Stock markets have hit record highs while cryptocurrencies have exploded during the pandemic, but if you’re an investor tempted to jump in only because you missed out earlier, financial experts say you should take a step back, take a deep breath and first reconsider how you approach investing.
Salman Ahmed, co-chief investment officer with investment firm Steadyhand in Vancouver, says there are investors, both new and experienced, who feel like they missed a golden opportunity.
Canadian saving rates shot up during the pandemic as people sat at home during extended periods of lockdown. Meanwhile, the S&P 500 index has more than doubled from its pandemic low in March, 2020, and many Canadians who invested in stocks – and cryptocurrencies – are richer than they were before COVID hit.
While North American markets are still climbing upward, they’re moving at a slower and rockier pace than before, with concerns that lingering cases of COVID-19, labour shortages and supply chain issues will limit what many thought would be a bustling postpandemic economy.
But if you’re worried that the best gains are behind you, don’t be. Mr. Ahmed and other investment advisers say the period of rapid gains the market experienced during the pandemic will look tiny down the road – if your goal is to invest for the long term. And if you’re not thinking with that kind of timeline, he says it might be time to reconsider whether to invest in stocks at all.
“In the long chart they’re going to have in front of them 30 years from now, what they experienced in the last 18 months is going to be a blip. That’s the case when markets go down, and it’s the case when markets go up.”
Stephanie Douglas, a financial planner and co-founder of Harris Douglas Asset Management, said stepping into investing because of a fear of missing out, or FOMO, is the kind of mindset that’ll burn you in the short term.
“Investing in this way, you’re much more likely to buy close to the top and sell close to the bottom because you constantly have this panicking that you missed out,” said Ms. Douglas, who is based in Toronto.
“You need to build a plan and use that plan to build your investment strategy according to your risk tolerance, your goals, and to me that’s a far better way to invest than finding something that’s favourable at the time.”
So how can you get started? If you’re investing in the stock market, then both Ms. Douglas and Mr. Ahmed say you have to be willing to invest for three or five years at the very least. Ideally, you’re looking at a longer term, such as 20 or 30 years, for exponential growth to really take place.
That’s because there needs to be enough time for your investment to recover from any downward volatility in markets, which is a reality to consider when investing in stocks.
The risks and rewards can be even higher if you’re considering investing in cryptocurrencies such as bitcoin and ethereum, which are up more than 300 per cent and 900 per cent, respectively, over the past year in Canadian dollar terms.
Mr. Ahmed said the reality is that we simply have less information about cryptocurrencies to use toward an educated investment decision, since they’re relatively new and regulatory decisions are still evolving.
“Know what the purpose of the investment is. If you’re investing in crypto as a gambling part of your portfolio, then allocate a part of your portfolio that is high risk, and that you’re willing to see go to zero,” said Mr. Ahmed, who added that all cryptos are different, with some that are more speculative, or new, than others.
Jason Heath, a financial planner and managing director with the fee-only planning firm Objective Financial Partners in Markham, Ont., said people looking to get started should consider one of the more than a dozen robo-adviser companies that exist in Canada.
“Robo-advisers really have made investing accessible to young people or anyone with smaller amounts of money to invest,” Mr. Heath said.
“Some robo-advisers have no minimum investments, the fees are low and competitive, and you don’t have to worry about what to buy and when to sell.”
He pointed to companies such as Wealthsimple and Netwealth, which offer simple long-term saving accounts that allow you to invest in a mixture of stocks, exchange-traded funds, bonds, and commodities such as gold, to have a diversified portfolio.
While some people may have profited heavily off of individual stocks, Mr. Heath warns they carry much more risk than ETFs.
“It’s been a pretty phenomenal year … and one concern I have is it gives people a false sense of investing prowess, that they might be able to continue generating great rates of return,” Mr. Heath said.
“Everyone’s a genius when stock markets are going up, but it’s important to have reasonable expectations about stock market returns.”
A reasonable goal for stock investors would be a return between 5 per cent and 9 per cent, Mr. Heath said.
For consumers who want a more guided experience, there are firms such as Mr. Ahmed’s Steadyhand that have minimum investments at $10,000, and aim to provide a service similar to what you’d get at firms that require a six- or seven-figure minimum investment.
Mr. Ahmed said that even people who profited wildly during the pandemic are coming to firms like his own, because they’re realizing that investing isn’t as simple as it seemed at the beginning of the pandemic.
“A lot of investors who did do well during that period have taken their chips off the table,” Mr. Ahmed said. “They realized they got lucky and got the timing really, really right and wanted to take some of their winnings to a diversified portfolio with us.”
For anyone who plans to invest for the long term, Mr. Heath and Mr. Ahmed have one last piece of advice: Invest now, not later.
“Statistically the best time to invest a lump sum is today, because stocks generally do rise,” Mr. Heath said, adding that over enough time, markets will provide good returns.
“People, even professionals, generally do a poor job of timing markets, so for any individual investor to think they can outsmart the markets, the odds are pretty low.”
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