Investor’s guide: Market volatility
Table of contents
4 Perspectives5 The market has faced many economic downturns over time6 These downturns can create an emotional rollercoaster7 Recessions, while unsettling, are usually short-lived8 Remember that markets tend to stabilize rather quickly9 Ultimately, the ride up is usually bigger than the ride down
10 Strategies11 Avoid trying to time the market12 Keepawell-diversifiedportfolio13 Consider a ‘Dollar-Cost Averaging’ strategy
14 Key takeaway15 Markets eventually recover despite volatility
Perspectives
| 5 Perspectives
The market has faced many economic downturns over timeHistorically, despite many periods of increased volatility, markets have remained resilient.
S&P 500 Index – Price
Source: Morningstar Direct
500
1,000
1,500
2,000
2,500
3,000
3,500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
GlobalFinancial Crisis
European Sovereign Debt Crisis, Greece credit downgraded
Global Stock Market Plummet
Brexit Referendum
Fed Raises Rates 3 times in 2017
December 2018 Selloff
| 6 Perspectives
These downturns can create an emotional rollercoasterIt’s not easy for investors to manage their emotions. There is a tendency to get excited and buy just as markets are set to decline, and to panic and sell just as markets are set to recover.
S&P 500 Index – Price
Source: Morningstar Direct
500
1,000
1,500
2,000
2,500
3,000
3,500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
104 -783 1,762 667 -669 -2,532 -1,849 -15 841 4,398 3,559 6,139 -1,337 3,048 1,763 -2,543
US Equity Category – Net Flows ($Millions)
Panic
Denial
Sell now!
The price keeps going up I’ll buy more
EuphoriaConfidence
| 7 Perspectives
Recessions, while unsettling, are usually short-livedThe good times (economic expansion) usually last much longer than the bad times (economic recession).
Length of recessions and expansions – January 1902 to February 2020
Source: National Bureau of Economic Research, February 2020
Expansions
Recessions
Current expansion(as of February 2020)
Num
ber o
f mon
ths
0
40
80
120
160
2020
2007
2001
1990
1981
1980
1973
1969
1960
1957
1953
1948
1945
1937
1929
1926
1923
1920
1918
1913
1910
1907
1902
Recession is the number of months from the peak to the trough of the market cycle.Expansion is the number of months from the previous trough to latest peak.For example: March 1991 to March 2001 was an expansionary period lasting 120 months
| 8 Perspectives
Remember that markets tend to stabilize rather quicklyMany of the strongest returns in the markets occur in the period immediately following a sharp decline. Those who exit the markets, even for a short while, risk missing great opportunities when the markets recover.
S&P/TSX Composite Total Return Index
12-month return12-month return following
negative return
5-year return following negative return
(absolute) (annualized)
December 1957 -21% 31% 72% 11%
May 1970 -24% 23% 49% 8%
September 1974 -31% 23% 168% 22%
June 1982 -39% 87% 227% 27%
August 2001 -33% -9% 79% 12%
December 2008 -33% 35% 76% 12%
March 2020 -14% ? ? ?
Source: Mackenzie portfolio analytics
| 9 Perspectives
% c
hang
e
-100
0
100
200
300
400
500
600
2020201520102005200019951990198519801975197019651960
526%
451%
72%
280%526%
87%86%76%52%
90%104% 108%
451%
-30%-17% -15%-45% -51%
-14% -22% -16% -29% -43%-14%
Ultimately, the ride up is usually bigger than the ride downMany of the strongest returns in the markets occur in the period immediately following a sharp decline. Those who exit the markets, even for a short while, risk missing great opportunities when the markets recover.
S&P/TSX Composite Total Return Index
Source: Bloomberg, February 2020
Bull & bear factsAverage gain in bull market: 144%Average length of bull market: 55 monthsAverage lost in bear market: -27%Average length of bear market: 14 month
Strategies
| 11 Strategies
Avoid trying to time the marketIt’s virtually impossible to know when markets will rebound. Trying to time the market may sometimes look like a smart move, but your long-term investment performance will likely be worse than if you had simply stayed invested through the bad times.
Growth of $10,000 – S&P 500 Index
Source: Bloomberg, January 31, 2009 – December 31, 2015. Unlike mutual funds, the returns and principal of GICs are guaranteed.
Invested another $10,000in the S&P 500 on Mar 31, 2009Stayed invested in the S&P 500Removed from market and invested in a GIC
$0
$10,000
$20,000
$30,000
$40,000
$50,000
December 31, 2015March 31, 2009January 31, 2007$10,000 invested
(Mar
ket
low
– M
ar 2
00
9)
$46,776
$17,220
$6,642$5,826
| 12 Strategies
Keep a well-diversified portfolioBy diversifying your portfolio across different asset classes, you can achieve greater consistency in returns, and ultimately protect yourself against market volatility.
