This week’s guest blog comes from the Alberta Securities Commission’s CheckFirst.ca
Over the last few years, inflation and the rising cost of living, stagnant wages, and seemingly unattainable housing prices have created a perfect storm of financial stress worldwide, including for many Canadians. These pressures have sparked a growing wave of financial anxiety for many. This anxiety has led many to question whether traditional financial advice still applies, or if planning for the future is even worthwhile.
But despite these challenges, it’s crucial to remember that thoughtful steps and an understanding of how markets work can help you build a more positive outlook toward your finances. This Financial Literacy Month, consider the theme “Money on Your Mind: Talk About It!”, and use this month to rethink your relationship with money. Instead of feeling financially nihilistic or overwhelmed, enhance your financial literacy and set clear, achievable goals that will empower you to make confident choices that support your future.
Learn how market cycles work
One of the most important and basic things to understand is how markets behave over time. The saying “what goes up must come down” has a parallel in economics — all markets go through boom-and-bust cycles. In a free market economy, like ours, the cycles are integral to the system. The downturns or the dips in the market are natural and should be expected throughout your investing journey. Downturns allow the market to self-correct, adjusting the values of companies and sectors based on financial performance, economic conditions like interest rates and future growth potential. Although these dips can be unsettling, history shows that downturns are temporary, typically lasting between 12 to 48 months. Ultimately, the free market rewards innovation, patience and strong business fundamentals, eventually leading to new periods of growth.
When thinking of an economic dip, many might recall the dot-com bubble of the 1990s, which wiped out $5 trillion in Nasdaq value, or the 2008 financial crisis, the most severe downturn since the Great Depression. Yet, these weren’t permanent slumps. The post-downturn markets didn’t just recover. The rebound was significant; within a decade of the 2008 crisis, the S&P 500 returned approximately 450 per cent, including dividends. Recognizing this market resilience can help you stay steady through challenging times and mitigate the urge to rush into emotional, short-term decisions.
Categorize your financial goals
In times of financial stress, goals — whether going on vacation, retirement, or helping your children with a downpayment for their first home — can feel unattainable. For many, this sense of hopelessness fuels a “nothing to lose” mentality, which can lead people to take on excessive risk, or choose investments that don’t align with their actual goals. The rise of meme stocks is a recent example of this trend. In 2021, the CEO of the UK’s Financial Conduct Authority (FCA) observed that younger investors increasingly viewed investments as entertainment that drove them to invest in speculative assets with little or no underlying company fundamentals.
To regain control over your finances and create a sense of progress, organizing your financial goals into time-based categories — such as short-term, medium-term, and long-term — can make them feel more achievable. This approach can also help you match each goal with the right investment option, giving you a clear roadmap and reducing the impulse to make emotional choices.
An effective strategy could be to break down long-term goals into smaller, more achievable milestones. With this approach, each milestone builds on the last, creating momentum and a structured path toward your larger objectives.
Evaluate your financial information sources
The digital age has transformed how we consume financial information. A Canadian Securities Administrators Investor Index survey found that 53 per cent of Canadians use social media for investment information. Among investors aged 18-24, this number jumps to 82 per cent, with YouTube, Instagram, and TikTok leading the way.
While social media has made access to financial information easier, these platforms are programmed to prioritize content over sound financial analysis. Algorithms are programmed to act as echo chambers, amplifying users’ beliefs by presenting similar content repeatedly. This can lead to biased views or could further feed into existing financial anxieties.
Take time to critically evaluate the credibility and qualifications of the individual offering you financial advice. Focusing on reliable, unbiased information will help you build a more balanced and nuanced outlook on your financial future. Remember, social media often portrays an idealised version of real life, which can create an unhealthy sense of FOMO (Fear of Missing Out).
Financial Literacy Month is the perfect opportunity to develop a healthy relationship with your money. Starting with the basics and understanding the fundamentals can empower you to shift from financial nihilism to a more confident mindset—understanding that while you may not control the market, you can control your approach to it.
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David Popowich and Faisal Karmali are Investment Advisors with CIBC Wood Gundy in Calgary. The views of David Popowich, Faisal Karmali, and guest authors do not necessarily reflect those of CIBC World Markets Inc. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. The commentary is for informational purposes only and is not being provided in the context of an offering of any security, sector, or financial instrument, and is not a recommendation or solicitation to buy, hold or sell any security. CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.
