Who’s afraid of the big, bad bull market?
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- The S&P 500 has risen 63% over the past three years and the Canadian market is up 71% over the same period, with a 20% bear market still leaving three-year returns above the 30-year average.
- Author Anita Bruinsma argues investors should reframe a correction as giving back outsized gains rather than losing money — historical returns would have meant roughly 28% U.S. and 22% Canadian growth over three years instead.
- Bruinsma recommends pre-calculating the dollar amount of potential losses to avoid panic, noting a 20% decline on a $300,000 RRSP would mean a $60,000 drop to $240,000.
- Portfolio allocation guidance specifies that money needed within three years should sit in cash-like investments, while 4-6 year money can be split between stocks and bonds.
- RESP accounts should hold some cash if the beneficiary is heading to postsecondary school in two to three years, and retirees should keep two to three years of withdrawals in safe assets like GICs or bond ETFs.
- Bruinsma identifies the irony that a long bull market itself generates anxiety, as investors fixate on when the correction will come rather than enjoying the gains.
Why it matters: Investors fixating on a correction may panic-sell at the worst time; the piece argues a 20% drop would still leave three-year returns above the 30-year average, and that pre-calculating dollar losses and aligning asset allocation with time horizon is the antidote to emotional decision-making.
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