“You miss 100% of the shots you don’t take” ~Wayne Gretzky

Don’t let short term market conditions change your long term financial plans.  Last year was a horrible year for market returns, this year probably won’t be great… some experts are saying it may take two or more years before we see a full recovery.  But one thing almost everyone agrees on: it will recover.  The caveat is that only money IN the market will enjoy the recovery OF the market.

No surprises here.  Every “expert” is telling us that now is a great time to invest (“buy low”, “the world’s on sale”).  And to a degree, they’re right.  Historically, statistically, every down market is followed by an up market.  But there is one factor that we always recommend you consider: we call it your “sleep-at-night” factor.  History and statistics are often not comfort enough, especially when it’s YOUR money, not some hypothetical portfolio.

Yes, the odds are you will enjoy the highest overall rate of return if you can stay in, and even continue adding to, your equity investments while the markets are down.  The more money you have in the market, the more will be there to earn the largest (and completely unpredictable) jumps and gains at the (equally unpredictable) start of the general recovery.  But if you’re going crazy worrying about your money, if you can’t sleep at night, then it’s not the right investment for you, regardless of what the odds say.  What good is having money for your retirement if you die from a stress-induced heart attack before you get there?

Bottom line: make your RRSP deposit. Get the tax refund, and maintain your retirement savings plan.  If you feel comfortable putting it into the markets and waiting for the recovery to happen, then absolutely go ahead with a well-diversified portfolio.  If you’re having a tough time emotionally with the turbulence, then consider putting some or all of your deposit (or even moving your portfolio) into a safe but liquid asset like a money-market or bond fund.  If you do this, I highly recommend setting up a regular (monthly) transfer of funds from the money-market account into a diversified portfolio, so that you will have some money invested when the recovery starts without risking all of your assets (this strategy is also known as Dollar Cost Averaging, since the average cost of your investments will be smoothed out over time with the multiple, regular purchases).

Are RRSPs right for your situation?
The RRSP dilemma
Tips for investing in unstable times
Don’t take the old one for granted
Future is now for RRSP contributions
RRSPs still a valued savings plan

Photo credit: “All the troubles lie on his shoulder” by Ranoush.