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5 Things You Need to Know to Ride Out a Volatile Stock Market 1 “The market seems to be up one day and down the next. I’d rather wait before investing.” WATCHING FROM THE SIDELINES MAY COST YOU When markets become volatile, a lot of people try to guess when stocks will bottom out. In the m eantime, they often park their investments in cash. But just as many investors are slow to recognize a retreating stock market, many also fail to see an upward trend in the market until after they have missed opportunities for gains. Missing out on these opportunities can take a big bite out of your returns. Consider that in the 12 months following the end of a bear market, a fully invested stock portfolio had an average total return of 37.4%. However, if an investor missed the first six months of the recovery by holding cash, their return would have been only 7.5%.1 The table below is a hypothetical illustration showing the risk of trying to time the m arket. By m issing just a few of the stock market’s best single-day advances, you could put a real crimp in your potential returns. Jumping In and Out of the Market May Cost You 20 Years Ended December 31, 2015 Period of Investment Average Annual Total Return of S&P/TSX Composite Index2 Stayed Fully Invested 7.63% Missed the 10 Best Days 4.38% Missed the 20 Best Days 2.29% Missed the 30 Best Days 0.41% Missed the 40 Best Days -1.24% This table is for illustrative purposes only. 1. Source: © 2016 Ned Davis Research Group, Inc. Ned Davis Research defines a bear market as a 30% drop in the Dow Jones Industrial Average after 50 calendar days or a 13% decline after 145 calendar days. Reversals of 30% in the Value Line Geometric Index also qualify. As of 12/31/15, 28 bear markets were analyzed from 9/3/29 through 10/3/11. For illustrative purposes only. Indexes are unmanaged, and one cannot invest directly in an index. 2. Source: Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. “I wonder if I should be more diversified.” “It’s hard to invest when stocks are this volatile.” 2 3 DOLLAR-COST AVERAGING MAKES IT EASIER TO COPE WITH VOLATILITY Most people are quick to agree that volatile markets m ay present buying opportunities for investors with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult. You can’t help wondering, “Is this really the right time to buy?” Dollar-cost averaging can help reduce anxiety about the investment process. Simply put, dollar-cost averaging is committing a fixed amount of money at regular intervals to an investment. You buy more shares when prices are low and fewer shares when prices are high, and over time, your average cost per share may be less than the average price per share. Dollar-cost averaging involves a continuous, disciplined investment in fund shares, regardless of fluctuating price levels. Investors should consider their financial ability to continue purchases through periods of low price levels or changing economic conditions. Such a plan does not guarantee a profit or eliminate risk, nor does it protect against loss in a declining market. NOW MAY BE A GREAT TIME FOR A PORTFOLIO CHECKUP Is your portfolio as diversified as you think it is? Meet with your financial advisor