First of all, it’s important
to remember that stock markets go up and down. 2017 was a good year
for CSS members invested in the Plan’s Balanced and Equity Funds. However,
2018 showed us that markets can be unpredictable and that they can drop
significantly in short periods of time. So, it’s very important for investors
(i.e., CSS members) to expect some bumps in the road so that they are not lured
into making short-term, knee-jerk investment decisions when their investment
horizon is long.
What is currently going on to create the volatility in stock prices?
The current volatility in 2018 was likely caused by a host of things:
- The current bull market is quite
mature so investors were trading (i.e., selling) more in anticipation of
an end to the bull
- The trade war rhetoric that was
occurring amongst some of the world’s largest governments and economies was
causing anxiety amongst investors
- Several central banks were
raising interest rates that have been at historical lows since the
financial crisis in 2008
- The risk of global conflict
seemed to be rising amongst some of the world’s largest militaries
- Any number of other global and
geopolitical events that raised investor anxiety and caused them to trade
more
However, trying to
determine the source of the volatility is not the question we should be asking
ourselves as investors. Volatility in stock markets is normal so the more
important question to ask is whether our portfolios (our individual CSS
retirement investments) are properly positioned for our own personal circumstance
and long-term objectives.
For example, if a member
was planning to retire within the next couple of years or so, and they are
planning to purchase a traditional monthly pension with their accumulated
wealth held at CSS, it may be appropriate to ensure that their account holdings
at CSS are transitioned to more conservative investment funds (for example, perhaps
more exposure to bonds and money markets rather than equities) in the near term
to reduce the risk of a drop in stock markets significantly reducing the value
of the member’s holdings just prior to retirement.
On the other hand,
members with a long investment horizon will need to take on investment risk to
generate appropriate long-term rates of return on their investments (including
in retirement if not purchasing a traditional monthly pension with their
holdings). These members will need to drown out the short-term noise and
recognize that any volatility happening in the short-term is just part of the
normal investment cycle. Sticking to their long-term investment strategy
will best serve these members in achieving an appropriate nest egg to support
their retirement spending needs.
All that said, we
recognize that it is not easy watching your portfolio value fluctuate from one
day to the next due to volatility in the stock market. Emotions can be
tough to overcome, but they can lead us into making short-term investment
decisions that may be harmful in the long-term.
Members are encouraged to
review the investment decision-making information on our website. And, one of the benefits of being a member of CSS is access to our
Pension Plan Consultants should you have any questions about your CSS
investments or your retirement plans – feel free to contact us.
First published on June 13, 2018 and revised on January 16, 2019