Making investment decisions when the headlines feel unsettled

You open the news and find another reason to be cautious. Borrowing costs are rising. Energy is more expensive. A conflict overseas threatens to reach further into everyday life. Then you look at the market and wonder how share prices can remain so close to their highs.

Perhaps you have money waiting to be invested. Perhaps retirement is approaching, and you are thinking about protecting what you have built. Either way, the thought is understandable: would it be better to wait until things settle down?

The difficulty is deciding what settled would look like. There will always be something unresolved. A financial plan needs to give you a way to make decisions while those questions remain open.

Despite higher oil prices, rising bond yields and tighter monetary policy, currently the S&P 500 is less than 1% below its August 13th record high as of September 22nd. The US economy has continued to be resilient and corporate earnings continue to be healthy and growing.

That resilience deserves attention. Understanding it begins with remembering what you own when you invest in shares of the great companies of today: a claim on a business and its future profits. The news matters because of what it might change about those profits in the future, and about the price investors are willing to pay for them.

A company can face higher costs and still earn more if demand for its products remains strong. A difficult outcome can also be less damaging than investors expected. Prices reflect expectations, so an alarming development does not automatically produce an equally alarming market response.

This helps explain why following the news closely can still leave you surprised by your portfolio. Identifying a problem is only part of the work. You also need to understand its likely effect, how long it may last and how much concern is already reflected in prices.

Higher interest rates offer a useful example. Their impact depends partly on who needs to borrow and when. A business with fixed borrowing costs for several more years faces a different situation from one that must refinance next month. The same increase in rates can reach different balance sheets at very different times.

Energy prices require similar care. A brief increase and a prolonged period of higher costs can have very different consequences for household spending and business profits. Lower energy intensity and the relatively small share of household income spent on gasoline entering the year have acted as buffers against the shock of higher energy prices.

None of this makes higher rates or expensive energy harmless. The effects can build over time. Strong earnings can weaken, and investors can discover that they were too optimistic. A market holding near its highs tells us how investors have responded so far. It cannot promise what happens next.

That is why I would be careful about turning this discussion into a reason to take on more risk in your portfolio. The useful question is what your own finances can support through a range of outcomes.

Consider two families with the same investment balance. One expects to use a substantial portion for a home purchase next year. The other is saving for retirement twenty years away. They can read the same economic news and reasonably make different decisions. Their money has different responsibilities.

Begin with those responsibilities. What will you need to withdraw, and when? How much flexibility do you have if markets decline? Would a difficult year force you to sell investments to meet expenses? The answers help determine how much belongs in cash and other more stable holdings, and how much can remain invested for longer-term growth.

Then review whether your portfolio still fits. A strong market may have increased your exposure to equities beyond the level you intended. Rebalancing can restore that balance without requiring a forecast. A change in your income, spending or retirement date may also justify an adjustment. Those are concrete reasons to revisit a plan.

If you are waiting to invest because the news feels unsettling, be specific about what would change your mind. Lower prices may arrive alongside worse headlines. Better news may arrive after prices have already risen. Without a clear decision process, waiting can become an open-ended position of its own.

You do not need to feel comfortable with every headline to make a considered decision. You do need to understand the risks you are taking and how they fit the life your money is meant to support.

You worked hard to build this wealth. Give it a plan that leaves room for uncertainty, with enough stability for the commitments ahead and enough patience for the goals that will take time.

Jesse Ogloff, B.Comm, PFP, CFP, CIM, CFDS

Associate Wealth Advisor / Associate Portfolio Manager

CIBC Wood Gundy

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