Riding Out Market Volatility
Increased interest rates to bring down inflation and Russia’s invasion of Ukraine are both lowering the prospect of economic growth. Markets are reacting - yet it is important to remember that such periods are normal during times of economic uncertainty.
ONE Investments’ Chief Investment Officer Keith Taylor reminds investors that municipalities are investing for the long-term. The gyrations in quarter-to-quarter values are less relevant than the returns over a long-term investment horizon.
A Balanced Portfolio is Key
It’s a good time to review the investment portfolio to make sure you have a balance of both equity and fixed income holdings. A well-diversified portfolio reduces risk and guards against a rainy day. It includes bonds to help reduce volatility, as well as equities, which provide potential for significant growth over the long-term.
Keep Eye on Long-Term Goals
While short-term financial markets are hard to predict, it is easier to generalize about long-term returns. Over the long term, bond returns should match or slightly exceed the inflation rate and equity returns typically will tend to be much higher.
That is why it is critical to have a long-term an investment plan that provides an investment mix based on unique needs and circumstances of the municipality. Unless these change, it is best to look past current circumstances and keep your investment plan steady.
Talking to Council
Communicating market volatility to Council can be a challenge, depending on the knowledge level or mood of members. Sandra Zwiers, Essex County’s Director of Finance/Treasurer, says there are three key things to remember when presenting results:
- Focus on the big picture. Emphasize markets and economic indicators over specific year or quarter results. It’s important that Council see how the portfolio performed in the context of U.S. and Canadian stock indices and other benchmarks.
- Remind Council of the long-term strategy and asset management plan. The best way to achieve investment goals is to stick to the plan and not get distracted by short-term ups and downs. Whether presenting annual results or as part of the budgeting planning, emphasize the long-term plan.
- Speak with confidence and show trust in the process. Long-term market stats bear out that the only way to maximize returns is to have a strong diversified portfolio and then to stick with it. You can gain confidence by staying informed and leveraging the expertise and resources at ONE Investments, including staff and newsletters. If you get a question that you can’t answer, remember it is okay to take it away and get back to Council.
Investment Advisory Services
ONE Investment’s advisory team provides investment expertise and municipal finance experience to help investors and interested municipalities. The team helps municipalities through each step of translating asset management plans into a financial strategy to fund the plan and set up investments.