Investors have been dealing with the most volatile market conditions in more than a decade. The Covid-19 global pandemic ushered in the fastest bear market in history and has thrown economic forecasts for 2020 out the window. While governments and central banks have responded quickly and forcefully to the crisis, much uncertainty remains – about the strength of the global economy, the health of companies and the direction of financial markets.
In such an unpredictable environment, people naturally feel scared and exposed. That can lead them to make panicked decisions about their portfolios, potentially leading to unnecessary losses. Likewise, they can freeze from fear altogether and miss opportunities which arise at times like these. That’s why we advocate sticking to a plan under crisis conditions. It will not only help protect your wealth, but it will keep you calm and better able to make decisions when required.
Start with these three steps:
1. Stay invested
“Stay invested” is always the core message from wealth managers in a crisis, because this is the most credible strategy to position for the eventual recovery. Being out of the market means potentially missing the turnaround. The speed of this crisis makes this advice especially applicable. However, it is also important to keep long-term investment plans in mind and make adjustments to reflect any big changes in personal circumstances. In such cases, a risk profile review is worth considering to keep things realistic and on track.
2. Stay diversified
Portfolios should be highly
diversified across asset classes, major regions, sectors, and single company
names. This blend generates portfolio protection via quality, income, and
lower volatility. Correlations among assets can change dramatically during
market dislocations, such as now, but in almost all circumstances the diversified
portfolio should generate superior risk-adjusted returns.
3. Stay sane
Taking time to reduce stress has benefits for both health and wealth. Good financial planning can have a very similar effect to meditation. Take time now to seek advice and sort out wills, inheritance plans, pensions, tax issues, current spending, future liabilities, goals and overall life plans. Facing reality and taking action is always preferable to being victimised by random events.