Rob, I remember my first market downturn, that feeling of what is happening right now. There was a whole lot of uncertainty around that time. Like what we’re feeling now. We have soaring inflation, high-interest rates, and a possible recession. With all these question marks, I can understand why some people are scared off. Rob, does everyone need to invest?

ROB: Yeah, I think everyone does need to invest if they want to achieve their long-term financial goals. You know, interest rates are quite high now, but historically they’ve been too low to generate the returns that we need to retire comfortably. So I think you’re going to need to have some money in the stock market. You know, you can’t retire comfortably. Most people can’t, anyway, on a savings account that earns one 2% interest, which is what we’re probably going to go back to eventually after rates taper off and inflation comes down.

ROMA: Mm-hmm. So buckle in, get ready, and get used to these ups and downs.

ROB: You know what? As you get into the stock market as a young person, you’re embarking on a life of constant stress with moments of elation there. That’s what stock market investing is. But you can trust in the fact that if you put ten, 20, 30, 40 years in the stock market, you’re going to average out quite a good return, and it’s going to be better than what you get from safe investments.

ROMA: Amen. After the break, we’ll speak to a millennial who started investing during the pandemic.

TEJAS: My first name is Tejas. I am 38 years old, and I live in Mississauga.

ROMA: Tejas just started investing when the pandemic lockdowns began in the spring of 2020.

TEJAS: And a friend of mine had been recommending it to me. I never really paid attention. But then, with all the stock market turmoil at the start of the pandemic, I thought I’d take a look into it. So it’s very I’m a very new recent investor.

ROMA: He used a popular investing app and invested in ETFs and stocks that he picked directly. Then the market started its three-year rollercoaster ride.

TEJAS: Oh, I did not. I mean, as a new person, I did not expect it to be that many ups and downs, Like I followed the GameStop mania, and that was a pretty wild time. But Amen. After the break, we’ll speak to a millennial who started investing during the pandemic.

TEJAS: Oh, okay. My first name is Tejas. I am 38 years old, and I live in Mississauga.

ROMA: Tejas just started investing when the pandemic lockdowns began in the spring of 2020.

TEJAS: And a friend of mine had been recommending it to me. I never really paid attention. But then, with all the stock market turmoil at the start of the pandemic, I thought I’d look into it. So it’s very I’m a very new recent investor.

ROMA: He used a popular investing app and invested in ETFs and stocks that he picked directly. Then the market started its three-year rollercoaster ride.

TEJAS: Oh, I did not. I mean, as a new person, I did not expect it to be that many ups and downs, Like I followed the GameStop mania, and that was a pretty wild time. But otherwise, it was a lot of like I was not prepared for the level of ups and downs that happened. You know, for example, some stocks were at a quarter of their value at their peak. Having to go through that on the roller coaster in order to handle your losses and manage your gains like that has been quite a learning experience. And I it took me a while, like about a year or so for me to finally get a grip on, you know, how not to do things emotionally and to just do it at a steady pace.

ROMA: Removing emotions from the equation. That’s easier said than done, but Tejas is working on it after learning his lesson the hard way.

TEJAS: I lost out on massive gains on the stock. It was losing value, so I dumped all of it. The next day a press release came out, and the stock went up by nearly 1,000%. So that really, and I was pissed off at myself for about a week for that. So, you know, if the stock is going down, don’t react immediately. Take a minute, step away from it, come back to it a day or two later and then and then take action if it goes down. In all, I do have some sort of mental markers at which point I, you know, had to make a decision. So that is how I like that. That’s my role. Then I have my own benchmarks. And once the stock trip’s that price, that’s when I take action. But otherwise, I don’t panic immediately. I’ve seen a lot of ups and downs for what’s happened for no reason.

ROMA: He’s taken his hits, but Tejas plans to keep investing.

