It's impossible to avoid the headlines and that's made people nervous. All the recent volatility on world markets has some Canadians worried about their financial future.
In the past few weeks, stock exchanges have plunged and sometimes bounced back. China has devalued its currency several times. The Canadian dollar has hit an 11-year low. Greece is still deep in its debt crisis. And the Bank of Canada has already cut interest rates twice this year in an attempt to stimulate growth.
All this looks bad. But which Canadians are most at risk?
The first rule, the experts say, is not to be panicked by bad news headlines. Markets fluctuate, they point out, and this situation is no different. If a 10 per cent market drop in one week makes you want to sell everything, the experts say your risk tolerance is probably less than you think it is.
"I don't get too worried over what happens over a period of three to four weeks — I have a more long-term perspective," said Perry Sadorsky, an associate professor of economics at the Schulich School of Business in Toronto. "It's not a good situation but I'm not viewing it as something prolonged,"
But people who are up against an imminent deadline where they'll need to draw on savings, such as post-secondary school kids who need to withdraw money from their Registered Education Savings Plan (RESP), and people approaching retirement could be most affected by market downturns.
If you're facing a deadline — like looming school costs or retirement — advisers say it would be wise to become more conservative in your investment strategy so wild market swings don't upset your planned withdrawals.
Larry Berman is the chief investment officer and partner at ETF Capital Management in Toronto, where he specializes in portfolio management. Like many Canadians at this time of year, he is facing a financial deadline: his daughter is starting post-secondary education this fall. She recently took out money from an RESP to pay for her tuition and living costs.
"We carved that aside and said, 'Hey, that money shouldn't be at risk'. It's been in extremely low-risk investments," said Berman. "When that need becomes certain, it shouldn't be exposed to market risk," he added.
He said it's good to lock down money you will need in the not-too-distant future into a safe investment like a guaranteed investment certificate (GIC) at least a year in advance to protect yourself from market fluctuations.
Berman stresses that the more time you plan ahead for these big expenses, the better off you'll be in the future.
Waiting it out
The same logic applies to people approaching retirement. The longer a person has been saving, the better.
And if you don't urgently need to take out your savings, you can happily wait out a bit of market volatility.
"You have to ask yourself whether you have time to recoup your losses," said Sadorsky. "Any individual who has money in the stock market that now needs that money is not as well off as someone who can afford to wait until their portfolio regains its strength."
Cynthia Caskey is vice president and portfolio manager for TD Wealth's private investment advice. She said that the first few years of retirement can also be crucial in terms of setting the overall path. She said people should make sure their investment portfolio is balanced and diversified. That will help to ensure longer-term growth and minimize those day-to-day market jitters.
She used the analogy of buying a suit.
"As long as it's a quality suit — it's cut for you, you know it's going to last you, it's made with good quality fabric … then you can mix and match with accessories to keep it up to date," she said.
Vulnerable resource workers
There's one group of people who might be most severely affected by what we've seen in the markets — those who work in resource industries.
With a strong U.S. dollar, the prices of many commodities have taken a huge hit in the last year and many resource companies have started to cut spending and lay off workers.
"It's one thing to be worried about your investment portfolio, but another to be worried about your career," said Caskey.
She said Western Canada in particular is "crumbling hard and fast," even though it has been the engine for growth in Canada for years.
Having a rainy day fund can go a long way to staying afloat in the short term if the worst happens.
"If you're managing well and living within your means and have emergency funds in case of a job loss, you're not going to be as panicked as a person who is living on the edge," says Scott Hannah, the president and CEO of the Credit Counselling Society of Canada.
Most Canadians live paycheque to paycheque, he pointed out, while the average Canadian has between $25,000 and $40,000 in debt spread over seven different credit types, from credit cards to loans.
It comes as no surprise that many experts stress the need for financial literacy to be taught in schools.
"I would much rather see them drop calculus and functions in high school and have financial planning," said Berman.
Hannah added that as people get older, financial mistakes can have much more serious repercussions.
"It's one thing to make mistakes when you're young and lose a bit and have regret," said Hannah. "But if you're making a $10,000 or $20,000 mistake, that has a real impact on a person."