to find out. Your portfolio’s weightings in different asset classes may shift over time as one investment performs better or worse than another. Together with your advisor, you can re-examine your portfolio to see if you are properly diversified. You can also determine whether your current portfolio mix is still a suitable match with your goals and risk tolerance. For more information on diversification, obtain a copy of Franklin Templeton’s Why Diversify? Flyer. Dollar-Cost Averaging at Work Month Monthly Investment Amount Share Price Why Diversify? Because Winners Rotate. Shares Purchased Each Month ANNUAL RETURNS OF KEY ASSET CLASSES RANKED IN ORDER OF PERFORMANCE FROM BEST TO WORST (CDN$) 1996 January February March April May June Total $500 $500 $500 $500 $500 $500 $3,000 $9.00 $10.00 $8.00 $11.75 $12.25 $9.00 $60.00 55.6 Best 50.0 62.5 42.6 40.8 55.6 307.1 Worst 1997 1998 2011 2012 BRIC EQUITIES U.S. LARGE CAPS EUROPEAN EQUITIES BRIC EQUITIES U.S. BONDS U.S. BONDS GLOBAL BONDS BRIC EQUITIES EMERGING MARKETS EQUITIES BRIC EQUITIES BRIC EQUITIES BRIC EQUITIES U.S. BONDS CANADIAN SMALL CAPS CANADIAN SMALL CAPS U.S. BONDS EUROPEAN EQUITIES U.S. SMALL CAPS U.S. LARGE CAPS U.S. LARGE CAPS 33.09% 39.24% 38.36% 72.10% 15.52% 15.25% 15.32% 56.81% 16.78% 40.84% 56.01% 34.90% 31.64% 75.10% 38.53% 10.51% 17.27% 48.14% 23.93% 21.59% CANADIAN LARGE CAPS BRIC EQUITIES U.S. LARGE CAPS EMERGING MARKETS EQUITIES 1999 CANADIAN BONDS 2000 GLOBAL HIGH YIELD BONDS 2001 U.S. BONDS 2002 CANADIAN SMALL CAPS 2003 GLOBAL SMALL CAPS 2004 EMERGING MARKETS EQUITIES 2005 EUROPEAN EQUITIES 2006 EMERGING MARKETS EQUITIES 2007 GLOBAL BONDS 2008 BRIC EQUITIES 2009 2010 U.S. SMALL CAPS CANADIAN BONDS EMERGING MARKETS EQUITIES 2013 U.S. LARGE CAPS U.S. BONDS 2014 U.S. BONDS 2015 31.53% 37.08% 38.01% 57.23% 10.24% 12.44% 9.12% 42.74% 15.17% 31.17% 33.84% 18.59% 31.07% 64.34% 20.24% 9.67% 16.00% 41.27% 15.52% 20.59% CANADIAN SMALL CAPS EUROPEAN EQUITIES GLOBAL EQUITIES CANADIAN LARGE CAPS CANADIAN LARGE CAPS U.S. SMALL CAPS CANADIAN BONDS EMERGING MARKETS EQUITIES CANADIAN SMALL CAPS CANADIAN LARGE CAPS EMERGING MARKETS EQUITIES CANADIAN LARGE CAPS CANADIAN BONDS EMERGING MARKETS EQUITIES GLOBAL SMALL CAPS GLOBAL BONDS GLOBAL SMALL CAPS GLOBAL SMALL CAPS GLOBAL EQUITIES GLOBAL EQUITIES 28.66% 29.67% 33.94% 34.21% 7.99% 8.92% 8.73% 27.83% 14.12% 26.29% 32.05% 11.14% 6.42% 52.03% 20.10% 8.26% 16.00% 37.84% 15.01% 19.55% U.S. LARGE CAPS U.S. SMALL CAPS FOREIGN EQUITIES GLOBAL SMALL CAPS CANADIAN SMALL CAPS CANADIAN BONDS GLOBAL HIGH YIELD BONDS CANADIAN LARGE CAPS CANADIAN LARGE CAPS CANADIAN SMALL CAPS FOREIGN EQUITIES CANADIAN BONDS GLOBAL HIGH YIELD BONDS CANADIAN LARGE CAPS CANADIAN LARGE CAPS GLOBAL HIGH YIELD BONDS FOREIGN EQUITIES GLOBAL EQUITIES U.S. SMALL CAPS FOREIGN EQUITIES 23.57% 27.75% 29.16% 22.64% 7.31% 8.08% 2.04% 25.51% 13.84% 19.68% 26.37% 3.68% -7.65% 31.94% 13.84% 8.08% 15.29% 35.91% 14.35% 19.46% EUROPEAN EQUITIES GLOBAL EQUITIES GLOBAL BONDS CANADIAN SMALL CAPS GLOBAL BONDS CANADIAN SMALL CAPS GLOBAL SMALL CAPS EUROPEAN EQUITIES GLOBAL SMALL CAPS GLOBAL SMALL CAPS CANADIAN SMALL CAPS U.S. SMALL CAPS GLOBAL HIGH YIELD BONDS EMERGING MARKETS EQUITIES U.S. LARGE CAPS GLOBAL EQUITIES EUROPEAN EQUITIES CANADIAN LARGE