TEJAS: It started out as a curiosity, but at this point, I am looking to build wealth through it. And so, so far, what I’ve looked at, I’ve tried to maintain about $5,000 per year in terms of investing in the stock market. So that’s my expectation. I am rather risk averse. So I have my portfolio, which I think reflects that to a great extent as well. So I would rather take a somewhat safe stock with, you know, steady and reasonable returns as opposed to something that does a higher risk. You know, like now, I wish I had started a bit earlier so that my body of knowledge on which to base my decisions would have been greater. But, you know, better, better late than never, for sure. So I’m glad I got into it. And I hope to continue doing more research and making more informed decisions and investing more and more in the stock market.

ROMA: Next, we’ll speak to an independent investment consultant about why investors are nervous and how they can endure these big swings in the stock market.

ROB: Darryl Brown is an independent investment consultant based in Toronto. Here’s our conversation. Darryl, many of our listeners are newer investors who might be feeling a little uncertain after the stock market went into reverse last year after such a great 2021. What causes such big swings in the stock market?

DARRYL: So I think the key thing that has caused the swing in the stock market, especially in the last couple of years, is the outlook for corporate profits. And that’s a key factor in measuring how much investors want to pay for owning a company or a basket of companies like you would in the stock market. So from the unfreezing of the pandemic, the outlook for corporate profits was actually quite good, despite, I think, the misery we were all experiencing. But as this was happening, the costs for which companies were paying for things like people, labor, materials, and those accelerated costs for everything have gone up. And we can see this in our day-to-day lives. Same for companies. This is part of the inflation story that we’ve all been hearing about. And because the company profits take into consideration not just their sales but their costs for people and materials, when they generate those sales, it means that overall profits have actually gone down over a little bit of time, and they’ve actually gone down significantly and the expectation has gone down significantly. It means that investors are not willing to pay as much for only a company or a basket of companies as they were in the stock market. And it means that overall, the price for those investments has started to decline and leveled off a bit.

ROB: So basically, investors are kind of pessimistic about how well the companies they’re investing in are going to do, and they are selling. Is that is that basically a summary? What’s going on?

DARRYL: There is some pessimism, but part of the story is really a reduction in their forward expectations. It’s not that I think companies are going to do poorly. It’s just that at one point, they thought companies were going to do a lot better than it seems like they might be doing today in light of current news.

ROB: So if you’re going to invest in stocks, swings like this are going to be part of the permanent landscape, Correct?

DARRYL: That’s right. The dips in 2021, while they were significant and which I describe as a correction, not necessarily a crash, will continue to be a phenomenon of investing in the stock market.

ROB: So what does that mean? I mean, I basically have to get punched in the face by my investments every couple of years.

DARRYL: Pretty much no one can ever really predict when corrections will happen. So for investors, young and old, expect them to be part of your investing journey, your long-term investing journey, and resist the urge to try and time those corrections in the market.

ROB: So how does what we’ve seen lately in the past couple of years compare on the awfulness scale?

DARRYL: It’s pretty awful across the board, in particular, due to the fact that people are just coming out of, you know, the realities of being in lockdown for a couple of years. They’re dealing with their day-to-day expenses going up, which is causing a lot of anxiety. And then they’re dealing with their investments fluctuating in value. But on top of all that, the market changes have been fairly similar. And so while the trend is still supportive, and I think that there is a reason to continue to own stocks, we’ve seen this type of correction happen in the market, let’s say, in 2009, coming off the lows of the financial crisis. About a year after the lows of the crisis, we did experience a very similar correction. So from a pure investor standpoint, this is familiar territory, but we’re now layering in the stresses of day-to-day living on top of that.

ROB: So I made a lot of money in 2021, let’s say, and I lost a bunch of money in 2022. What do you tell someone who’s trying to whose head-spinning they’re trying to figure out, it is worth investing in stocks for the long term? What’s your answer?

