Up, down and sideways — that’s what a recovery looks like.

The market’s inherent instability in these challenging times goes against the grain. Investors like to see a slow and steady recovery. Unfortunately, that’s not the way markets work.

Equities markets bottomed out in early March and have recovered smartly in recent months. It has been an unsettling nail-biter along the way. By mid-June, the S&P/TSX composite index was up by about 40% in value, then it quickly shed 1,000 points. At the time of writing, the index is nearing 10,369 points, a 37% gain since March.

I am optimistic that the worst is behind us. The global economy has had its difficult surgery and has left the intensive-care ward. There’s a lot of evidence to suggest that the global economy is slowly recuperating.

Growth across Asia is accelerating, thanks to government stimulus spending and the likelihood that the worst of the U.S. credit crisis has passed. Copper, gold and oil prices have rebounded sharply on the improving outlook. The money supply is expanding. The world’s richest nations are upping the ante, committing more money to fight the financial crisis.

And in the U.S., President Barack Obama is seeing “glimmers of hope” in the economy. There are some strong data to back this up — U.S. jobless claims, retail sales, home sales and mortgage applications are all headed in the right direction. Recovering U.S. financial services firms are now paying back last fall’s emergency loans. Unfortunately, Canadians remain skeptical when it comes to investing, yet are largely unaware of the recent market recovery.

In July, Franklin Templeton Invest-ments Corp. had pollster Ipsos-Reid Corp. conduct some research on investor attitudes and knowledge. The survey found that 40% of Canadians describe themselves as timid or suspicious investors, up from 34% in February of this year. But few speak with knowledge about the investment climate. Half of those surveyed had no idea how the Toronto Stock Exchange had performed over the past five months.

It’s a conflict in investor confidence. Although markets are recovering, many investors are feeling anxious and uncertain. Only 28% describe themselves as opportunistic, analytical and risk-taking. It’s this camp of active and engaged investors that are most likely to have benefited from higher stock prices.

This climate of uncertainty represents a perfect opportunity for advisors to engage their clients. Now, more than ever, clients are relying on you for good counsel. They need some hand-holding and reassurance that they are on the right track to meet their long-term financial goals. I call it the “R” strategy:

> Re-evaluate your client’s investment policy statement and investment objectives. The odds are your clients are overweighted in fixed-income and below the necessary threshold in equities.

> Rebalance investments to reflect long-term goals. Cut adrift securities that no longer meet your client’s investing criteria. Some excellent blue-chip companies with solid balance sheets continue to trade at handsome discounts.

> And one final “R” — rebuild. It’s all about repositioning your clients to take advantage of the market recovery. For many investors, balanced funds are the best solution, neatly mixing the stability of fixed-income and the growth potential of equities.

To paraphrase Obama, we are seeing the first glimmers of recovery in this up, down and sideways market. The good news is starting to trickle out.

Once everyone is talking about the rebound, it will be too late. IE



Don Reed is president and CEO of Toronto-based Franklin Templeton Investments Corp.