CAPS 22.17% 21.35% 22.04% 20.29% 6.78% 7.95% -0.93% 23.75% 12.55% 13.01% 20.92% 2.01% -17.18% 30.97% 12.98% 4.64% 13.96% 34.41% 12.27% 19.18% U.S. SMALL CAPS CANADIAN LARGE CAPS U.S. BONDS FOREIGN EQUITIES U.S. SMALL CAPS EMERGING MARKETS EQUITIES GLOBAL BONDS EMERGING MARKETS EQUITIES U.S. SMALL CAPS FOREIGN EQUITIES FOREIGN EQUITIES GLOBAL EQUITIES EUROPEAN EQUITIES U.S. LARGE CAPS GLOBAL SMALL CAPS U.S. LARGE CAPS U.S. SMALL CAPS U.S. SMALL CAPS FOREIGN EQUITIES GLOBAL SMALL CAPS EUROPEAN EQUITIES GLOBAL SMALL CAPS 17.08% 19.95% 16.66% 20.28% 0.37% 3.76% -6.97% 20.45% 11.91% 11.16% 20.19% -2.98% -21.20% 28.49% 9.06% -1.80% 13.77% 31.57% 11.41% 17.12% GLOBAL EQUITIES GLOBAL HIGH YIELD BONDS GLOBAL SMALL CAPS GLOBAL EQUITIES GLOBAL HIGH YIELD BONDS CANADIAN SMALL CAPS GLOBAL SMALL CAPS FOREIGN EQUITIES U.S. SMALL CAPS GLOBAL EQUITIES CANADIAN LARGE CAPS FOREIGN EQUITIES GLOBAL EQUITIES EUROPEAN EQUITIES GLOBAL HIGH YIELD BONDS GLOBAL EQUITIES U.S. LARGE CAPS GLOBAL HIGH YIELD BONDS GLOBAL HIGH YIELD BONDS GLOBAL BONDS 14.57% 17.59% 9.82% 18.44% -1.90% 3.44% -12.37% 13.84% 9.71% 7.27% 19.16% -5.32% -25.37% 16.18% 8.45% -2.67% 13.43% 14.75% 11.04% 16.15% GLOBAL HIGH YIELD BONDS U.S. BONDS CANADIAN BONDS U.S. SMALL CAPS EUROPEAN EQUITIES GLOBAL SMALL CAPS BRIC EQUITIES EUROPEAN EQUITIES BRIC EQUITIES EUROPEAN EQUITIES U.S. SMALL CAPS GLOBAL EQUITIES FOREIGN EQUITIES FOREIGN EQUITIES CANADIAN BONDS EUROPEAN EQUITIES BRIC EQUITIES CANADIAN LARGE CAPS GLOBAL BONDS U.S. SMALL CAPS 12.98% 14.48% 9.18% 14.58% -4.93% -0.49% -13.52% 13.82% 8.59% 7.18% 17.92% -7.08% -28.78% 12.49% 6.74% -8.29% 12.34% 13.26% 9.65% 14.64% CANADIAN BONDS CANADIAN BONDS GLOBAL HIGH YIELD BONDS U.S. LARGE CAPS U.S. LARGE CAPS U.S. LARGE CAPS CANADIAN LARGE CAPS GLOBAL EQUITIES CANADIAN BONDS CANADIAN BONDS CANADIAN SMALL CAPS GLOBAL BONDS GLOBAL SMALL CAPS GLOBAL EQUITIES GLOBAL EQUITIES GLOBAL SMALL CAPS GLOBAL HIGH YIELD BONDS CANADIAN SMALL CAPS CANADIAN BONDS GLOBAL HIGH YIELD BONDS 12.26% 9.63% 7.96% 14.37% -5.93% -6.35% -14.00% 9.41% 7.15% 6.46% 16.64% -7.15% -29.23% 11.07% 6.48% -8.75% 12.17% 7.76% 8.79% 14.02% GLOBAL SMALL CAPS GLOBAL BONDS U.S. SMALL CAPS EUROPEAN EQUITIES GLOBAL SMALL CAPS BRIC EQUITIES FOREIGN EQUITIES CANADIAN BONDS GLOBAL EQUITIES U.S. LARGE CAPS U.S. LARGE CAPS GLOBAL SMALL CAPS CANADIAN LARGE CAPS U.S. SMALL CAPS BRIC EQUITIES CANADIAN LARGE CAPS CANADIAN LARGE CAPS U.S. BONDS EMERGING MARKETS EQUITIES BRIC EQUITIES 8.55% 8.35% 4.60% 9.82% -7.01% -8.62% -16.53% 6.69% 6.85% 2.29% 15.35% -9.09% -31.17% 8.00% 4.05% -9.08% 8.07% 4.55% 7.03% 4.04% FOREIGN EQUITIES CANADIAN SMALL CAPS CANADIAN LARGE CAPS CANADIAN BONDS GLOBAL EQUITIES GLOBAL EQUITIES EUROPEAN EQUITIES U.S. LARGE CAPS GLOBAL HIGH YIELD BONDS U.S. SMALL CAPS GLOBAL HIGH YIELD BONDS U.S. BONDS EUROPEAN EQUITIES U.S. LARGE CAPS FOREIGN EQUITIES FOREIGN EQUITIES CANADIAN BONDS EMERGING MARKETS EQUITIES BRIC EQUITIES CANADIAN BONDS 6.89% 6.97% 1.37% -1.14% -9.88% -11.28% -18.94% EMERGING MARKETS EQUITIES FOREIGN EQUITIES CANADIAN SMALL CAPS GLOBAL HIGH YIELD BONDS FOREIGN EQUITIES EUROPEAN EQUITIES 6.56% 6.56% -17.90% -2.41% GLOBAL BONDS GLOBAL SMALL CAPS EMERGING MARKET EQUITIES U.S. BONDS 5.43% 2.98% -19.86% -6.28% U.S. BONDS EMERGING MARKETS