DARRYL: Figuring out the objective for your pot of money is the first place to start. So if you’ve got a specific and short-term financial objective in mind, let’s say it’s a down payment on a house or you’ve got to buy a new car because you’re just too much broken down. If you’ve got something that’s specific and short-term in nature, you should not be investing in the stock market. That money should be set aside in something that is very secure, like a GRC or high true savings account. But if you are looking at putting aside money for a long-term objective like retirement, that could be many decades away. Again, expect these types of corrections to happen in the stock market, if you have an emergency fund set aside. Emergency funds being 3 to 6 months of your living expenses, then some of these corrections can actually be an opportune time to further invest in your portfolio. And with the benefit of hindsight, it has shown to be an action that has had that has borne fruit for investors. You can invest in these periods of turmoil, of stress, assuming you have a long-term time horizon that has proven to be a successful investment strategy.

ROB: So you’re telling me that when everything looks terrible out there, that’s when I should be putting money into the market and not taking it out?

DARRYL: The saying goes. Be greedy when others are fearful. Be fearful when others are greedy. It’s a well-known, I think, investing phraseology, and I think that is one that younger investors can integrate into their investment decision-making.

ROB: But here’s the thing. When you’re putting your money in, when things are bad and they get worse, you feel like an idiot, and you think I did exactly the wrong thing. How do you coach people through all the second-guessing they’re going to be doing when they follow the greatest investing V cetera, which is to buy low?

DARRYL: Well, the first sort of action for any investor, in particular young ones, is to get rid of any of your investing trading apps or anything that exists on your phone. You may not pick the precise bottom of the market today, next week, next month, or next year. But investments should be made with the idea that this is a long-term action that you’re making, that it could be five, six, or seven years before your investments show positive returns. And that’s okay if you’re not taking out your money for a decade or more; it’s very unlikely that you are going to pick the precise bottom of the market. And in the meantime, be prepared to open up your portfolio and perhaps see negative returns. And that’s part of a very normal investing experience. Not trading, not day trading, but a normal part of a long-term investing experience.

ROB: love that you brought up trading apps because when the market was peaking, there was this idea that investing was almost a sport or a game and you would just dial into you into your account, You’d buy a few stocks, you’d see them go up, you’d sell them, you’d buy some more stuff. Everybody was killing it. And I’m wondering if you think that we have. Learned a lesson that that is not the way to go. This sort of high frequency, high engagement trading where we’re all over our investments all the time.

DARRYL: It’s a recipe for disaster. Delete those trading apps. I don’t have any other sort of less clear advice.

ROB: Why? What is it about the trading house specifically? Because I actually like them in some ways because they allow young investors to trade stocks with no commissions. And so that’s a good thing. Instead of paying, let’s say, five or $10 a crack. What’s your argument for getting rid of them? Why should I not have my face in my account all the time?

DARRYL: Because you’re layering in your minute-by-minute emotions and the emotions of those around you while meeting friends and family into your own personal financial situation, which is going to be very different for each and every person, so it’s not that I’m opposed to any of the trading apps per se, but having them readily available at your thumb right next to your Instagram or Twitter just doesn’t make any sense. That is a recipe for an unsuccessful investing experience. I think investors should focus on understanding their own point of view, their own financial objectives, and their own emotional states away from the noise of everything on their phones and then making more rational and less emotionally charged decisions when it comes to deploying more money into the markets or taking money out.

ROB: Darryl, as we’re talking, you can get a pretty good return on safe cash-type investments, either, you know, mutual funds or exchange-traded funds that route your money into high-interest savings accounts. So you can get like 4 to 5% on that right now. What about just putting all my money into that?

DARRYL: That can make sense for certain investors. If you have a short-term savings objective in mind, I think that is a fantastic solution. But if you’re a young investor who’s got many decades to save for retirement, I think investing in something that has a yes, a guaranteed and predictable return, like a GSE or Hydra savings at somewhere between three and 5%. It means that you are not benefiting from what historically has been a much greater rate of return than you would receive in the stock market. And there is risk associated with that over many decades. There is the risk that inflation does remain elevated and that the returns that you receive, while they’re predictable and are guaranteed from those types of investments, it does not keep up with your purchasing power. So there’s a bit of a trade-off. There’s safety and modest returns. And those make sense for some investors. But if you have a very long-term time horizon, the stock market is a more appropriate place to be for young investors.

