The Coronavirus pandemic has wreaked havoc on global markets in a way that no other phenomenon has in human history. From the very beginning, stocks crashed and soared on nearly a daily basis as the market tried to find its bottom. As the pandemic took root in North America, a mixture of government-mandated lockdowns and the closing of non-essential businesses put millions out of work, and caused many companies to shutter permanently.
The pandemic appears to have hit its apex, with new cases and deaths dropping significantly across North America. The CDC has now urged for a full re-opening in order to prevent an economic catastrophe, and things are gradually spinning back up to a semblance of normalcy. The question is, how will this affect your investments?
The COVID-19 outbreak is wholly unique in that we have no real economic precedent to compare it to. For all intents and purposes, it is an anomaly that nobody saw coming. The bad news is already self-evident in the toll it has taken on the global economy. The good news is that an economic recovery may be easier than we think. After all, the current economic climate wasn’t caused by any of the symptoms normally related with a cyclical recession. It was a singular wild card that forced the world to hit the PAUSE button. The fallout of such a move will be felt for at least a few years, but it’s not all doom and gloom.
Economic advisers and financial planners are actually advising most Canadians to stick with their current investment strategies, for the reasons mentioned above. Any stock portfolio will experience economic ups and downs, and the impact of Coronavirus is much the same – it has simply produced a bigger wave. Any investor’s natural instinct is to cash out on the first sign of trouble, but this might not be the right move in this particular case. After all, you can’t lose money on something you haven’t sold. Similarly, when stocks rally once more (as they have done several times in the last few weeks), it may end up costing you more in the long run.
A study by IG Investors Group hypothesized an investor who put $100,000 dollars into stocks that equaled the S&P 500 right at the beginning of 2006. They estimated that if the investor had stuck with their investment throughout the 2008 recession, their money would double within 10 years. If however, the investor pulled out and sold upon the first sign of trouble in 2008, they would have achieved only 14% of that tally over the same 10 year period.
Those with diversified portfolios will undoubtedly weather the rest of the COVID-19 storm (and the recovery period) better than those who did not, since overspecialization breeds weakness. The more diverse the portfolio, the more advantageous your options. The same holds true for those who would rather pursue fixed-income securities, as opposed to unpredictable stocks.
Similarly, if you’re an investor with money to spend during this current climate, consider yourself fortunate. You’re in a prime position to enter the market and buy low. Naturally, this comes with a few caveats, not the least of which is trying to determine the companies that will survive the pandemic and emerge to forge a path forward, rather than declare bankruptcy. This is a long-term strategy, as well. Short-term rewards may be a pipe dream, meaning those that wish to invest right now should do so while thinking about the future, not the present. A number of factors could send stock values plummeting, and this isn’t necessarily a sign of trouble – merely the volatility of a market seeking reassurance.
If you are an investor who went through the worst of the COVID-19 pandemic and found yourself unprepared for the blowback, don’t fret! This is a chance to glean powerful lessons from bad decisions, so that you can be better prepared for the future. Needless to say, few events can parallel the economic tsunami that Covid-19 was wrought on the world, which means now is a good time to analyze the weakness of your portfolio, and your investment decisions. Turn these lessons into future success, and season your own experience at the same time.
There will be plenty of opportunities to further your investment goals in the wake of the Coronavirus pandemic, and now’s the time to start strategizing for the future. Don’t wait for the market to catch up. Start identifying any weak points in your investment strategy, or take your current successes, and apply them back into the market with some careful and keen investment decisions. You may come out stronger than before!
For more information on investment planning during the COVID-19 pandemic, please contact us today!