EQUITIES BRIC EQUITIES GLOBAL BONDS 4.15% -7.69% GLOBAL EQUITIES -10.95% -14.59% -20.37% BRIC EQUITIES CANADIAN LARGE CAPS U.S. SMALL CAPS -18.48% -14.82% -21.31% EMERGING MARKETS EQUITIES FOREIGN EQUITIES U.S. LARGE CAPS 5.26% 3.80% 1.94% 11.49% -9.28% -32.55% 7.39% 2.56% -9.55% 3.60% 4.29% 6.22% 3.52% GLOBAL HIGH YIELD BONDS U.S. LARGE CAPS U.S. BONDS GLOBAL BONDS U.S. LARGE CAPS EMERGING MARKETS EQUITIES CANADIAN BONDS U.S. BONDS CANADIAN SMALL CAPS CANADIAN SMALL CAPS GLOBAL BONDS FOREIGN EQUITIES EMERGING MARKETS EQUITIES 4.65% 2.81% -0.14% 6.23% -10.53% -41.44% 5.41% 0.98% -14.17% 2.46% 3.94% 4.12% 2.42% GLOBAL BONDS GLOBAL BONDS GLOBAL HIGH YIELD BONDS CANADIAN BONDS GLOBAL HIGH YIELD BONDS GLOBAL BONDS GLOBAL BONDS EMERGING MARKETS EQUITIES GLOBAL BONDS BRIC EQUITIES EUROPEAN EQUITIES CANADIAN LARGE CAPS -7.97% 1.31% -0.30% 4.06% -12.94% -46.61% -9.19% 0.04% -16.15% 2.01% 3.24% 2.82% -7.76% U.S. BONDS U.S. BONDS GLOBAL BONDS U.S. BONDS U.S. BONDS EUROPEAN EQUITIES BRIC EQUITIES U.S. BONDS CANADIAN BONDS CANADIAN SMALL CAPS CANADIAN SMALL CAPS -3.26% -6.88% 3.94% -20.76% 1.91% -1.19% -0.09% -13.75% -40.34% -10.40% -28.19% -16.26% -22.91% -14.84% © 2016 Franklin Templeton Investments Corp. All rights reserved. U.S. SMALL CAPS CANADIAN SMALL CAPS BRIC EQUITIES -16.52% -49.14% -10.04% -0.96% Source: Morningstar Research Inc., December 31, 2015. Canadian Large Caps S&P/TSX 60 TRI Canadian Small Caps BMO Nesbitt Burns Small Cap TRI U.S. Large Caps S&P 500 TRI U.S. Small Caps Russell 2000 TRI Global Equities MSCI World GRI Global Small Caps MSCI ACWI Small GRI Foreign Equities MSCI EAFE GRI European Equities MSCI Europe GRI Emerging Markets Equities MSCI EM GRI BRIC Equities MSCI BRIC GRI Canadian Bonds FTSE TMX Canada Universe Bond Index† U.S. Bonds Barclays U.S. Aggregate Bond TRI Global Bonds Barclays Global Aggregate Bond TRI Global High Yield Bonds Credit Suisse First Boston High Yield Return Index Average Share Price: $10.00 ($60.00/6 purchases) Average Share Cost: $9.77 ($3,000/307.1) The average cost of your shares would be $0.23 less than the average price of your shares over that period. Figures are for illustrative purposes only. To learn more about dollar-cost averaging, visit franklintempleton.ca and search “Dollar-Cost Averaging”. 2 5 Things You Need to Know to Ride Out a Volatile Stock Market franklintempleton.ca “With so many opinions about the market, I don’t know who to listen to.” 4 “We’re sticking to our long-term investment plan.” 5 TUNE OUT THE NOISE AND GAIN A LONGER-TERM PERSPECTIVE Numerous television stations, websites and social media channels are dedicated to reporting investment news 24 hours a day, seven days a week. What’s more, there are almost too many financial p ublications to count. While the media p rovides a valuable service, they typically offer a very short-term outlook. To put your own investment plan in a longer-term perspective and bolster your confidence, you may want to look at how different types of p ortfolios have performed over time. Hypothetical Performance of Asset Allocation Portfolios 12/31/95–12/31/153 Growth of a $10,000 Investment Average Annual Total Return 100% Stocks $40,012 80% Stocks | 20% Bonds 1-YEAR CUMULATIVE RETURNS (%) Best Worst 7.18% 