ROB: Do you think all young investors need to have most of their investments in the stock market to achieve their financial goals over the long term?

DARRYL: I do think that they have to have a significant amount of their investments in the stock markets to reach their long-term financial goals. It doesn’t mean every single penny that you own, but there’s a concept in investments called asset allocation, and that means the percentage of your investments you have in stocks versus bonds. You might hear 60, 40 and 60% stocks and 40% bonds in your portfolio. You might hear 80% stocks, 20% bonds, So 8020. And I think having an asset allocation that is assertive in the range of 80% stocks and 20% bonds makes sense for young investors who are looking to reach their longer-term financial goals.

ROB: What are the investing lessons that I think people picked up when the market was peaking is that it’s kind of easy to do this investing thing and that picking individual stocks that sound cool and promising sectors is a great way to make money. And it really worked. In 2021, there was a pullback, but I know that the next time the market is going to get hot again, there’s going to be all this niche investing again. What’s your advice to people? Should you be trying to pick the winning stocks in the winning sectors, or do you like the idea of index funds, cheap index-tracking mutual funds, or exchange-traded funds? What is your preference?

DARRYL: I love exchange-traded funds and what are called asset allocation exchange-traded funds. They are a low-cost way to get exposure to a broad basket of stocks in the market. And another saying that goes around is that it is time in the market as opposed to timing the market. So the best advice I can give for younger investors getting started is to understand and check out these specific types of ETFs alongside them, low-cost index funds, and then not touching them, really understanding that you are going to ride periods of market volatility, which includes the euphoria of market highs and then the dread of opening up your portfolio and seeing your investments down ten, 15% or more. But really, the most direct advice I can have for free investors is not to touch your investments.

ROB: I’m glad you brought up asset allocation ETFs because I’m a big believer in those. For people who are a little bit, I’m sure, about how to get involved in investing. I think they’re for the long term; they’re one of the greatest innovations, possibly in all the years I’ve been covering investments there. Basically, it’s a diversified portfolio of stocks and bonds in one single purchase, and they come in different versions for conservative and middling, and aggressive investors. Is that a good no-brainer first step for people who think I need to get into investing but I’m not sure how.

DARRYL: It absolutely is. There’s one small caveat to asset allocation ETFs, and they are a little bit more challenging to purchase through your financial institution by comparison to some of the more traditional products. Now, what I mean, is challenging. I mean that you would have to open an online brokerage account and purchase that specific ETF. And for some young investors, that is a very intimidating experience. But I think opening an online brokerage account is something that, after listening to your podcast, you can go to your bank. They all have an online broker account. You can sign up to open a TFSA direct investing account, RSP account, or anonymous account. All of them are very easy to set up. And once you’ve done that, buying those specific asset allocation ETFs becomes a lot easier. The administrative part is a bit of a barrier for clients but know that that’s there and know that the benefit is having access to a more wide range of investment solutions out there that are low fee and properly diversified.

ROB: I would just like to add that the asset allocation option works well for first-home savings accounts as well. FHA is just launched on April 1st, and I know at least one online broker quest trade is offering them. And if you want to build up your assets for a house down payment 15 years from now, I think asset allocation ETFs are a good option. Darrell, let’s talk a bit about the appetite for risk. People got hammered last year. Things are quite shaky so far in 2022. The people, the investors you work with. What’s their appetite for risk? How are they feeling about the stock market right now?

DARRYL: They’re rattled, but I don’t think that they believe that this volatility in the market is unexpected. I think a lot of the clients that I work with know to expect these very challenging periods. But in working with them, I make sure that we understand what their financial objectives are. So, their risk appetite has not changed. When we have isolated that, their funds may not be needed for 20 or 25 years or so, and for funds that are needed on a more shorter-term basis for specific objectives like a down payment on a house, those were never invested in the market, to begin with. Those had always been set aside in something that had less volatility, like a GSE or higher savings.

