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From 1956 to 2021, there were 18 years of declines in terms of total returns on the S&P/TSX Composite Index.Christopher Katsarov/The Globe and Mail

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It’s not every year that Canadian stocks, bonds, and cash, net of inflation, all produce negative returns, as was the case in 2022. In fact, when looking back at the data, it’s the first time this combination has happened since 1980.

So, as is the case with anything that doesn’t occur often, people tend to overreact when it does. Obviously, negative returns in these three important asset classes are no fun, and the pain 2022 brought on many investors shouldn’t be minimized.

The challenge for wealth advisors is investors like to make decisions in a binary manner, either going ‘’all in’' – driven by the fear of missing out (FOMO) – or ‘’all out’' – driven by the comfort of missing out (COMO). As investors open their statements or look at their 2022 performance, many will be tempted to adopt the COMO mindset.

It’s understandable. Being invested in cash or guaranteed investment certificates (GICs) right now is comfortable. It feels like staying in bed on a winter day while everybody else goes outside and braves the harsh, cold, snowy weather (i.e., the markets).

So, what can advisors do to help investors tempted by the COMO mindset?

For starters, advisors need to help clients understand that everything in life has a price that may not always be so evident. The volatility of the markets in 2022 is the price investors need to pay to get the returns they desire to achieve their long-term goals.

Stress, pain and uncertainty are the price of investing. There are very few things in life that can be achieved in the long term by staying in bed, and it’s no different for investors who want to reach their life goals with a financial plan if they stay invested in cash or GICs. Good advisors will remind clients that a financial plan is useless if they can’t follow it because they are paralyzed by fear.

Furthermore, advisors can also show clients what has happened following a negative year in Canada’s stock market. According to Refinitiv data, the odds of having consecutive years of negative returns are very low.

From 1956 to 2021, there were 18 years of declines in terms of total returns on the S&P/TSX Composite Index. Only twice, or 11 per cent of the time, were there two consecutive years of losses. There were no instances of drops in three, four, or five consecutive years.

Of course, showing these probabilities doesn’t give the full picture; that’s because it’s often difficult for investors to buy stocks or bonds when prices are falling.

Investors are often scared and waiting for the next shoe to drop no matter how good the long-term market data look. That’s why advisors need to remind clients that bear markets always seem short-lived when looking back at the past but feel eternal while they’re happening.

Some bear markets will last longer than others, but patience tends to be rewarded for those willing to endure the discomfort. To help clients through that, advisors can encourage them to set up systematic investment plans. This is a good way for investors to ease their way back into stocks as well as help them stay away from the temptation of timing the markets.

Many investors may simply be confused about what caused their investments to go down in 2022, and who could blame them?

The year in which COVID-19 was declared a pandemic and led to widespread economic shutdowns was greeted with good returns while the year when the pandemic was no longer a major issue, there were losses. It’s not easy to understand.

Advisors need to take the time to explain what happened using simple language. They need to refrain from using technical jargon and focus on providing clarity either by using stories or examples. When explaining something complex like the markets to people outside of the profession, advisors must bring things down to the lowest common denominator and adapt the message to their audience.

Jonathan Durocher is president of National Bank Financial Wealth Management in Montreal.

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