With the U.S. government shutdown and the recently averted debt ceiling crisis dominating media headlines earlier this month, Craig Fehr isn’t surprised to see a resulting hesitancy in the investment world.
Fehr, an investment strategist with Edward Jones, notes this isn’t the first time situations like this have happened. Far from it.
“We’ve seen 18 government shutdowns since the late ‘70s. We’ve seen nearly 80 debt ceiling increases since the 1950s,” said Fehr, who was at the Best Western Vernon Lodge Tuesday night presenting a seminar to help local investors make sense of current events and how they affect the markets.
“These types of things happen all the time, so as an investor, if you spend all your time focussing on them, you’re likely to make decisions that don’t make sense for your situation.”
Instead of basing financial decisions on a politically charged climate, Fehr relies on fact-based indicators such as earnings growth, interest rates and economic growth to steer his clients. He said by looking beyond the headlines, there are indicators that lead him to be cautiously optimistic for a continued economic recovery.
He points to the rebounding S&P 500, which has risen more than 20 points, year-to-date, as well as the VIX, a volatility index which is at a six-year low.
“There’s a lot of surface-level turmoil,” said Fehr, who operates out of Edward Jones’ Mississauga office. “It comes and goes, but it’s far less impactful to the actual markets and to what investments will do.
“We’re really starting to enter into an environment where markets are doing better than folks perceive they are doing.
“Folks that are able to focus and connect their investments to their long-term financial goals are the ones that tend to be successful, rather than the ones that are shifting strategy mid-flight.”
However, Fehr said there are no guarantees with the markets, adding they will continue to be affected by U.S. government’s financial instability.
“We’re likely to get right back into the Washington volatility,” he said. “They’ve kicked this (debt ceiling) can down the road, unfortunately the kick wasn’t very good. There’s a lot of issues that have to be resolved with the U.S. budget.”
Fehr said one thing all investors should do periodically, and especially after a big market shakeup, is take a step back, look at their long-term goals, and build an investment plan that will help achieve them.
“A general strategy that can work for all investors, regardless of where you’re at in your investing stage, is a rebalancing strategy. Rebalancing back to the portfolio you intended to have, not the one the market has handed you recently.”
Fehr noted there are investors who are still feeling the emotional and financial effects of the 2008 global recession. Rather than risk an investment, many are choosing to hang onto their cash.
“Investors tend to make decisions with the rearview mirror in mind,” he said. “We also saw this in 2001 and 2002 when we came out of the tech bubble burst.
“If you feel like things are ultra-volatile, you invest in cash and you don’t have to worry about losing a dime. Conversely, you have no ability to reach your long-term financial goals.”