A diversified portfolio can help reduce volatility
Can Equity European EquityUS Equity
Can Neutral Bal Global Neutral BalFloating Rate Loans
Can Corp Bonds Can Govt Bonds Global Bonds
Global Govt BondsGlobal HY BondsAsian Equity
Source: Morningstar Direct, as at February 29, 2020.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20199.6% 58.2% 17.6% 10.2% 19.5% 41.3% 23.9% 21.6% 21.1% 23.0% 4.2% 24.8%9.0% 50.2% 15.1% 8.2% 16.5% 33.6% 10.6% 17.6% 15.7% 17.3% 1.9% 22.9%5.7% 35.1% 10.9% 6.4% 14.2% 19.5% 9.4% 16.5% 9.9% 13.8% 1.5% 17.5%0.2% 17.7% 10.1% 6.3% 13.4% 13.0% 9.3% 4.4% 8.1% 9.1% 1.1% 13.3%
-16.0% 16.8% 9.1% 4.6% 10.4% 11.7% 9.0% 3.8% 7.6% 7.5% 1.1% 12.9%-18.8% 16.3% 8.8% 3.3% 7.4% 10.5% 8.8% 2.7% 4.3% 6.7% -0.5% 12.8%-21.2% 15.6% 8.6% 2.1% 7.2% 7.9% 8.6% 1.9% 3.7% 5.6% -2.8% 8.1%-27.3% 15.3% 7.3% -0.6% 6.5% 6.2% 8.5% 1.6% 3.7% 3.6% -3.7% 7.8%-29.2% 7.4% 6.5% -0.9% 6.2% 1.0% 7.6% -0.2% 3.6% 3.4% -4.5% 7.7%-30.7% 5.0% 5.0% -8.7% 6.0% 0.8% 3.3% -0.5% 1.3% 2.6% -5.7% 7.4%-33.0% 1.6% 3.8% -8.9% 5.4% 0.6% 2.5% -2.0% 0.9% 2.2% -7.2% 6.9%-33.0% 1.2% -1.5% -13.0% 2.6% -2.0% 2.3% -8.3% -3.8% 1.8% -8.9% 6.4%
Bes
t per
form
ers
Wor
st p
erfo
rmer
s
| 13 Strategies
Consider a ‘Dollar-Cost Averaging’ strategyRather than investing all your money at once, making a commitment to invest a smaller amount on a regular basis may lower your average cost per unit by purchasing more units at lower prices.
DCA in a fluctuating market
This hypothetical illustration shows how investing $300 each month in a fluctuating market can potentially help reduce the overall cost of the portfolio by buying more securities when the price is lower and fewer when the price is more expensive. For illustrative purposes only.
Securities bought Security price
Secu
rity
pric
e ($
)
Secu
ritie
s po
rcha
sed
0
6
12
18
24
30
1211109876543210
4
8
12
16
Months
Falling marketReducetheeffectsofmarketriskbybuying
more units at lower prices.
Rising marketReducetheeffectsofmarketriskbybuying
fewer units at higher prices.
Key takeaway
| 15 Key takeaway
0
4,000,000
8,000,000
12,000,000
16,000,000
20,000,000
1965
-08-
31
1967
-12-
31
1970
-04-
30
1972
-08-
31
1974
-12-
31
1977
-04-
30
1979
-08-
31
1981
-12-
31
1984
-04-
30
1986
-08-
31
1988
-12-
31
1991
-04-
30
1993
-08-
31
1995
-12-
31
1998
-04-
30
2000
-08-
31
2002
-12-
31
2005
-04-
30
2007
-08-
31
2009
-12-
31
2012
-04-
30
2014
-08-
31
2016
-12-
31
2019
-04-
30
$18.9M
$10K
Markets eventually recover despite volatility Staying the course is of the utmost importance during periods of volatility as it has historically enabled investors to fully recover from these periods and achieve their long-term investment goals.
Growth of a $10,000 investment, 1950-2019
Source: Morningstar Direct / Bloomberg. Snapshots in time of significant negative impact international events from 1950 to March 2009, and the subsequent change in market value from the S&P 500.
Crisis Market low 1 yr later
Korean war July 13, 1950 28.8%Cuban missile crisis September 23, 1962 33.8%JFK assassination November 23, 1963 25.0%1969-70 Market break May 26, 1970 43.6%1973-74 Market break June 12, 1974 42.2%1979-80 Oil crisis March 27, 1980 27.9%1987 Stock market crash October 19, 1987 22.9%Desert storm October 11, 1990 21.1%Soviet coup d’état attempt August 19, 1991 11.1%Asianfinancialcrisis April 2, 1997 49.3%Dot-com bubble crash /Sept 11 / Enron October 9, 2002 33.7%Invasion of Iraq March 11, 2003 38.2%North Korean missile test July 17, 2006 25.5%Subprime mortgage crisis March 9, 2009 68.6%Average appreciation 33.7%
11.21% Annualized return
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns as of April 30, 2020 including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Index performance does not include the impact of fees, commissions, and expenses that would be payable by investors in the investment products that seek to track an index.
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This document includes forward-looking information that is based on forecasts of future events as of April 30, 2020 . Mackenzie Financial Corporation will not necessarily update the information to reflect changes after that date. Forward-looking statements are not guarantees of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Some of these risks are changes to or volatility in the economy, politics, securities markets, interest rates, currency exchange rates, business competition, capital markets, technology, laws, or when catastrophic events occur. Do not place undue reliance on forward-looking information. In addition, any statement about companies is not an endorsement or recommendation to buy or sell any security.
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