Is Your Investment Portfolio Inoculated Against the Coronavirus?

That’s a catchy title intended to, hopefully, grab your attention. Just as there is no such thing as guaranteed investment returns, there isn’t a great way to protect your investments in the stock market from the short-term roller-coaster ride that happens, when news such as the coronavirus occurs. As humans, we are always looking for the easy trick to accomplish our goals, whether it’s a magic elixir to help us lose weight, or guaranteed returns in the stock market. The truth is those are unicorns that do not exist.

The fact is there is an incredible amount of uncertainty around the coronavirus at the moment: how long it will last, what the actual mortality rate will be, how much it will impact economic activity, etc. The stock market hates uncertainty. That’s the reason there have been such big daily swings over the past few weeks. 

Despite all of this, there are steps you can take to protect your portfolio from having to take actions that will hurt your long-term returns, like being forced to sell (because you need the money) at the bottom of one of those roller-coaster ups and downs. It’s also the case that trying to trade around those market swings is not likely to work out well.

There will always be someone who will happily boast about how much money they made trading in the stock market. It makes for great cocktail party chitter-chatter. However, the truth is investors, both amateurs and professionals, are much better at remembering their successes than their failures. It’s not surprising, if you think about it; it’s the way the human brain is wired. In an extreme example, when someone suffers severe trauma, they typically have no recollection of the event. That’s the brain going into protection mode. So, don’t be lured in by the impressive tales you hear at cocktail parties.

Doing a thorough inventory of your financial assets, assessing your near-term financial needs, and identifying your long-term financial goals will allow you to allocate your assets strategically, that is, for the long term. Doing so successfully, will allow you to ride out market swings like we are currently experiencing. You will be able to do this because money invested in the stock market should be money you don’t need to access for a very long time – long after investors have forgotten all about the coronavirus. Any shorter-term needs you may have should either be held in cash, or invested in something much safer like U.S. Government bonds.

Another potential benefit of investing this way is it will likely reduce the number of transactions you make (buys and sells). This may lead to better tax efficiency (lower capital gains taxes) in your portfolio. If you would like to set up a free, introductory meeting to see how we might be able to help you with your financial and investment needs, please contact us here, or send an email to [email protected].

John Bernstein