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The importance of taking an agnostic approach to investing: better understanding the how and the when

01 November 2020 by National Bank Investments
NBI Monthly November

Whether it’s to be able to retire comfortably and make their aspirations a reality, to buy a home or simply to build up an emergency fund for a rainy day, every investor has their own unique reason to invest. This same reason will determine one’s investment horizon. Naturally, a 30-year-old investor does not approach retirement savings the same way a 60-year-old saver does. Through hard work, discipline and goodwill, investors build up a nest egg over a longer or shorter investment horizon.

Although setting a realistic investment objective, sticking to it and making time work for you is a sure-fire method for a successful investment strategy, there are still pitfalls that every investor should know how to avoid.

Diversification: the how

Taking an agnostic approach to investing means remaining open to all product types and all investment vehicles such as ETFs and mutual funds available on the market. When building a portfolio, many investors limit themselves exclusively to a particular type of product or investment vehicle.

For example, an investor who has all the assets in their portfolio in equities would completely miss out on the bond market, which offers an attractive potential for capital preservation in bear markets.

In other words, taking an agnostic approach when selecting investment products and building a portfolio, thus the how, means accepting that all market assumptions are temporary and that it can be harmful to limit your savings to a single type of investment product. It also means being flexible and adaptable as the situation warrants.

Timing investment decisions: the when

Investors often let their emotions guide them. When markets fall, too many investors emotionally leave the market and sell their investments at a loss. Conversely, when markets rise significantly, excessively enthusiastic investors enter the market while prices are often artificially inflated, assuming that prices will only rise further. Neither of these are ideal investment approaches.

For example, a more modest, but systematic and recurring savings approach that is not tied to market events is preferable to a more substantial investment approach driven by an investor encouraged by a bull market.

All the same, selling an investment at a loss during a market crash can have a significant impact on whether investors can achieve their long-term investment goals. In fact, recent history shows that global stock markets have always returned to their previous levels (and have even reached new highs!) following sharp falls.

An agnostic approach to investing holds that value opportunities are available in both bull and bear markets. Investors should therefore avoid letting their emotions take over and avoid relying strictly on market events to make decisions. This can prove very profitable in the long run.

Legal notes

The information and opinions herein are provided for information purposes only and are subject to change. The opinions are not intended as investment advice nor are they provided to promote any particular investments and should in no way form the basis for your investment decisions. National Bank Investments Inc. has taken the necessary measures to ensure the quality and accuracy of the information contained herein at the time of publication. It does not, however, guarantee that the information is accurate or complete, and this communication creates no legal or contractual obligation on the part of National Bank Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under license by National Bank Investments Inc.

© 2020 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

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