Long Term - Part 2 - A Case Study
In my first blog post, I mentioned that our team rarely reacts to current headlines. Instead, we focus on long-term investment decisions that align with our clients' horizons. This approach resonates with most clients. Intuitively, it makes sense. However, it is easy to embrace common-sense ideas until your social media feed suggests that everything is changing—and that you need to change with it.
This blog isn’t date-stamped because we want any insights you gain to remain relevant over time. However, this month has provided an ideal opportunity to reinforce our commitment to long-term thinking.
As you may know, earlier this month, the U.S. government took an aggressive stance on international trade, specifically threatening a 25% tariff on all Canadian goods. In response, the Canadian government announced its own tariffs on U.S. goods. Naturally, markets initially reacted with caution, and many media outlets fueled the fear and uncertainty.
So, what did we do?
Nothing!
Well, not exactly nothing.
We sent our clients an email to remind them of our disciplined approach. In it, I wrote:
While it’s understandable to feel uneasy, it’s important to remember that the media often focuses on the most dramatic aspects of a story. The reality is usually more nuanced. Trade negotiations are complex, involving multiple stakeholders and interests. Although tariffs and trade restrictions can have significant impacts, they are just one part of a broader ongoing dialogue between nations.
As your investment advisors, we remain focused on the long-term. For the most part, our clients invest for decades, not months or years. This means our allocation decisions are based on long-term trends, not short-term interruptions.
Putting Risk into Context
It might be helpful to reflect on some of the disruptive global events that have impacted investment markets over the past several years. This is not to minimize the potential risks of a trade war, but to illustrate that concerning and impactful events happen frequently—and markets tend to adapt.
- Brexit Referendum (2016): The UK's decision to leave the EU triggered market volatility, especially for the British pound. Global stock markets dipped as investors feared economic instability in Europe.
- U.S.-China Trade War (2018-2019): Tariffs between the U.S. and China led to significant uncertainty, particularly regarding global supply chains and corporate profits, causing market volatility.
- COVID-19 Pandemic (2020): The pandemic caused sharp market declines, particularly in March 2020. However, thanks to unprecedented government stimulus and central bank support, markets quickly recovered to record high
- Oil Price Crash (2020): The COVID-19 crisis led to an oil price crash, with U.S. crude futures briefly turning negative. This created market uncertainty, especially for energy stocks and oil-dependent economies.
- Russian Invasion of Ukraine (2022): The geopolitical crisis led to widespread sanctions, disruptions in energy markets, and volatility across global financial markets. Energy prices surged, while some sectors took a hit.
- Substantial Interest Rate Hikes (2022-2023): Central banks raised interest rates in response to inflation, leading to market shifts, especially in bond yields, stock valuations, and sectors sensitive to borrowing cost.
- Hamas-Israel Conflict (2023): The conflict caused market volatility, particularly in energy markets, as investors worried about regional instability affecting oil supplies. Broader market sentiment also fluctuated.
- The Rise of Artificial Intelligence (2023-2024): The surge in interest around AI, especially following developments like ChatGPT, led to significant market movements, particularly in tech stocks. This created both opportunities and volatility.
Over your investment horizon, you will experience numerous episodes of volatility—whether due to geopolitical conflict, technological change, or economic forces. Declines of 10%, 15%, or even 20% are not uncommon during your investment journey. Therefore, it’s crucial to invest only the funds you can commit for the long term.
Long-term investing is more than just a strategy; it's a mindset. It requires patience, discipline, and a thorough understanding of market dynamics. The primary objective is to build wealth gradually by holding investments for an extended period, typically over five years, and ideally, much longer. Do not give in to short term emotional impulses. Do not lose sight of the forest for the trees.
Lou and I are expanding our practice. We would love to meet with you to see if there may be a fit for us to work together. If you would like to explore a relationship with our team, please reach out to one of us to set up an introductory meeting.
The information contained herein has been provided by Fry Ormerod Wealth Advisory Group and is for information purposes[SI1] only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance. Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS. Fry Ormerod Wealth Advisory Group is part of TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc. which is a subsidiary of The Toronto-Dominion Bank.
