Bear markets: What’s a long-term investor supposed to do right now?

Otherwise, I am resigned to just leaving my money there. They’re taking less now anyhow, since I’ve lost like $9,000 already. I would be grateful for any advice or any resources you could recommend to make an informed decision. I’ve been enjoying your newsletters for a long time.

—Miki 

How to remain a long-term investor in a bear market  

Miki, after reading your question I am a little concerned for you.

The way you’re describing things it sounds like you’re getting poor or quick advice with very little explanation.

It doesn’t sound like you have any faith in your bank investments or see any value in your advisor. 

I can’t even tell if you have a good understanding of the investments you are holding.

This isn’t good because markets are down 10% to 15% (a sign of a bear market), and we’re facing a number of challenging world events. It’s times like these that can make investors question their investments, make an emotional investment change and become victims of self-doubt and good-sounding stories.

Sometimes it makes sense to change an investment approach but there is plenty of evidence you can google suggesting you’re best to remain in your seat, or as you say “stay the course,” assuming you’re following a reasonable investment approach. 

At this point you’re doing the right thing. 

Before making a change, do a quick re-evaluation of your investment approach and advisor. 

It’s possible you’re pursuing a good investment strategy. But if it is an approach you don’t believe in, it’s going to bother you, and you will be looking for reasons to make a change. Chances are you’ll make the change at the wrong time, when the fund is down in value.

The best approach for every investor?

There isn’t one best investment strategy for everyone. If you follow an approach you believe in, and stick with it, you’ll likely do better than trying to follow “the best” approach you don’t believe in, assuming there even is “the best” approach.

Reading your letter, it sounds like you’re ready to transfer your investments, and you’re just looking for confirmation that it is OK to do so. 

Most bank mutual funds can be transferred “in kind” to a different institution. Some bank funds can’t be transferred in kind and must be sold to cash first. This is a serious tax issue for investors with capital gains on non-registered accounts. 

You’ll want to transfer your investments “in kind” to avoid the possible tax issues but also to remain in the market. You’d hate to sell your investments to cash just before stock markets rebound and then have to wait a couple of weeks for the transfer to complete before you can reinvest back into the market.

If you transfer “in kind” you can switch investments and only be out of the market for one day.

Once transferred, should you change investments? 

I’m not sure how you’re invested, so I can’t say that I can offer you a suggestion.

If you have a general, broad-based, Canadian, U.S. or international fund, then it is likely OK to switch to another similar fund, or similar exchange-traded fund (ETF), with lower fees, which you have more faith in. 

Your question becomes trickier if you are holding a specialty fund, like technology or bitcoin, or a very concentrated fund or a fund holding a minimum number of stocks.

In this case, you’ll have to revisit your reasoning for holding that type of fund in the first place and then make a judgement call. 

Luck or gamble for long-term investors

No one has a crystal ball. If it’s not a lot of money relative to the size of your portfolio, you may decide to keep it as a reminder and with a bit of luck—who knows. 

Miki, if your bank investments are bothering you and you’re comfortable with the approach you are taking elsewhere, then it is OK for you to take action and transfer the funds. 

Finally, I don’t want to leave you without mentioning the value of advice beyond investments. Your planner should be helping you identify the things you want in life and how to get them and keep them. When you have that in place, step back and look at the big picture, it’s a little easier to deal with the market ups and downs. 

Allan Norman provides fee-only certified financial planning services through Atlantis Financial Inc. Allan is also registered as an investment advisor with Aligned Capital Partners Inc. He can be reached at atlantisfinancial.ca and [email protected].

More from Ask MoneySense:

• What’s the real value of a robo-advisor?
• Can I withdraw from RRSPs to pay bills?
• Are fees for your TFSA tax deductible?
• How does a spousal RRSP withdrawal work?

About Allan Norman, MSc, CFP, CIM

With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

Linkedin Website