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Why you should consider new investments now

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Thinking about contributing to an RRSP, a TFSA, an RESP or other investment account? Now may be one of the best times since 2009 to fund any of these accounts, especially if you have over ten years for your investment to bear fruit.

Why?

Because, at the time of writing:

  • In Canada, the S&P/TSX Composite is down 20 per cent over six months
  • In the U.S., the S&P 500 is down about 17 per cent
  • Any good news out of Europe causes some nice upward movement on Canadian and U.S. equity prices, suggesting there may be some upward momentum if Europe gets its act together regarding a solution to the debt crisis
  • As the two most common areas for Canadian investors to put their money to work, Canada and the U.S. present compelling values for stock investors compared to six months ago
  • The S&P/TSX Composite is down about 10 per cent over one year
  • The S&P 500 is down about 5 per cent over one year
  • The iShares DEX Universe Bond Index is up over 7 per cent since its low within the last year

While nobody wants negative returns (unless you’re looking to buy at cheaper prices!), this current equity correction doesn’t look as bad over one year, and looking at returns over that time frame provides some perspective. Over one year, the declines don’t look as dramatic, and that takes some of the fear out of equities.

Fixed income has outperformed. Looking at this outperformance in a rebalancing context, shows stock is currently cheaper.

No one is sure what the future holds, but what is sure is that stocks are a better deal than they were, and bonds aren’t as attractive.

Do yourself a favour: If you’re nervous about markets do some gradual, strategic buying. If you don’t have a plan regarding your asset allocation, get one.

Fear of losing may keep you from winning. Fear is a motivator, so if fear is keeping you from being a strategic investor, consider that fear should also keep you focused on your plan.

Investors have to accept that they will never know exactly what the market is going to do — and then plan accordingly.

Take comfort in the fact that someone like Warren Buffett recently invested $4 billion in the stock market.

Markets will either go up, down (or sideways) in the short-term. If you stay with a balanced portfolio, you have limited downside risk. But if you stay completely out of the market, expecting the four horsemen of the apocalypse, you may be disappointed if the horsemen don’t arrive.

A good long look at a stock chart after the 2009 market bottom (and such a chart can be found in one of the above links), might help you steel yourself, too. Markets had quite an increase until the latest correction began.

The planning you do now will serve you well when the market next moves into a bull phase and increases.

Related:

Feeling some panic?

What’s a TFSA?

In times of volatility, you might want to focus on conservative dividend-paying investments

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