We have noticed something interesting in our conversations with clients lately. People are worried. They are worried about inflation. Interest rates. Wars and geopolitical uncertainty. Government debt. Market valuations. Politics. The next recession. And, depending on what they watched or read that morning, probably three or four other things.
We understand it. There is a lot going on in the world. But there is also something worth putting into perspective: equity markets are positive on the year, and volatility remains relatively low.
Which raises a question we think investors should be asking themselves: if you are this worried today, how are you going to feel when we eventually have a real bear market? Because we will.
We don't know when. We don't know why. And we certainly don't know what the headline will be that causes it. But at some point, equity markets will fall 20% again. And when they do, it will feel very different than it does today.
This Is What Investing Looks Like
One of the things we talk about regularly on The Free Lunch Podcast is the difference between knowing something and actually experiencing it.
Most investors know stocks can fall. They know bear markets happen. They know they're supposed to "stay invested." That's easy to say when your portfolio is up. It becomes considerably harder when $1 million becomes $800,000. Or $2 million becomes $1.6 million. That's when investing stops being theoretical.
And that's why we spend so much time at Canvas talking about financial planning, asset allocation and investor behaviour. We don't build your financial plans based on what we think will happen next Tuesday. We build them around what you are trying to accomplish over the next 10, 20 or 30 years.
Your Portfolio Should Be Built for Bad Markets Too
This has been a recurring theme on The Free Lunch lately. We have talked about concentration risk. We have talked about preparing for downturns before they happen. We have talked about market valuations and whether investment professionals really make dramatic changes to their portfolios when they become concerned.
All of those conversations eventually come back to the same principle: a good financial plan should not require you to correctly predict what happens next. That is important.
At Canvas Wealth, through our partnership with Q Wealth, we aren't trying to build portfolios that work only when our economic forecast is correct. We want portfolios that can survive different environments:
- Stocks for long-term growth.
- Bonds for income, stability and diversification.
- Different companies, industries and countries.
- Regular rebalancing.
- Enough liquidity so that short-term spending needs don't force long-term investment decisions.
None of this is particularly exciting. That's kind of the point.
The Biggest Risk May Be Your Own Behaviour
When markets eventually fall 20%, the headlines won't say, "Don't worry. This is a normal part of long-term investing." They will tell you why this particular decline is different.
There will be experts predicting another 20% decline. Someone will tell you they sold before the market fell. Someone else will explain why the financial system is fundamentally broken. And eventually someone will ask, "Shouldn't we just go to cash until things settle down?"
That sounds reasonable. The problem is that "going to cash" requires two decisions. You have to know when to sell. Then you have to know when to buy back. And the second decision can be even harder than the first.
Markets don't send out an email announcing that the bottom has arrived. By the time things feel comfortable again, markets may have already moved substantially higher.
That is why we would rather spend our time getting the financial plan right than trying to guess the next market move.
Maybe Today Is Actually a Good Test
There is another way to look at today's anxiety. Maybe it's useful. If relatively normal market conditions are causing you significant stress, that tells us something.
Maybe your portfolio is taking more risk than you realized. Maybe you don't completely understand what you own. Maybe your financial plan needs to be revisited. Or maybe you simply need to be reminded why the portfolio was built the way it was in the first place.
Those are good conversations to have before the bear market arrives. Not during it.
Because your risk tolerance isn't really measured by answering a questionnaire. Your real risk tolerance is revealed when your portfolio is down 20% and you still have the confidence to stick with the plan.
We Don't Know What Happens Next
One of our favourite sayings is: "It's difficult to make predictions, especially about the future." There is some debate about who originally said it, which somehow makes the quote even better.
We don't know exactly where markets will be six months from now. Neither does anyone else.
What we do know is that there will be recessions. There will be wars. There will be elections. There will be inflation scares. There will be interest-rate surprises. There will be bubbles. And there will eventually be another bear market.
There will also be recoveries, innovation, growing businesses, rising productivity and new market highs. That has always been part of investing.
Our job isn't to eliminate uncertainty. Our job is to build a financial plan that can live with it.
So if markets are making you nervous today, don't necessarily ask, "Should I sell?" Ask a better question: "Is my portfolio built so that I can stay invested when the real test eventually comes?"
If the answer is yes, today's headlines probably matter a lot less than they feel like they do. And if the answer is no, now—while markets are relatively calm—is a much better time to fix it.
At Canvas Wealth, that's ultimately what we believe good wealth management should do. Not predict the future. Prepare you for it.
There is no free lunch, but there is a better way to invest.
