Take advantage of investment opportunities presented by COVID-19
INVESTORS SHOULD stay invested and take advantage of the opportunities that have been presented by the COVID-19 crisis. There is opportunity in every crisis and this one (the COVID-19 pandemic) is no different. Now is therefore an opportune time to invest, and there are some good assets with strong fundamentals that are now trading at discounted prices.
This is a synopsis of some of the nuggets I shared while addressing online participants during one of the recent episodes of the JMMB Group weekly Goal Getter Live (webinar) series; I believe the advice is one worth sharing with other investors. My premise is not a new one, in fact, it is also underscored by investment guru, Warren
Buffet, who is quoted as saying,
“Be fearful when others are greedy and greedy when others are fearful”.
It is important that, as investors, we carefully examine a company’s
fundamentals, namely: corporate governance policies/ practices, projected growth trajectory, financial performance, cash flow, business model and strategy, to determine whether or not to include this company in our portfolios. Of course, investors should consult and maintain consistent contact with their financial advisers, to assist in crafting their investment strategy, in line with their: unique goals, risk appetite and timeframe/time horizon: as there is no one-size-fits-all model to investing. In addition, I encourage investors to approach investing with a long-term perspective, in order to reap the best results and “smooth out price volatility”. The stock market is still experiencing much volatility and there is much uncertainty now. It is against that background I recommend that individuals take a ‘phased approach” or what we in the industry refer to as, the dollar cost averaging strategy, when leveraging investment opportunities at this time. This investment strategy is where an investor divides up the total amount to be invested across periodic purchases of a specific asset, in an effort to reduce the impact of changes in the price on the overall purchase. Looking at the global market, what we are seeing is that the Standard and Poor’s 500 companies, over the last three months (up to June), have seen 30% of those companies rebounding, although initially experiencing a falloff in stock prices. This is an indication that the market has corrected itself and a similar response is expected over time on the local stock market, though I would not be able to give definitive timelines at this point.
STAY INVESTED IN YOUR GOALS
Although some assets, such as stocks and bonds, may have seen a decline in the price and there is increased volatility in the market at this time, I will share the advice I give to my clients, “stay invested in your goals”. For persons whose portfolios are already diversified by virtue of having a balanced mix of assets with varying returns and risk, I advise them to not become distracted or lose sight of why they invested in the first place. Therefore, stick to your investment strategy and stay invested. While, for persons who do not have a diversified portfolio, now is a great time to make the most of the market, with the assistance of your investment advisor.
Understandably, some investors’ risk profile may not be suited to invest in the stock market, for those investors, I suggest that they consider choosing from other investment options / asset classes such as unit trusts - a pooled investment fund, managed by a fund manager. Investing in unit trusts allows an investor to benefit from the expertise of a fund manager to make key investment decisions and saves you time in the daily monitoring of the assets in the fund, in addition to offering diversification, even with a few thousand dollars.
I want investors to zone in on the overall value of diversifying their portfolio, that is, the assets they own. Portfolio diversification seeks to
mitigate against the risk that you face, so that you are less impacted by the volatility (price fluctuations) in any specific asset. Therefore, investors are urged to have a conversation with their financial advisers to examine the various asset classes such as equities, fixed income, real estate, unit trusts and mutual funds and other alternate investment instruments, to determine the right mix, based on their specific financial circumstances, risk appetite (low to high), goals/objectives, return and time horizon.
One lesson that I believe that COVID19 has taught us is the need for an emergency fund. An investor should have at least the equivalent of 3-6 months’ worth of one’s expenses that can be easily accessed in the event of unforeseen circumstances such as sickness or, in the case of COVID-19, temporary or even permanent job loss. I caution individuals not to be tempted to use their emergency funds for investments, because of the potentially great returns; as the result can be devastating in the event of an emergency, causing you to take high interest rate debt by using your credit cards and/or unsecured loans. An emergency fund is just that, money to be put away in case of an emergency. And so even if you have money in an account you can easily access for some time, keep it, because an emergency can occur at any time. As such, before you begin to invest, it is critical to have and maintain an emergency fund, to buffer you in times of financial mishap, like the COVID-19 pandemic.
■ Nadine Thomas, manager, client partnership JMMB Investments – Knutsford Boulevard branch. Send feedback to nadine_thomas@jmmb.com.