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Solutions Spring / Summer 2009
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Strategies for Uncertain Times

From a financial perspective, the past year has been tough. Canadian investors experienced some of the worst conditions in the stock markets since 1973, when a spike in oil prices and high inflation hit the global economy. The proof is in the returns. As of February 27th, 2009, the S&P/TSX Composite Index had fallen in value by 46 per cent, the S&P 500 Index by 49 per cent and the MSCI World Index by 48 per cent from their 52-week highs.1 As a result of the global selloff, many investors are understandably concerned about their financial plans and are wondering what they should do next.

What’s Being Done?
number of economic commentators have compared this recession to the Great Depression of
the 1930s. However, governments around the globe are doing much more than they did then to ensure that this recession will be shorter and much less severe. Central banks from the world’s
leading economies are acting in a coordinated fashion to rebuild liquidity in the credit markets.
Interest rates have fallen to the lowest levels on record, which should encourage consumers and
businesses to spend once again. Many countries have also introduced massive, multi-year
stimulus packages designed to create jobs while investing in the infrastructure needed to spur
future economic growth.

What Can We Learn From History?
To make the best decisions regarding your financial future, it’s important to remain objective.
Gaining a better understanding of what happened after market selloffs in the past can help you
reach more informed conclusions on the best course of action today. A bear market is defined as a
prolonged period when the stock market declines by 20 per cent or more. The two left-hand columns in Figure 1 illustrate how frequently S&P/TSX market declines have occurred since 1983 and the percentage amount of each selloff. We’ve had 9 declines during this period and the percentage of each selloff has ranged from five to 45 per cent. Of these 9 declines, four were considered bear markets...

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