the broken typewriter

By Brad Brain

Coming out of Covid, just about everything made money. Didn’t much matter what you were invested in. Equities, fixed income, alternative investments, crypto, even NFTs. It seemed like you could throw a dart at a dartboard to pick your investments, and you would come out looking pretty smart.

But now reality is settling in.

Anyone can be a sailor when the seas are calm. Calms seas can give people a false sense of overconfidence. Life is easy, right up to the part where it isn’t.

Investing is not as easy in 2025. But this is not new. Every time we have a nice run on a bull market people get lulled into overconfidence, followed by the inevitable dose of reality.

So, lets talk about the reality of navigating volatile markets.

But before I start, bear in mind I am only going to be referring to high-quality, mainstream investments. If you are still enamoured with alternative investments, crypto, or NFTs then good luck. (There is nothing crazier than someone who loves Bitcoin so much that they twist Warren Buffett quotes to try to rationalize their decisions. But that’s a topic for a different day.)

The first thing to know is that market cycles are normal, natural and common. There is no fixed script or timetable, but historically we get around four or so good years then we get a pullback. After a year or so of challenges and then we are set up for more good times. And the cycle repeats.

There are a number of observations to draw from this.

You might see about fifteen or so of these multi-year bull and bear cycles during your investment lifetime. How you respond is up to you.

Things move fast. Witness this month’s ten percent gains in a single day. Its very unlikely you will be able to nimbly move in and out of the markets with any reliability. Its tempting to try to “wait until things settle down”, but that’s a hallucination. If you wait until things look good you have probably waited too long and you have missed the recovery. A much more reliable strategy is to buckle in and take the bad with the good.

Diversificaiton works. Many people will get this one wrong. They will buy 3 or 4 Canadian equity funds and think they are diversified. But that’s just buying more of what you already have. Being properly diversified means you might perpetually hate a portion of your portfolio, but it will be a different portion depending on the circumstances of the day. If your entire portfolio is down twenty percent year to date, it could be an indicator that you were not as diversified as you may have thought.

An enormous amount of attention is given to things that don’t really move the needle very much, while the things that do the heavy lifting are often overlooked. Things like mutual fund fees that are measured in the fractions of one percent are put under the microscope, but it’s far less common to be critical of one’s own discretionary spending on the unnecessities. If your car lease is $1800 per month, its not the $20 in mutual fund fees that is causing your struggles.

People make money decisions based on emotions, not on logic. People will understand the concept behind “buy low, sell high.” But most people are hard-wired to do just the opposite. When high quality investments become cheaper many people will think that they need to sell before they lose more money. When speculative investments go up in price many people will think they should get in quick because they don’t want to miss out on the rest of the future gains that are sure to come. Both of these reactions are, in fact, the opposite of “buy low, sell high”. And yet the cash flows don’t lie. When the markets go down, people sell. When investments become popular again, people buy. These are the facts, but that doesn’t make them rational.

Having a proper financial plan can keep you focused on your objectives when the investment markets get volatile. Often people will do things that seemed like a good idea at the time, but the result of that is they end up with a bunch of uncoordinated investments that seemed like a good idea at the time. A financial plan will identify where you are now, articulate your Great Goals in life, and spell out what you need to do in order to move you from where you are to where you want to be.

Over the next few weeks we will dive a little deeper into these key points.

Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.