There is no telling when we will see an end to the current pandemic. I suspect we may have cornered it but we must remain diligent with our hygiene, in our daily activities and personal preventive actions to maintain our safety while the world races to a vaccine.
I am not sure that I like to think in the context of post pandemic practices, but at some point we need to move on with our lives safely. The pandemic has created a sense of uncertainty and fear everywhere. Nations, people and economies are going through time times. Though economies have suffered bruises from other pandemics, no other pandemic in modern history has managed to leave a deeper scar on lives and economies than the current one.
The pandemic has also had a major impact on individual investment and portfolio management. People are selling in panic and most investors have now become risk averse. If your portfolio included a 50:50 balance of equity and fixed income assets before the coronavirus scare, post-pandemic it is certainly going to be 60-70% fixed income and 30-40% equity.
Like all pandemics, this too shall pass, but it will certainly impact your portfolio for a long time to come. The world will change in many ways post-pandemic; therefore you need to realign your investment portfolio to the changing reality. Here’s how.
Revisit your asset allocation
As mentioned above, due to the pandemic impact many investors have become risk averse and their portfolio is skewed more towards fixed income instruments. Even those who were faithful with their mutual or segregated fund (fund) investments are having second thoughts.
Post-pandemic, you should ensure that your investments are divided into three major asset groups with safety, income and growth in mind. You should invest in debt instruments and minimize your exposure in equities during this turmoil, but make sure that you are not sacrificing long-term returns at the cost of safety.
Revisit your portfolio after three months and speak to your advisor to discuss if you should increase equity exposure so that your portfolio is in sync with your investment goals, time horizon and risk profile. Remember to continue with your fund investment and take advantage of rupee cost averaging to acquire more fund units when NAVs are low at this time.
Review your risk profile
The pandemic had a massive impact on the net worth of many individuals. Whether you are running a business or a salaried person, the pandemic may have affected your net worth. It may have eroded your investments or your source of income may have dried, even though temporarily. Thus, it is important that you review your risk profile after life returns to normal because it will significantly impact your investment decisions.
Ensure proper diversification
You may be reallocating your portfolio for risk mitigation during and after the pandemic. However, it makes no sense if you have just one type of investment and a single type of bond in your portfolio. Diversification is not only about investing in different asset classes but different types of securities in each asset class.
For example, when you invest in debt instruments, make sure you are including different types of instruments such as debt funds, bonds, and corporate fixed deposits of varying maturity and good credit quality. While investing in equity, diversify your investments in different types of instruments which have diversified exposure to various market caps and sectors.
Cautious with equity selection
Your safest bet during this time is to leave the work of selecting stocks to your portfolio manager, investment advisor or wealth manager. If you are experienced enough to select stocks on your own, focus on strong diversified blue chip companies with strong fundamentals. Zero down on companies with low debt, good cash flow, and steady dividend payments.
However, be positive with your equity investment because the market will make a rebound in the near future as it has always done in the past.
Continue with your regular contributions
Remember to continue with your fund investment through the regular contributions established, prior to, or during the pandemic. This is the right time to take advantage of dollar cost averaging and acquire more fund units as the cost is low. Don’t panic and stop your contributions now.
This is also the right time to invest in bonds with high liquidity. If you purchase bonds now, it will help you tide over the market uncertainty and volatility that we will witness post the pandemic.
Finally, as any good certified financial planner or advisor will recommend, never invest or sell because of fear, greed or without knowledge even when you see a financial bloodbath all around. If you are not sure how to navigate the choppy water in these tough times, let Northern River Financial assist you with bespoke wealth management and investment solutions. With Northern River, you can take advantage of holistic and hand-picked investment opportunities, selected according to your investment goal, horizon and risk profile. Together we are Keeping Life Current.