The ink has barely dried on a post that I wrote just over one month back on how the stock market indices are hitting some significant milestones. Today, in the wake of economic worries following an earthquake, tsunami and nuclear accident, markets are in full retreat. The S&P 500 has thus far lost all the gains made in 2011 and the TSX Composite is barely positive for the year. As you might expect from its 22% exposure to Japanese stocks, the hardest hit so far is the MSCI EAFE Index, which is down approx 3.47% (in USD terms). Higher risk emerging markets are down 4.8% this year. The only bright spot has been bonds whose yields have been falling with investors seeking security in the face of market volatility.
There is no shortage of opinions on how the disaster in Japan will play out. Some suggest that we are in for a steep correction, while others opine that the bull market is still intact and a brave few are considering buying up Japanese stocks. In times like these, I always go back to the basics. Do I have enough set aside to weather a rainy day? Check. Do I have a portfolio that has an appropriate risk profile that would allow me to sleep well at night? Check. Is my asset allocation more or less on target? Check. That’s about the best we can do. Markets will fluctuate up and down. About this time last year, we were worried about Greece. We were not sure what the future will bring then and we finished the year with strong gains. The worries about Japan might turn out with a similar ending. Or not. Only time will tell.
