By Tom Bradley

I wouldn’t normally comment on short-term market moves, but it feels like the recent turbulence is elevating the emotions of some investors. It’s understandable given that markets have gone straight up since September 2011 and volatility has been relatively low. Long-term investors haven’t been tested for a while.

We don’t know where markets are going in the short to medium term (not now, not ever), so our advice to clients is the same as it always is.

  • Stick to your plan. We’ve been imploring our clients (and readers) to make sure their risk exposure (stocks and high-octane fixed income) is no higher than what their long-term asset mix calls for.
  • Don’t get caught up in the noise. Even though the volume has been turned up, for someone who doesn’t need the money in the next three years, much of what’s being reported should be treated as entertainment only.
  • Get excited. For investors who are building their wealth and have a long time frame, market weakness is a godsend. The lower prices go, the more their RRSP and TFSA contributions will buy.
  • Money in the bank. For those who are drawing an income from their portfolio, it’s important to know where future ‘paycheques’ will come from. Will it be from pension payments, interest, dividends and fund distributions, or is there a need to establish a spending reserve that can top up the take home pay. If there isn’t a plan set up for the next 18-24 months, then it’s time to get busy.

You might ask, what have we done so far? The answer is, not much. The funds are down a little from their highs, but there hasn’t been enough of a correction to take us off our cautious plan.

What will we do if markets go down further from here?

  • The equity managers will look for opportunities to buy good companies at lower prices. They’ll likely be more active than usual in repositioning the funds - weak markets are uneven and at times inexplicable, which means the set of opportunities for an active manager improve significantly.
  • Connor, Clark & Lunn, the manager of the Income Fund, will start to play offense again. On the bond side of the portfolio, they’ve been quite defensive –high quality corporate bonds only, no high yield and shorter terms to maturity.
  • And in the Founders Fund, I will start to put the cash (16% of total assets) to work, most likely in the three equity funds. The current stock weighting is 55%, so there is lots of room to move up.

Whether the current kerfuffle turns into a bigger deal or not, now is a good time for all investors to do a gut check. This means dusting off the plan, reaffirming the investment horizon and doing what my Dad always asked us to do – Carry on bravely.