Investor Psychology: Changing Your Perspective

The recent sharp drop in stock markets has tested the conviction and risk tolerance of many investors, but it has also served as a great opportunity to change your perspective when you look at your investments and overall retirement situation.

“Zoom Out” to the big picture

You may have looked at your investment statements at some point this year and thought, “I’ve lost $(insert number here)!”. That is a valid statement, and worth discussing with your advisor if it is a bigger decline in value than you are comfortable seeing.

However, an important question is “Over how long of a period have I lost that money?”. Was it:

• Since a few days ago?
• Since yourlast statement?
• Since thehighest value you have seen your account at?

Whatever the answer, chances are it is over a relatively short period of time. Keep in mind the old saying, “the markets take the escalator (or stairs) up, and the elevator down”. Sharp declines over short periods of time tend to happen more often than longer, gradual declines.

If the decline in the value of your investments has taken place over a few days or weeks, or even months, try “zooming out” and taking a look at your account value a year ago, or even three or five years ago. Chances are, that decline in value you are seeing in the short term will suddenly change to an increase in value over the longer term.

Let’s take a look at the S+P 500 index over a few different timeframes to illustrate this point:

-mid-February to mid-April 2025 (2 months): Market crash, time to panic!

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-April 2023 to April 2025 (2 years): Still higher than where it was then, things aren’t so bad…

Another very valuable exercise in times of volatile and unstable markets is to not look just at your portfolio value, but to review your overall retirement income projections including CPP+OAS, and pension or business/asset sale proceeds. In many cases, a person’s retirement won’t be funded entirely from their RRSPs, TFSAs, or other savings, and a short-term decline in the value of their portfolio will not jeopardize their overall retirement plan.

Think in terms of percentages, not dollars

As your portfolio grows over time, you may notice those sharp declines in the markets make your portfolio fall by a larger and larger dollar amount. This is simple math as a 10% decline on $500,000 psychologically hurts a lot more than a 10% decline on $50,000, yet both are the same size of declines in terms of percentages.

While it is easier to relate a certain dollar amount to something tangible that costs that same amount, investments returns are generally discussed in terms of percentages to allow them to be compared more easily. As well, savings accounts and GIC interest rates are always given in annual percentages, so discussing market or investment value fluctuations in terms of percentages allows for a more standardized comparison.

As your portfolio grows, it is a good idea to re-assess your risk tolerance to see if you still feel comfortable with larger fluctuations in dollar terms. Looking at the volatility you are seeing in your investments in terms of both percentages as well as dollars will give you a more complete perspective of how your portfolio is doing compared to the overall market, as well as your personal risk tolerance limits.

Being prepared for uncertainty and volatility

While the markets have recently rebounded from the lows of April and recovered a large portion of this year’s declines, there is still an abnormally high level of uncertainly (and unpredictability) in the global economy’s outlook.  

This could signal increased volatility and more of a rollercoaster ride for investors for the rest of this year, as well as possibly the next few years.

While we can’t change the markets, you can prepare for volatility by making sure your portfolio is in line with your comfort level, and by changing your perspective to look at “the big picture” the next time the markets take a tumble and you see a large decline in your portfolio’s value.

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This information has been prepared by Dennis Rubeniuk who is a investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this post comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operates

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