37.77 -33.17 $39,759 7.14% 33.34 -26.71 60% Stocks | 40% Bonds $39,012 7.04% 29.02 -19.78 40% Stocks | 40% Bonds | 20% Cash $33,003 6.15% 21.90 -12.55 20% Stocks | 60% Bonds | 20% Cash $31,610 5.92% 17.88 -4.63 BELIEVE YOUR BELIEFS AND DOUBT YOUR DOUBTS There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to these fundamental beliefs is sometimes easier said than done. When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short‑term moves that divert you from your long-term goals. To keep a balanced perspective, we recommend that you contact your financial advisor before making any changes to your portfolio. The hypothetical asset allocation portfolios shown above are for illustrative purposes only. They do not represent the past or future portfolio composition or performance of any Franklin Templeton fund and are not intended as investment advice. We suggest working with your financial advisor to see which allocation opportunities may be right for you. To obtain copies of any literature, please visit franklintempleton.ca, contact your financial advisor or call Franklin Templeton Investments at (800) 387-0830. 3. Source: © 2016 Morningstar, Inc., 12/31/15. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance does not guarantee future results. Stock investments are represented by equal investments in the S&P/TSX Composite TRI, S&P 500 TRI, and MSCI EAFE Index, representing Canadian stocks, U.S. stocks, and foreign stocks, respectively. Bonds are represented by the FTSE TMX Canada Universe Bond Index. Cash equivalents are represented by the FTSE TMX Canada 91 Days Treasury Bill Index. Portfolios are rebalanced annually. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. See franklintempletondatasources.com for additional data provider information. franklintempleton.ca 5 Things You Need to Know to Ride Out a Volatile Stock Market 3 The Value of Professional Advice We believe investors can benefit from the expertise of a financial advisor who can help you define your goals and needs, then identify investments that meet your financial objectives. To invest in Franklin Templeton funds or to learn more about our offerings, please contact your financial advisor. A Few Words about Asset Allocation While asset allocation can be a valuable tool to help reduce volatility, all investments involve risk, including possible loss of principal. Typically, the more aggressive the investment or the greater the potential return, the more risk involved. Generally, investors should be comfortable with some fluctuation in the value of their investments, especially over the short term. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in a fund adjust to a rise in interest rates, that fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political or social instability; risks which are heightened in developing countries. Diversification does not guarantee a profit or protect against loss. A fund’s specific risks are described in greater detail in the prospectus. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Franklin Templeton Investments 5000 Yonge Street, Suite 900 Toronto, ON M2N 0A7 (800) 387-0830 franklintempleton.ca © 2016 Franklin Templeton Investments Corp. All rights reserved. GOFCA FL5VL 02/16
