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Sticking to your long-term plan and staying invested is vital no matter what the economy is doing. Although recessions are unnerving, they may let you take advantage of potential opportunities. That way, you don’t miss out when markets recover.
Reading headlines about recessions, and what comes next, can be frightening. And whether you’re in your prime savings years, or near retirement, a drop in the value of your investment portfolio may worry you.
It may be tempting to take your investments out of the markets and wait for the storm to pass.
However, giving in to panic could cost you more than keeping your money invested. If you get out of the markets temporarily, you crystalize your losses. You also risk missing out on a rally. Markets may rebound as they start to look forward to an economic recovery.
Based on market index data, we know that a $10,000 investment made 20 years ago could now be worth over $60,000, but only if you stayed invested in the market.1 Missing the 10 best days in the market during those 20 years would have reduced it to around $30,000.1
Missing the best days can hurt
Growth of $10,000 in the S&P 500 Index, 20 years ending 12/31/21
For illustrative purposes only. Returns have been rounded to the nearest whole number for simplicity.
Past performance is no guarantee of future results. It is not possible to invest in an index. Index performance does not include any investment-related fees or expenses.
Source: FactSet and S&P US. Daily data as of December 31, 2001 through December 31, 2021. Analysis ranks all daily returns and investors that miss out on those returns simply do not grow their investment by that return for that particular day. If the following day does not fall into a range that they are meant to miss, then the growth of the investment resumes.
Find out more in this article about does it pay to stay invested when markets fall?
How can you take advantage of a recession?
Keep in mind that recessions are a normal part of the economic cycle. They usually occur after a period of strong economic growth. They curb any potential excesses in the economy. Think of the economic cycle as a rubber band. If you stretch the growth period too far and for too long, it can snap. That’s when markets would fall into a deep recession. However, if you stretch and release it regularly, it maintains its shape.
“Recessions are by no means exceptional. They are an important part of the economic cycle. We must take them into account for our investments,” says Christine Tan, Portfolio Manager at SLGI Asset Management Inc.
Therefore, Christine recommends to:
This is especially true for anyone with a long investment time horizon. Recessions can offer the opportunity to purchase shares in well-managed companies at bargain prices. When a recession is looming, you can add these kinds of investments to your portfolio with less risk compared to when markets are at higher levels.
How can you reduce the risk in your portfolio?
In this video, Christine Tan walks through three recession investing tips.
Bonds are another type of investment that can be appealing during a recession. In addition to providing attractive returns, they allow you to diversify your portfolio while reducing volatility.
They also provide liquidity during periods of uncertainty. Some bonds are even offering higher yields today versus company dividends. As at mid 2023, two and five-year Government of Canada bonds offered the highest yields since 2007.2
Want to find out how bonds work?
Christine Tan explains in this video and also give three reasons to own bonds.
If the prospect of a recession is frightening, don’t hesitate to contact your advisor. If you don’t have an advisor, maybe it’s time to find one. They can ease your mind during turbulent times. They can also help you avoid hasty investment decisions and ensure you stick to your long-term plan.
An advisor can also help you pick the right investment approach.
Learn more about our line up of funds at Sun Life Global Investments.
1Source: FactSet and S&P US. Daily data as of December 31, 2001, through December 31, 2021.
2https://www.bankofcanada.ca/rates/interest-rates/lookup-bond-yields/
The information provided is not intended to be investment advice. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
Views expressed regarding a particular company, security, industry or market sector are the views of the writer and should not be considered an indication of trading intent of any investment funds managed by SLGI Asset Management Inc. These views are subject to change at any time and are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.
SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund’s prospectus. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Sun Life Assurance Company of Canada is the issuer of accumulation annuities (insurance GICs), payout annuities and individual variable annuity contracts (segregated fund contracts). Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Sun Life Financial Trust Inc. is the issuer of guaranteed investment certificates.
Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc. all of which are members of the Sun Life group of companies.
