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Letter to our Clients: There's good news with the bad news

As I write this email, the TSX/S&P is down 26% from its peak earlier this year because of the coronavirus. As the market reacts to media reports about this serious global health issue, people are canceling events, postponing trips, and stocking up on hand sanitizer.

No one knows how long the fear and panic will last. It could be a matter of weeks or months until the markets recover and people return to their normal activities.

We believe the situation is temporary. At some point, travelers will rebook their cruises and stock markets will return to realistic valuations.

Bad News, Good News
Although equity markets are falling today and many people are legitimately concerned about their health, the situation has some positive aspects.

First, many stocks are undervalued. We are cautiously taking advantage of selective buying opportunities until we have a better sense of when securities will return to fair market value.

Second, with stock prices falling, bonds are appreciating in value as interest rates decline.

If you’re a balanced investor who holds 40% or more of your portfolio in bonds and fixed income, market volatility affects only a portion of your investments. You will see declines in the value of your portfolio, but they will be significantly less than the overall market decline.

What Should You Do?
For those of you who aren't retired, continue making regular contributions to your investments. Lower security prices give you an opportunity to increase long-term returns.

If you’re currently retired and taking money from your portfolio, we will draw cash from bonds. This approach gives equities an opportunity to recover. We also have the opportunity to move money from bonds into equities at significantly discounted prices.

The Bottom Line
While it’s impossible to time the bottom of the market, keep in mind that markets are forward-thinking. They will likely begin to recover before the coronavirus is fully resolved.

For these reasons, it’s key to anticipate where markets are likely to be in 6 to 12 months. Our approach to investing follows Walter Gretzky’s sage advice to his son Wayne: “skate to where the puck is going, not where it has been.”

If you have any questions or concerns about your investments, feel free to call me to chat or to book a meeting.

Warm regards,

Adam McHenry, CFA
Investment Advisor | Associate Portfolio Manager

 “Take Your Wealth to the Next Level