October 2008

In the companion article, The Global Credit Crisis: How It Happened, we outlined the key events that lead to, and subsequently accelerated, the credit crisis. The ensuing and sustained volatility may have caused you, like many investors, to question the wisdom of investing, or perhaps take action with your investments. Impulsive or emotionally-driven reactions to such events are normal, even among investors who have experienced previous market downturns; however, the gap between such reactions to market volatility and the investment reality is often wide and revealing.

How then, as investors, do we resist our emotions and short-term impulses? How do we bridge the gap between reaction and reality in order to meet our investment goals? In this article, we outline two simple and time-tested investing principles that are critical for investors to follow, and especially during challenging market conditions:

• Put the current crisis into perspective by recalling past market behaviour
• Focus on your investment plan and portfolio rather than the markets

Credit Crisis in Perspective

The volatility in global markets has been unrelenting and has clearly impacted investment performance. However, history has consistently shown us that the financial markets are cyclical in nature, and that over time, the trend of markets has remained positive through a range of economic, social and political crises, rewarding the discipline and persistence of those who remained invested towards meeting their investment plan.

Focus on your Investment Plan and Portfolio

Separating the media headlines and volatility across broad market indices from the reality of their impact on your investment plan and portfolio is easier said than done, however, it is a crucial discipline for all investors. A sound investment strategy that focuses on diversification by its very nature dampens the overall level of risk. While the returns of all equity and balanced funds and portfolios have been negatively impacted by market volatility in recent months, ScotiaFunds’ balanced funds and portfolios are built, diversified and managed to lessen the impact of negative market extremes, as well as to provide growth during periods of expansion.

Emotions are high and you, like many investors, have likely been impacted to some extent. Now, more than ever, is a time for discipline and persistence – a time to stay grounded in these basic investment principles, and to not let emotional reactions undermine the reality of your own portfolio and investing with a long-term perspective.

This is also an opportune time to engage a trusted professional to review your investment plan and portfolio. To get a Second Opinion today, and have peace of mind tomorrow, please contact your Scotia advisor, or visit our Second Opinion Centre.

Commissions, trailing commissions, management fees and expenses 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 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 securityholder that would have reduced returns.  Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.