After a significant rally in the markets last week, announcements of government stimulus and central bank intervention many are feeling more optimistic about the economy and equity markets. I don’t want to rain on your parade, but we have a long way to go with this COVID-19 pandemic. Economically speaking things are likely to get worse before they get better.
Photo Source: Danske Bank, Posted on WSJ; The Daily Shot 26-Mar-2020
Below are a few of the best investment tips I can provide in times like this:
Keep the faith.
No matter what the latest guest on the business network you’ve been watching says this is not the end of the world. There will be unemployment, there will be bankruptcies . . . most importantly . . . there will be a recovery.
Now's not the time.
How well your portfolio performs through this event is largely a product of the re-balancing activities over the past few years. If you let your equity weight grow and didn’t take profits this may be a gut wrenching ride. Don’t re-balance now, remember that feeling in the pit of your stomach and adjust your risk accordingly once we get through this.
Lean on low risk.
Lean on the low risk investments in your portfolio. Prudent portfolio construction means you should have at least a few years of income tucked away in lower risk investments. This is the time to use these holdings, leave your equities to recover before you sell them to re-balance or generate income.
Cash on the side lines?
Don’t jump in with two feet, you may feel like a hero doing this but given the uncertainty and plethora of bad news ahead this isn’t a smart move. If you get in at the bottom it’s luck, not skill. Walk it in, take you time over the coming weeks and months to move into the markets slowly, buy on dips.
Quality is key.
Pay particular attention to the liquidity and the balance sheet strength of the companies you choose to add to your portfolio.
It could get worse and it could last longer.
Be prepared for markets to go down further no matter when you get in. Be prepared to leave your funds invested longer. It could take years, not months. Have money sitting aside to buy a new car next year? Short term liquidity needs should always be held in low risk investments.
And finally . . .
Embrace this time with your family. With all this bad news and uncertainty this is probably the best piece of advice I can give, focus on the silver lining in this cloud! Last week I watched movies, played board games and shared a lot of laughs with my girls. When was the last time I got to do that?
If you are struggling with what to do or are worried about making a bad decision talk to a professional, we are here to help. We understand that in times like this with terms like recession, bankruptcy, record unemployment and depression being tossed around it is difficult to stay positive and stick to the plan. If ever, this is the time you need to stick to the plan.
Practice your physical distancing, wash your hands often and stay safe.