Read beyond negative headlines
Investment information is everywhere in the media. With up-to-the-minute information and negative headlines coming from multiple media sources it’s hard to determine which facts are relative to the long-term performance of your investments. All these details about current market conditions can cause concern for some.
Consider the following examples, which include the facts the media didn’t report and what the alternative headlines could have been. When you look beyond the media noise at the whole picture, there’s good reason to believe the long-term outlook is positive.
More U.S. banks may fail after IndyMac
The National Post*, July 14, 2008
| Alternative headline |
Facts to consider |
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42nd largest bank in the U.S. closes its doors
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- Regional bank failures in the United States are not uncommon – between 1990 and 1992 more than 800 banks in the United States failed.1
- The effect of the failure on the average depositor was minimal. Despite media images of line-ups, no one lost any insured deposit money as a result of the closure.2
- In terms of deposits, the largest three U.S. banks each had total deposits of over $700 billion more than IndyMac, as of March 31, 2008.3
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Skyrocketing prices hit U.S. economy
The Globe and Mail, July 17, 2008
| Alternative headline |
Facts to consider |
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U.S. inflation rate edges closer to national longterm averages
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- A five per cent inflation rate is in line with historical averages. Over a span of 50 years, the U.S. inflation rates averaged 4.1 per cent.4
- When compared to the 1970s and 1980s, a five per cent rate isn’t skyrocketing. Those decades averaged annual inflation rates of 7.09 per cent and 5.55 per cent respectively.5
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Loonie decline sets inflation fears flying
The National Post, Aug. 6, 2008
| Alternative headline |
Facts to consider |
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After 10 years, the dollar still flies higher than its average and inflation remains in line
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- The Canadian inflation rate in August was 3.1 per cent, which is in line with the one to three per cent range of the 1990s and 2000s. In comparison, the 1980s inflation rates exceeded 10 per cent.6
- The rise and fall of the Canadian dollar isn’t unique. From the early 1950s until the end of 1960, it traded between US$1.02 and US$1.06.7
- Over the last 10 years the Canadian dollar averaged US $0.748
- The recent strength of the loonie, while a boost to national pride, was as much in reaction to the steady drop in global confidence around the U.S. dollar as it was to the strong demand for Canadian commodities.9
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U.S. jobless rate jumps to 5.5%
The National Post*, June 6, 2008
| Alternative headline |
Facts to consider |
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95 per cent of employable Americans are working, according to the U.S. government
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- A 5.5 per cent unemployment rate is on the low end of annual unemployment averages. In 15 of the last 20 years, the U.S. unemployment rate has risen above five per cent to as high as 7.8 in 1992.10
- Within the last 10 years, unemployment figures in summer months have fluctuated between four and 6.3 per cent.10 The numbers reflect people leaving the work force to go back to school, stay at home or retire early.
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‘Gruesome’ job report startles economists
The Toronto Star, Aug. 9, 2008
| Alternative headline |
Facts to consider |
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Canada’s unemployment rate falls in July
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- The unemployment rate was down to 6.1 per cent in July from 6.2 per cent in June.11
- Overall 1.3 per cent more Canadians were working in July 2008 than July 2007 with Alberta and Nova Scotia registering significant job growth during the month.12
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Ride out market volatility and ignore the headlines
During times of economic and market turmoil, when the headlines bombard you and cause concerns, the advice of your financial security advisor is even more important. He or she can help guide you away from making investment decisions based on emotional reactions to headlines.
Although it’s disconcerting to see the value of your portfolio shift significantly, there are steps that can be taken to ride out market volatility and improve your confidence that you’re still on track to achieve your investment goals.
Reaffirm your risk
- By using a defined process that strategically designs an asset mix and selects the right combination of funds for you, your financial security advisor can reaffirm your tolerance for risk and verify your overall portfolio is correctly aligned with your investment needs.
Realign expectations
- It’s important to use reasonable performance numbers when crafting your financial security plan because history has shown that you can’t rely on a never-ending series of market gains. Working with your financial security advisor to find a conservative rate of return assumption can provide for a level of security and help keep short term fluctuations in perspective.
Rebalance your portfolio
- Rebalancing makes sure you maintain the appropriate long-term asset mix recommended for your risk tolerance. Depending on your tolerance for risk you may need to change some of the investments within your portfolio to become more aggressive (using more equities) or more conservative (using more fixed-income products).
Reinvest in your plan
- Don’t wait to invest. Down markets provide buying opportunities – consider the adage buy low, sell high – because some investments’ prices drop below their value.
During times of economic uncertainty and volatile markets, stay on track and avoid emotional reactions to headlines that can derail you from achieving your long-term investment goals.
Sources
Headlines used with permission
*Thomson Reuters
1 Riley McDermid, FDIC doesn't see bank failures surging, www.marketwatch.com, Feb 28 2008.
2 Question and answer sheet for IndyMac Bank published by Federal Deposit Insurance Corporation, www.fdic.gov, July 14, 2008.
3 Top 150 Largest Banks (U.S.A.) Online Financial Innovations www.onlinebankingreport.com.
4 U.S. Bureau of Labor Statistics, www.bls.gov. July 16, 2008.
5 Tim McMahon, How Much Inflation have we had since 1913?, www.inflationdata.com/Inflation, May 16, 2008.
6 Inflation. Economic concepts. Government of Canada, May 04, 2007
7 How the Canadian dollar tracked through history. Originally published at www.CTV.ca, Sept. 20, 2007.
8 Monthly average rates: 10 year look-up. Bank of Canada. Aug. 11, 2008.
9 Has the loonie gone loony? The Exchange. A students guide to finance. University of Toronto Finance Association. Dec. 2007.
10 U.S. Bureau of Labor Statistics, www.bls.gov. Aug. 11, 2008.
11 Lisa Wright, ‘Gruesome’ job report startles economists. Originally published in the Toronto Star, Aug. 9, 2008. Reprinted with permission - Torstar Syndication Services
12 Canadian economy losses 55,200 jobs in July. Originally published at www.CTV.ca, Aug. 08, 2008
13 Richard Croft. Originally published in the National Post, May. 14, 2001.
14 Nick Murray, The Excellent Investment Advisor, Nov. 1996.
The information provided is accurate to the best of our knowledge as of the date of publication, but laws, rules and interpretations are subject to change. This information is general in nature and intended for educational purposes only. For specific situations, you should consult the appropriate legal, accounting or tax expert.
