CDA Essentials 2019 • Volume 6 • Issue 4

41 Issue 4 | 2019 | S upporting Y our P ractice for any number of reasons. This drop may fuel a further economic downturn which leads to greater declines in stock prices. The cycle turns when investors begin to see good buying opportunities. Monetary policies Interest rates Central banks use interest rates to either spur a sluggish economy or put the brakes on an inflationary one. Lower rates make it easier for companies to get capital for business expansion, and they make equities more attractive relative to bonds. Higher rates have the opposite effect. Money supply When short-term interest rates are approaching zero, governments may purchase their bonds or other securities to increase the money supply and spur investment. The long bull market that started about ten years ago was helped at times by increased money supplies, which have now been tightened in North America and many other parts of the world. Politics Changes in political leadership can either be friendly or unfriendly to business. Taxation, money supply, trade policies, attitudes to labour or regulation, and many other variables can provide signals to investors. Bubbles Periods of irrational investor exuberance can trigger sharp increases and declines in the market. There are many examples of this including the Crash of 1929, which triggered the Great Depression, the dot-com bubble, and the sub-prime mortgage crisis, which triggered the Great Recession. These events have one thing in common— over-enthusiastic investors looking to ride the wave. Don’t panic. Markets are resilient. When markets tumble it’s natural to want to cut your losses. But selling low means you’ll miss out when they rebound. The early stages of a market recovery have historically provided the largest percentage of returns per time invested: • 1987 – On October 19, Black Monday, the bellwether Dow Jones Industrial Average lost 22.6% in one day, and other markets had similar losses. The Dow regained over half of its loss within two days and ended 1987 up 2% for the year. 1 • 2001 – In the ten days after 9/11, the Dow tumbled by 14.26%, then climbed by 21% in less than three months. 1 • 2009 – The worst crash since 1929 bottomed out on March 9, then an unprecedented rally started. From that low point, the Dow gained 59.28%, the S&P 500 gained 64.83%, and the NASDAQ gained 78.87% by the end of the year. 1 Volatility is a natural, and necessary, part of a free market. It’s important to understand and accept it, and think of the long term, especially when you’re younger. As you approach retirement age and are looking to preserve capital and liquidate some of your savings, you’ll want to reduce volatility. This is the ideal time talk with your financial advisor about strategies to help you meet these goals. An Investment Planning Advisor from CDSPI Advisory Services Inc. is always available to answer your investment questions. Just send an email to investment@cdspi.com or give us a call at 1.800.561.9401. 1. The Amazing Historical Stock Market Rebounds, FiGuide, 2014. Steven Moscone, B.A., CFP ® Vice-President, Investment Advisory Services, CDSPI Advisory Services Inc. Visit cdspi.com t o learn more.