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Return Published: 11 March 2020

Recession : an opportunity or a tragedy for investors?

Several economists recently reevaluated the probabilities of a recession, which is defined by two consecutive negative quarters. According to some, the odds are close to 50%.

Should you panic, withdraw all your money from the markets and bury it under your bed?

Of course not!

When the world’s most famous investor Warren Buffet was asked about falling stock market, he simply replied: “I advise people not to look too closely at the market.”

Keeping informed is obviously essential, but investors have to remain calm in the face of media hysteria.

Instead of succumbing to a panic fuelled by alarmist headlines, investors should look for opportunities when Wall Street and Bay Street are having a hard time.

Stick to your game plan, take advantage of low prices and make adjustments if necessary.

A good investment plan is built around your objectives and risk tolerance.

Since most investors’ objectives are long-term, a market downturn is not a valid reason to get out of the stock market.

On the contrary, the most basic rule of investing is to buy when prices are low and sell when prices are high.

Let’s not forget that throughout history, markets have always rebounded after sharp downward corrections.

As shown in the graph below, the Toronto Stock Exchange’s S&P/TSX Index, which had fallen drastically in the fall of 2008, only needed a little over two years to recover from the crisis and then reach new highs.

A recession is an ideal time to purchase stocks. Overvalued stocks tend to be the first to suffer a correction, so they can now be purchased at their true value. Other stocks that are temporarily victims of the economic cycle will usually recover without any problems.

While this is an opportunity for active investors, it is also the perfect timing for young savers to build their first portfolio at a discount.

It’s important to remain cautious nonetheless. Some companies could suffer undesirable consequences that may be felt long after the recession is over.

With the help of their advisor, investors should look for stocks whose price decline is most likely to be temporary.

Finally, for those with short and medium-term investment horizons, such as retirees, a recession is also a good time to review their plan and make some adjustments in order to protect themselves financially.

An advisor will assist you in defining an optimal strategy based on your needs and the economic context. Make an appointment with one of our advisors!