Investors advised to avoid panic

World financial markets continued on a roller-coaster ride this week, with gains made one day wiped out by sharp drops the next.

World financial markets continued on a roller-coaster ride this week, with gains made one day wiped out by sharp drops the next.

The downgrading of the U.S. government’s AAA credit rating to AA-plus by Standard & Poor’s, along with continued turmoil in the European markets, have some investors selling their stocks, fearing another recession. Others are buying, taking advantage of opportunities for a good deal.

Frank Allen, of Frank Allen Financial Group in Nanaimo, said if there is one piece of advice for investors, it would be to stay calm.

“From a money-manager’s perspective, the old adage ‘don’t panic’ really hasn’t changed,” he said. “If one is properly diversified in the first place and recognizes we go through this kind of crisis on a fairly regularly basis, they know eventually we will see markets come back.”

Allen said the financial picture in Europe is more of a concern than the downgrading of the U.S. credit rating.

“[Europe] has had people jittery for the last few months and will continue for sometime. Things are not going to be particularly rosy, but that doesn’t mean they are going to be ugly,” he said. “A lot of U.S. companies are doing very well worldwide and a lot of companies in Europe are doing well. It’s the European countries that are hurting.”

Shari Molchan, of Molchan Financial, hasn’t detected any panic from her clients and advises investors to get more involved in their finances.

“Education is key. People should know their numbers, know their risk tolerance,” she said. “So many people haven’t got a clue about their investments and those are the ones who are panicking.”

Allen said this period of financial instability is different from the recession of 2008.

“In 2008, credit was virtually wiped out. No one was lending to anybody and that isn’t happening today at all,” he said. “That doesn’t mean we can’t have an economic slowdown or recession, but in terms of the way the world was in 2008, I don’t see that today.”

Canada came through the last recession far better than the majority of countries in the world and Allen sees that trend continuing.

“From a going forward perspective, remember Canada, much like Australia, is dependent on resources. Rocks and trees is what we sell,” he said. “And as people need our rocks and trees, our economy will do better. In a lot of cases, people have had an incredibly good run in Canada for the last few years.”

Molchan said the best thing an investor can have is a backup plan.

“I don’t call it an emergency fund, I call it an opportunity fund,” she said. “It’s a fund to pay for a roof or pay for investments. Or, it’s a fund to help you get by.

“Have a long-term goal, because this is just a blip and it happens all the time.”