Market turmoil: Why instability shouldn't spark widespread panic among Canadian investors

With the looniefalling, markets tumbling andoil prices down, someCanadians may be inpanic mode,anxious about the health of their portfolio and wondering what they should do with theirinvestments.

This anxiety was certainly not helped by a recentreport by the Royal Bank of Scotland, which recentlyadvised its clientsto "sell everything" in a note about the state of the markets.

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On Wednesday, the Canadian dollarclosedbelow70-cents US,markets in Toronto and New Yorkrecorded triple digit losses and crude oil prices hovered around $30 US a barrel.

"This is an excellent timeIknow it's alsoan unfortunatetimeto sit downand takestock of what you haveand make sure that portfolio you have is consistentwith whatyou thoughtyou had andconsistent with your target," said Eric Kirzner, professor of financeat the University of Toronto's RotmanSchool of Management.

"This process helps prevent you from doing something foolish."

For those who havebalanced portfolios, yet havesuffered some lossesin thepast couple of weeks thatarewithintolerablelimits,"this is not the time to be doing anything."

As marketsbounce back, many youngerCanadians may be able to wait out the volatility.But it can be a worrying time for elderlyCanadians who have carefully planned their retirement and havevery little margin of safety.

"You don't want to tell somebodywho is 75 to just wait it out. It may not be the correct thing," Kirzner said. "Ithink a 75-year-old has to look at their risk exposure and say 'Ok, if there's a further 20 per cent drop in the equity market, what is this going to do to me? Can I survive that?"

KirznercriticizedRBS, saying while he has respect for forecasters who are unambiguous and make serioussupportablecalls in advance, he has "norespect forpeoplewho make callsaftertheevent is over or in the middle of the event."

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And for RBS tomake such a blanket statement, said Andrew Pyle,associate director ofwealth management atScotiaMcLeod, is to ignore the unique financialconsiderations of investors.

"We have 25-year-old Canadians, we have 95-year-old Canadians. They are all different in terms of how they shouldbe investing. And to simply say to all of you people to get out of the market is really not a sound statement tomake."

The worst thing individuals can do in these or any circumstancesis to panic, Pyle said.Instead, times like these call for perspective, for investors to take a step back, to tryas best as they can toremove emotion form theirdecisions around investments.

Instead they should be examiningwhat's in theirportfolio, where they are in life, how much riskthey have and how much risk should they have.

Low oil prices mean some of the smaller oilcompanies are in dire straits, Pyle said, andinvestors should consider whether having money there is fiscally prudent.

But the largercompanies aren't going to simply vanish, he said.

"At some pointoil prices will stabilize," Pyle said. "This wouldprobably be one of theworst times to start dumping everythingout of your portfoliothat's energy"

LorneSteinberg, president ofLorneSteinbergWealth Management, said the recent market instability shouldn't sway investorsfrom stocks, considering the paltryreturns theywill receive from guaranteed investment certificatesandgovernment bonds.

"Even now you'll be losing ground by buyinggovernmentbonds. Ten-year Canadabonds yield less than two per cent. The inflation rate willprobablybe that in the next 12 monthswiththelow Canadiandollar," he said.

"So what are youralternatives? [You]can selleverythingtodayand put it in my bank. I don'tthinkyou get more than half a percent on daily money, five-year GICnot more thantwopercent."

The reality, he said,is the only prudent wayto successfully investor operateisto have a diversified portfolio. And investorsneed to stop looking at their stock portfolio "27 times a day and understand that what they're really doing is owning a collection of businesses."

"If you own strong companies at the rightprice you should do pretty well over time," he said. "If the company is doing well the stock price will catch up over time. Ifthe company is not doingwell then [you]need to re-evaluateif [you]wantto hold on to that company."