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Dale Jackson

Personal Finance Columnist, Payback Time


People tend to tune out in the summer but the markets never take a vacation. 

While you’re relaxing at the cottage, by the pool, or somewhere more exotic, there are some storm clouds in the distance this year that could shock your investment portfolio.

The CBOE Volatility Index, also known as the VIX or the fear gauge, has normally spiked between July and September over the past two decades and has been tweaking higher this year since a missile exchange between Israel and Iran in April. 

Adding to the tension in the Middle East is uncertainty over which direction the U.S. Federal Reserve will take on interest rates and an unconventional lead-up to November’s U.S. presidential election. 

And there are the usual summer trends that could amplify volatility; low trading volumes, the absence of hard financial data, and second-stringers on trading desks. 

Don’t let fear keep you out of the market

If you follow the old ‘sell in May and go away’ adage you could be missing out on portfolio growth. Equity market performance has been improving during the summer months over the past decade.

From 2018 to 2020 alone, the S&P 500 advanced an average of almost 7 per cent from the end of May to October. Last year the benchmark index jumped 10 per cent from the end of May to July.

In a recent note, Charles Schwab tells clients to look for upward movement in oil refiners and airlines ahead of the summer travel season.  

Set your portfolio, but don’t forget it

June 30 also marks the halfway point of 2024; a great chance to review your portfolio and make adjustments to keep it balanced and diversified.

Five per cent yields on guaranteed investment certificates (GICs) provide an opportunity to generate safe income while you chill out on the beach. Be sure to leave instructions to reinvest the cash if any fixed income is coming to maturity. Sitting in cash over the summer is dead money.

Be sure your dividend payouts are also being reinvested. Most major stock issuers, mutual funds and exchange-traded funds have dividend reinvestment programs or DRIPs.

Signing on for a DRIP automatically invests payouts in more company shares, which generate their own dividends, at no extra cost to the investor.

Buckle up with stop-losses

Placing “stops” on stocks during the summer can lock in gains if they rise in value and limit losses if they plunge.

A basic “stop-loss” is a pre-set price below the current price of a stock you own that will trigger a sell order if it falls to that level. For example, if a stock purchased at $10 has a stop-loss placed at $8, losses will be capped at $2 per share.

A “trailing-stop” automatically resets the stop as the stock rises. In other words, if a stock rises the trigger to sell automatically moves up in proportion to the real-time price, like a moving stop-loss. In addition to locking in gains, a trailing stop locks in bigger gains as the stock rises.

Don’t set them too close to the trading price or they could be triggered by volatility unrelated to the specific security. In addition to losing a potentially lucrative position, investors could rack up unwanted trading fees.

With most brokerages, the cost of utilizing conditional orders is included in the trading fee, so there is no extra charge for the investor. Many even offer online tutorials on how to effectively use them.

Be reachable for the unthinkable 

Make sure your contacts are up-to-date with your advisor and check your messages at least once each trading day.

If you don’t have an advisor, or just want to be a little more connected, set up alerts on your trading accounts. The good platforms have a wide variety of filter options that can alert you when the stocks you own have big moves, or company news that could make them move.