How Bankers Bank: Smart Tips for Dealing with Market Volatility

When the markets are jumpy, our messaging apps and inboxes over at RBC Direct Investing light up with commentary from colleagues. It always makes for a lively and insightful discussion – they might even throw in a few GIFs and charts – but if there's one thing this group enjoys doing, it's helping one another and their communities. Here are some of their top ideas for keeping emotions in check and making it out the other end of volatility as a (hopefully) stronger investor.

Understand 'time in the market' vs 'timing the market'

Investing a set dollar amount regularly can help take the guesswork out of trying to “time" a market that is, well, unpredictable by nature. Volatility can also be a little less scary when it has the potential to average down the cost of one's holdings. “When the market sells off in the shorter term, it actually adds to the return potential going forward for a long-term investor," says Stu Kedwell, senior vice president and co-head of North American equities at RBC Global Asset Management. Averaging down is an investment strategy in which investors choose to buy additional shares when a security's price drops below their initial investment price, thereby lowering the average cost.

(Here, Kedwell shares more ways investors can boost their resiliency.)

For some, boring can be good

Riding the waves of market volatility for 20-odd years led one of our product strategists to develop a mindset he says now helps him weather storms like what we saw in January. “The ups and downs were thrilling at times, and gut-wrenching at others," he says. “But my personal view is that 'calm seas never made a sailor'."

For one, he says his investment decisions are a little tamer these days. “I used to swing for the fences with each trade," he admits. Now, he avoids buying stocks where he feels there's too much uncertainty, no matter how tempting the expected near-term gains appear. He's also adjusted his portfolio to feel more functional for him, “and, frankly, boring!" he adds. (Think Warren Buffet would approve?) In particular, our colleague says diversifying his assets has given him the most confidence to be able to ride out the market's occasionally choppy waters.

Realistic expectations

For this communications leader, it's all about setting realistic expectations. “It comes down to looking at performance over a full market cycle," she says. “I watch my five-year performance more closely than one or three years," she adds, but realizes this may be harder to do for investors with less 'time in' the market.

Her goal is to outperform inflation by a modest two to four per cent in her registered plans. “That means my purchasing power is always increasing," she says. For her non-registered plans, she says she aims for three to five per cent over inflation to account for taxes.

Dividends¹ and predictability

For another colleague, dividends offer a bit of comfort when markets are choppy. “I know dividend payouts can change, but even when I see prices falling, I'm not as anxious when I look at my portfolio and see stocks that have been consistently paying me dividends over the long-term," he says. “I like that predictability."

Last year, the bankers had a lot to say about managing money in unpredictable times. Read on for 10 Smart Money Hacks During Uncertainty.