The market volatility continues! The last hour of every trading day lately seems to provide investors with that roller coaster feeling. With each hour and day, the market seems to take on a new identity. Depending on who said what or what the rumour du jour seems to be, the stock market can move triple digits either way! What do investors think and how is the volatility driving their investment decisions?
The longer this volatility lasts, the more investors seem to be shying away from investing. The stock market collapse during the recession of 2008 was much harsher than the most recent correction. However, investors are remembering their experiences from that year and are very reluctant to be investing their hard-earned dollars today. The fear for some individuals is that the North American markets could return to a recession once again, and that fear is driving investors’ decisions.
In conversations with investors, I find more and more of them paying down their mortgage or other debts instead of investing, even though it is costing them very little interest to carry their debts. By paying down the mortgage rather than investing in the stock market, individuals are saying they cannot make more in equities than the interest rate they are borrowing at, and believe real estate is a better choice.
In my opinion, investors’ decisions are being clouded by their negative experiences with volatility in their investments. While the market has definitely taken on a negative tone, investing in equities (which includes real estate) is still the best way to grow wealth over time.
Individuals should have balance in their portfolios — real estate as part of a diversified portfolio makes sense, but investors shouldn’t be sinking all their disposal income into their mortgages, especially if their interest rate is very low.
The real estate market in Toronto — and across Canada — is coming off its highs and slowing down, while the country’s stock market is coming off its lows and has a lot of room to grow. Why would an investor put all his or her money in real estate at this time?
It makes more sense to use the low interest rate environment to create a balanced portfolio and invest in large Canadian or U.S. equities paying good dividends to compliment investments in homes. If real estate prices should take a turn for the worst, investors will have their investments to fall back on, or vice versa.
When it comes to people’s homes they seem to forget the phrase, “never put all your eggs in one basket.”