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Themes for Investing in a Covid 19 World

Themes for Investing in a Covid 19 World

April 30, 2020

A little over two months ago everything felt normal. We were going out to dinner and to the movies, working in our offices, going to concerts, and earning some (albeit small) interest in our savings accounts.  Today, our favorite restaurants are closed, we are all working from home, and interest rates have gone from “a little bit” to almost zero.  Wow!

It’s a crazy world – With very little clarity for the economy, people are wondering what to invest in right now.  In recent weeks, at the same time we have seen more than thirty million people apply for unemployment, much of the stock market seems to be shrugging it off.  Go figure!

With that in mind, here are a couple of ideas that may make sense when uncertainty rules:

Know your true nature -

Investing always comes with risk.  So even if you may see great opportunity in what you think are the best stocks to buy right now, understand that uncertain times are probably not the best time for a conservative investor to speculate. On the other hand, going to cash means you will likely miss any upside. Generally, your best bet may be maintaining a diversified portfolio designed with your objectives in mind.

OK that’s boring right?  Well when it comes to investing your hard-earned money, boring is good.

Defense may be your best offense -

One of the keys to successful investing is understanding that avoiding large losses may be more important than capturing all the upside. For example, a loss of 49%, like the market experienced in the bear market of 2007-09, would require a subsequent gain of over 96% just to get back to even. It took about 4 years for the market to recover from 2007-09.

On the other hand, a smaller downturn of say 10% would only require an 11% return to recover. Employing strategies that limit losses, using options, or other hedged investments may be a good way to participate in the opportunity, while protecting capital if things go the wrong way.

May you live in interesting times… -

Whether you see opportunity, or flashing danger signs, these are definitely “interesting times.” We are all living through something we haven’t experienced before. So, if you’re asking yourself “how should I invest now?” it’s a good time to reflect on your true objectives and maybe chat with your investment advisor about employing investments that allow for upside participation, while providing some downside protection as well. If you would like a second opinion about your investments, let us know.