Managing Your Investments During COVID-19

By Raymond J. McCaffrey, CFA | Published: April 2020

During these unprecedented times it is unsettling to watch the news surrounding the stock market, but it is also important to maintain perspective – history has shown that the market will recover. One of the biggest risks investors face over time is overreacting to events and market volatility, which can negatively impact their savings.

Our advice? Stay the course but consider making some changes to help your portfolio in the long run. Here’s how to proceed:

1. Stay Invested and Think Long Term - Market timing is difficult because you must be right twice.  Many investors jump out of the market as it is declining but remain fearful as the market turns and moves higher.  They never get back in and miss the outsized gains that occur at the start of new bull markets. We don’t know where or when the stock market will bottom, but we know we are closer to the bottom today than we were 30 days ago.
2. Rebalance your Portfolio - Hopefully your portfolio owns bonds, especially US Treasury bonds.  US Treasuries have the unique feature that they usually go up in price when everything else is going down in price.  Now may be a good time to trim some of your bond exposure and add it to stocks, bringing your asset mix of stocks and bonds back into line. Also, international stock markets have fared worse than US markets. Most investors are too heavily invested in their home markets as they don’t realize that over long periods of time (decades) international stock markets do as well as the US market.  Now could be an opportunity to increase your exposure to international stock markets.
3. Upgrade the Quality of your Portfolio - Whether you buy stocks, mutual funds, or ETFs, today may be an opportune time to upgrade the quality of your portfolio.  Focus on stocks or funds that buy high quality companies that are market share leaders in their industry, have strong balance sheets, generate free cash flow, and pay safe and growing dividends. We recommend avoiding companies whose business model may be permanently impaired as a result of the coronavirus. Some companies in the hospitality and travel industries may never recover.
4. Don’t Reach for Yield - The old Wall Street adage “more money has been lost reaching for yield than has been lost at the point of a gun” is very true today.  In our low interest rate world, if the yield looks too good to be true, it will probably be cut or eliminated soon.  Settle for a lower, but possibly safer and growing yield from strongly positioned companies.