COVID -19 has been declared a pandemic by the World Health Organization, bringing instability to the world economy. The stock market is at the lowest, not seen since the 1987 market crash and industries are beginning to lay off workers leading to millions ending up jobless.
Health experts around the world have advised being cautious to flatten the curve, but it’s also critical to be prepared for the outbreak if it becomes worse. People across North America are already stocking up on basic supplies in the event that they need to stay home from work for a prolonged period. Travel, conferences and sporting events have all been canceled for an unforeseeable future.
We, at BuyProperly, spoke to experts from the industry about what should you do if you are worried about what the uncertainty could mean for your money and investments.
Diversify your portfolio.
If you could learn one thing from this downturn, it is the value of portfolio diversification, says Dr Chinmay Jain, Assistant Professor at Ontario Tech University. Imagine if you had put all your money in Delta airlines at a price which Warren Buffett bought it for ($46.40), your portfolio would have lost half of its value. People are selling their stocks now because of the panic, but no one can sell their houses where they need to quarantine themselves.
“Not only you need to diversify your stock portfolio, but you also need to consider other alternative assets such as real estate.”
Dr Chinmay Jain, Assistant Professor of Finance
Do not sell
Two things people should not do in the current scenario.
- Do not sell, it is the worse step to take in this environment. If you have something invested, do not panic. There are some opportunities, especially robust companies that lost a lot of value, buy into those.
- Do not go with companies that have future growth but not a robust balance sheet. Don’t try to do anything speculative at this time unless you know what you are doing. This is my recommendation says Pouya Zangeneh, VP of Strategy at Scotiabank. It seems tempting but it’s a bad idea.
“It is the time to rebalance your portfolio. If you have excess of bonds on your portfolio, one thing you can do is go sell some of your bonds, so that you have more liquidity and the ability to diversify into other investment avenues.”
Pouya Zangeneh, VP of Strategy – Scotiabank
Do not panic.
Markets are down and this is the right time to invest, believes Dr Archana Jain.
“If you have cash (buying power), you might start investing now. You can invest a small amount every week. This will average out your cost.”
Dr Archana Jain, Assistant Professor at Rochester Institute of Technology
You may not catch the market at all-time low, but this is low enough to start getting in. The markets will start going up at some point. Investing in index fund, such as S&P 500 is safer than investing in individual stocks.
Do not panic if the value of your investment is down. Do not sell! This correction was due at some point, the coronavirus may just have caused a steeper fall than expected. Focus on long term goals and you should be fine.
Focus on social distancing.
Financial markets are currently incredibly volatile as the whole world is trying to cope with the coronavirus outbreak. Economic activity in many countries has been severely limited and the outlook is unclear. For the investors this is a stressful time, however it is important to remember that investing is by nature cyclical, and crises are a part of it. People with a longer investment horizon, provided they don’t have additional current cash needs, should remember that the markets will eventually recover, as they always have, so it’s best to avoid haphazard decisions such as locking in losses by panic selling.
The situation is different for those who were hoping to sell their investments within the next 1-2 years. They could consider extending that period, and for safety should keep a good portion of their savings in cash-like assets.
“Overall, it’s best not to check our investment account balance every day and focus on social distancing for now”
Dr Karolina Krystyniak, Assistant Professor at Ontario Institute of Technology