ROB: One thing that strikes me in my interactions with readers is that people are getting more and more stressed about small things that are happening in the financial world, for instance. In March, there were a couple of U.S. banks that failed, and I was a bit surprised by how many people were emailing me, asking about, you know, how safer my deposits are here at the banks in Canada. What about my investments? Do you think people are a little bit more sensitive to the risk that there is a risk they may overreact if something bad happens in the stock market, say, in 2023?

DARRYL: Yes. And I think that’s the product of the financial media landscape, which has shifted to include a lot of the names and voices that have been around for some time. Time. And then social media, which, you know, is really tuned to sensationalize, I think, a lot of information out there. So young investors need to be careful. I think it is helpful to be informed, and I think it’s helpful to seek insights, but know that any of these specific pieces of information maybe don’t and probably won’t result in any type of actionable response for your investments or your portfolio.

ROB: One thing I’ve learned in all my years of covering the stock markets is that the stock market always comes back no matter what happens. I’ve seen the market fall for any number of reasons, and I’m very confident. Well, what about you?

DARRYL: I’m confident. I know that there will be periods over the next several years where we’ll have volatility coming from, changes in inflation expectations or changes in the underlying economy, changes in interest rates, and changes in our global geopolitical landscape. Those are all going to be headlines and news events that are going to affect stock prices. However, history has shown that over long-term periods of time, the stock market has generated positive returns and returns that would exceed those that you would receive from safe, secure investments like checks or short-term bonds.

ROB: Carol, in closing, I’m wondering if you could give a little pep talk to a young investor who maybe had some success in 2021 and then had some setbacks last year and in 2023; they’re wondering what the heck is going on.

DARRYL: I would say to those investors that what they’ve experienced, while it feels terrible and is all the anxiety-inducing things out there, is perfectly normal for an investment experience. I’ve had plenty of investments that I’ve made, which have produced negative returns, sometimes significantly negative returns, but I’ve also had investments that I’ve held on to, which have offset those losses. You’re never going to get it right every single time, all the time, forever and forever. I think it’s probably tempting to say you want to be. More right than wrong. But truthfully, when it comes to investing, I’ve come to adopt the phrase that it’s helpful to be less wrong than you otherwise could be. It’s a very humbling kind of way of approaching human emotions and decision-making when it comes to investing, but truly being less wrong by selecting low-cost investing options, by not tinkering with your investments, by deleting trading apps from your phone, by tuning out well-meaning family and friends who may have advice that is not aligned with their objectives. All of those will help you be less wrong. In your investing journey, that’s going to produce a more successful experience for you over the long term.

ROMA: Today’s conversations are a reminder that we all need to take a few deep breaths before making any investment decisions. Rob, what are your takeaways?

ROB: One Investing is for the money you won’t need for at least five years, and a timeframe of ten-plus years is better. The stock market is no place for your home down payment money to be careful with stock market risk at bonds or GICs to take the edge off a stock market decline. The pain of losing money in a stock market downturn is worse than the regret you’ll feel in missing out on big gains. Three. Forget about trying to time stock market ups and downs, even if everybody at some point thinks they can do this. Try to invest regularly, say every time you get paid if stocks crash, and add some more money if you can.

ROMA: Thank you for listening to Stress Test. This show was produced by Kyle Fulton and Emily Jackson. Our executive producer is Kiran Rana.

ROB: You can find Stress Test wherever you listen to podcasts. If you like this episode, please give us a five-star rating and share it with your friends.

ROMA: On the next episode of Stress Test. We talk about how expensive it is to be a student. The big problem isn’t tuition. It’s the rising cost of living, especially in Canada’s largest cities.

ROB: Until then, find us at the Globe and Mail dot com. Thanks for listening.

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