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Updated 2mo ago.
Updated 2mo ago.
A recession is a significant decline in economic activity lasting at least several months. In Canada, it is generally defined as two consecutive quarters of declining GDP. Recessions typically bring job losses, falling corporate profits, and declining stock markets.
The last major recession in Canada was caused by the COVID-19 pandemic in 2020. The S&P/TSX fell more than 30% in just a few weeks. Yet an investor holding XIU.TO who did not sell would have recovered all losses in less than a year. Recessions are painful but historically temporary.
Recessions are the biggest psychological test for an investor. Knowing they are normal (there has been roughly one per decade in Canada) helps you stay the course. Investors who keep investing regularly during a recession (in a TFSA or RRSP) buy ETFs at a discount, which improves their long-term returns.