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Investing/Financial Planning Focus on the long term to weather stormy markets


One of the fundamentals of successful long-term investing is monitoring the progress of your portfolio regularly to make sure it stays on track. Sometimes, however, focusing too closely on the wrong things can prompt overreactions to current market conditions. And this type of short-term view can lead to decisions that have a negative impact on your long-term plan.

For example, suppose there’s a sudden drop in the S&P/TSX Composite Index. The media often stress the negative side of the story and, if your portfolio contains Canadian equities or equity mutual funds, its value may go down as well. Does that mean your strategy is off track and you need to immediately adjust your holdings? Clearly, the answer is no. Emotional reactions to short-term events are likely to result in selling when the market is low — the exact opposite of what you should do. So how can you prevent your emotions from influencing your investment decisions? The key is to keep perspective and focus on the long term.

When you have a plan in place, you can confidently remain committed to it, knowing that day-to-day market news is likely to have little impact on your longer-term objectives or on the investment strategy that’s designed to get you there. The long-term trend Although equities will always fluctuate in value, they offer the best potential for higher returns over time. That’s why they play such an important role in a well-diversified portfolio. And despite daily fluctuations, over the long term, equity markets have historically always moved up (see chart on next page).

In fact, $10,000 invested in the S&P/TSX Composite Total Return Index in 1957 would have been worth more than $1.1 million by the end of 2006†. Year after year, things happen in the world and people think of reasons they should stay out of the market. But equity markets outperform virtually all other investment opportunities on a long-term basis.  See the graph below.

Opportunity cost

During periods of market fluctuations, many people are hesitant to invest, saying they are waiting for “better times.” The problem with this approach is that better times usually become visible only after markets have already risen. Investors who have been sitting on the sidelines have missed a valuable

opportunity to participate. A far more effective approach than trying to time the market is to establish a proper asset allocation that will put you in the best position to achieve your long-term goals, and then invest on a regular basis. This will help you to establish discipline, take advantage of investment opportunities as they arise and keep your plan on track — no matter what the markets are doing. Financial planning services and investment advice are provided by Royal Mutual Funds Inc. Royal Bank of Canada, Royal Mutual Funds Inc., RBC Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company are separate legal entities that are affiliated. RBC Funds are offered by RBC Asset Management Inc. and distributed by Royal Mutual Funds Inc. Royal Mutual Funds Inc. is licensed as a financial services firm in the province of Quebec.

The material in this report is intended as a general source of information only and should not be construed as offering specific tax or investment advice. Every effort has been made to ensure that the material is correct at the time of publication, but we cannot guarantee its accuracy or completeness. Individuals should consult with their personal tax advisor, accountant or legal professional before taking any action based upon the information contained in this report.

Please consult your advisor and read the prospectus before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Thus, it may be time to invest those RRSP's into equities and forget about them for 50 years!



Click to see larger Image of equity market performance since 1957

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Overall average prices.

So, if you are thinking of selling and buying a homes this year, should you buy or sell first?  I've had many clients purchase before they sell.  I just want you to have all the information so you can make the best decision for yourself and your family.  You may read more about buying or selling first here

Read about what happened in real estate last month.

I wish you much success, good health and happiness today and always! 

If you would like to discuss issues like this or other questions you may have, please email me at anytime .

Mark

 

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