As the world continues to grapple with the coronavirus, people are not just stockpiling canned goods and toilet paper; they’re questioning whether they should continue to trust the financial system.
Financial experts say, however, that pandemics come and go, and the best thing for anyone with investments and savings is either to do nothing or to invest even more. Resist the temptation to sell or withdraw; better yet, look for opportunities to invest whatever disposable income you have at the moment to keep your investments varied. Diversify, if you can.
“It’s hard for investors to not allow emotions to get the better of them in these circumstances,” said Stuart Ritchie, Director of Wealth Advice at AES International, an investment advisory firm. “However, looking back at similar cases, the evidence proves that markets always recover.”
“Downturns are normal and typically short,” Ritchie told Zawya. “Twelve months after swine flu in 2019, the S&P was up 35.96 percent, 18.36 percent after avian flu in 2006, and 17.96 percent after MERS in 2013. The best thing investors can do is ensure their portfolio is globally diversified across asset classes. Your balanced portfolio will minimize your exposure.”
On March 16, equities plummeted as anxious investors sold their stocks, fearing that the world’s largest economies were heading for the worst recession in recent history. More contractions followed, fueled by declines in corporate earnings, reports of factory and company closures, and job losses. In the following month, oil prices turned negative for the first time in history.
DON’T SELL. INVEST.
Iyad Abu Hweij, Managing Partner at Allied Investment Partners, also argues that it is a good idea to continue investing during a pandemic, noting that any correction is an opportunity for wealth creation. “Investors can benefit from gradually adding quality positions diversified across geographies and asset classes. We emphasize quality and diversification while suggesting avoiding risky bets in this market.”
“We believe that the pain is temporary and offers an attractive entry point to the investors,” he continued. “One should also consider the fact that the major central banks have shifted to a much more accommodative stance and the governments are injecting fiscal stimulus packages to support the financial markets, which will offer further support.”
WHY YOU SHOULDN’T SELL OR WITHDRAW YOUR MONEY
If you sell your holdings in equities because there could be future declines, you will lose the opportunity for future dividends should things improve. The S&P 500, for instance, rebounded by 25 percent in April due to positive developments surrounding the coronavirus outbreak, and investors who had sold their stocks earlier lost out.
“It’s important for you to consider [when] you’re holding direct equities [that] 50 percent of the total returns from those equities are coming from dividends,” Mauro de Santis Bo, Senior Associate at AES, said during a webinar. “By selling those equities, you will not receive those dividends. That’s why [you should] stay in the market even when share prices have fallen. It’s as important as being in the market when prices are rising. That’s why we encourage investors to stick with their financial plan.”
THINGS TO KEEP IN MIND WHILE INVESTING
De Santis Bo said it is important to know the extra charges investors are paying along with their investment, such as the fees owed to their fund manager or for accessing an investment platform.
“Know the fees you [pay in total] for your investment, [like] how much you pay on an annual basis, fund choices fees, platform fees, advisor fees,” De Santis Bo said. “From my experience, we have seen a lot of clients who were not aware of how much they’re paying on an annual basis. And once they knew them, they couldn’t believe it. If you believe it’s too high, find a way to reduce them, because fees are a key pillar of your investment.”
De Santis Bo added that it is also important to keep the portfolio diversified and ensure that it is in line with one’s risk profile. “Review, regardless of the conditions, if your investment is in line with your risk tolerance. Check if it’s aggressive or too aggressive. The right diversification between bonds and equities is key to a good portfolio.”
BUT WHAT IF YOU’VE LOST YOUR JOB?
However, those who have lost their job may have to withdraw their money or avoid investing now. There is no one-size-fits-all approach in this case, but the key is to ensure that an individual meets their own and their family’s needs first. It is a good idea to first set aside an emergency fund equivalent to three to four months’ worth your monthly salary. This can be kept in a bank account for easy withdrawal in cases of emergency.
“First of all, you should be looking at your own needs, considering that you don’t have a job,” Mauro said. “It’s better that you stay safe first and then look to invest. Of course, now is a better moment than it was probably two or three months ago, because the market has dropped massively, and you can get into a market that is going to be cheaper, and that’s a fact.”
SHOULD YOU BE BUYING GOLD?
Those looking for investment options during the pandemic may come across advice to put money in gold. Indeed, it has rallied many times since the start of the outbreak thanks to its reputation as a safe investment during times of uncertainty.
According to the World Gold Council, gold-backed exchange-traded funds emerged as a popular asset during the first three months of the year, with inflows rising by more than 300 percent compared to a year ago. Demand for jewellery and gold bars and coins, however, have dropped.
Warren Buffet has famously advised against it: “the gold itself doesn’t produce anything.” Ritchie concurs, saying that it’s not a good idea to put one’s money in the precious metal even during a health crisis.
“It doesn’t pay an ongoing dividend as you would receive from a stock or even an interest payment that you receive on a bond,” he said in a webinar. “It’s a buy-and-hope strategy for the reason that you’re hoping that it will be worth more in the future than what you have paid for it. Personally, I’d rather follow a systematic investment process.”
With the lockdowns starting to ease, however, there are signs that the worst may be over, according to some analysts. Late last month, global equities rallied after some governments loosened restrictions on mobility. Aditya Pugalia, Director of Financial Markets Research at Emirates NBD, noted, “Investors retained their focus on positives, including plans for easing restrictions across various countries and slowing rate of mortality and new cases in countries worst affected by this pandemic.”
(Reporting by Cleofe Maceda; editing by Seban Scaria)
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