Topic: How To Invest

Know what to invest in during coronavirus to protect your portfolio

Learn what to invest in during coronavirus by taking a look at some frequently-asked investor questions—and our answers

Most stock prices dropped sharply in late February and March—although they have bounced part of the way back—in anticipation of a much wider spread of the coronavirus, and the deep and sustained economic setback that could result.

That could happen—no one can predict the future. However, most sharp market downturns are temporary. Due to modern medicine and technology, the coronavirus impact is unlikely to get so big that it brings on a long-lasting stock-market decline.

For those interested in what to invest in during coronavirus, our advice is that if your stock holdings made sense beforehand, in light of your investment goals, financial circumstances and temperament, then you should hang on to them.


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Deciding what to invest in during coronavirus still includes following our three-part Successful Investor approach

The COVD-19 crisis has also highlighted why you should stick with our three-pronged approach to investing:

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Here are some questions you should ask as part of your strategy of what to invest in during coronavirus

1) Should I change my investment portfolio to reflect the drop in the market? That depends on what you already own.

If your stock portfolio was good for you before coronavirus, it’s probably good for you now. In our view, a good-for-you portfolio would reflect our Successful Investor 3-prong structure. And as mentioned above, that means it would hold mostly high-quality stocks, be diversified across most if not all of the five sectors and include few if any holdings chosen because they happen to be broker/media favourites.

2) Should I switch into special investment products that are sold as good for preserving my money in times like these? My broker and my insurance agent have both asked to meet with me to discuss some opportunities associated with what to invest in during coronavirus.

The financial industry is great at creating and marketing investment products that appeal to investor emotions and fears. We’ve written about a variety of them over the years and advised against investing in virtually all of them.

Typically, they are more profitable for the financial industry, and for the individual who is offering them to you, than they are for you. Most are designed to be more stable than the stock market. That means they will also be less profitable for you over long periods. You pay for this greater stability with higher and/or hidden fees and costs. In addition, these products often come with conflicts of interest that tend to get settled in favour of the institution that created or sold you the product. Most of the time, most investors are better off confining their investments to well-balanced portfolios of “plain vanilla” stocks and bonds.

3) What should I sell if I need to raise cash for personal spending? In that case, you need to “cull” your portfolio—that is, select investments to sell that are least appropriate to your finances, investment goals and temperament. This means you’ll sell your riskiest or least promising holdings, while retaining as much as possible of our Successful Investor 3-prong structure in the portfolio of stocks you have left.

Many of our retired portfolio-management clients depend on dividends for a lot of their retirement income, along with pensions. When they need additional cash, this is the procedure we follow to decide what to sell for them. In essence, we focus on the strength of their portfolio, rather than the market direction or outlook.

4) I’ve been waiting for a buying opportunity like this, and I have additional funds to invest. Should I invest all at once, or spread it out over a period of months? The best answer to this question has to take into account your personal finances, goals and temperament.

Many investors try to improve their results with opinions about short-term market trends. This rarely adds to their long-term returns, and can, in fact, lead to significant losses. When you make investment decisions, it’s generally best to disregard the short-term outlook for a particular stock or the market as a whole. Instead, think about how it might look two to five years in the future. After all, you should only buy stocks if you can afford to hold them for two to five years.

This seems illogical to some investors—“If I don’t know what will happen a month from now, how can I figure out what will happen in five years?” The answer is that random factors weigh heavily on short-term results, so they are far more erratic than long-term results. However, high-quality stocks tend to produce good long-term investment results.

To put it another way, a company’s long-term success and profitability have a big impact on the long-term performance of its stock. That’s why you should focus on the long term. In a lifetime of successful investing, most of your profits come from gains you’ve built up in stocks you’ve owned for years and decades.

How has coronavirus impacted your portfolio? What steps have you taken so far to minimize its impact on your holdings?

What changes did you make to your portfolio as the stock market plunged in response to coronavirus fears?

Comments

  • We’re retired and now use some dividend and RRIF income. Our portfolio went down quickly related to the virus, but has recovered a lot.
    I have since used RRIF US$ cash to add positions in conservative US stocks. And changed most TFSA shares to reinvest dividends. We don’t use our TFSA for income.

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