The COVID-19 pandemic will prove to be a defining moment for the world and for our current vision of the future. Our global village with interconnected societies, businesses, and economies have been deeply affected. Certain areas and sectors have been highly disrupted or destroyed, by the extraordinary measures put in place to halt the spread of the virus.
So, what is the right approach to protecting and growing wealth in such an environment. And how will our learning from history guide us? The uncertainty around the viruses’ impact on the economy and governments reaction to it has been most unsettling. Amongst the uncertainty we need to be clear – minded in deciding our investment strategy and what should guide decision – making for our future.
Do not panic and change investment goals mid-crisis
Every crisis eventually ends, and a disciplined investment process is key. When the crisis began to impact financial markets, there was little time to respond. The S&P 500, for example, lost more than 30% in just 23 trading days. Rather than rushing to make trades at the height of the crisis and market turmoil, we advocated patience, focusing instead on the fundamental long-term nature of financial markets.
On the back of very strong fiscal and monetary policy responses from governments around the world, markets rebounded sharply in April and May. The technology-focused Nasdaq is once again close to its highs, a sector we strongly advocated.
The key takeaway: Extreme market volatility is painful, but it is in extraordinary times like these that a well-established investment processes, expert teams, and diversified strategies reveal their worth for long-term wealth creation.
Dial down the anxiety
People adapt more quickly than you think. A few months into the pandemic, a new normal is emerging. Social distancing, working, and learning from home, and handwashing are all now part of our daily lives.
The key takeaway: Now is the time to dial down COVID-19 anxiety and decouple it from the way you make investment decisions. Obsessing over daily movements of infection numbers will not help your investment strategy at this point. Focus instead on the fundamentals, hold the course, and make decisions based on evidence and facts. Markets are forward-looking: they have moved beyond the current bad economic news.
There is reason for optimism
Policy makers have quickly come to grips with the economic consequences of the virus and have acted decisively. When it became clear that the lockdowns would result in a steep global recession, governments and central banks around the world launched monetary and fiscal measures of unprecedented scale. The objective is to keep households and companies’ liquid during the crisis and prevent structural damage to the real economy. Policy makers have made it abundantly clear that they are willing to go “all in” with their support measures.
The key takeaway: Expect further support measures if the situation deteriorates. Such measures significantly reduce the risk of a protracted economic depression. For investors, it is very risky to stand against this tidal wave of money from policy makers.
A life lived forwards
Start looking ahead. Now that more and more countries are moving out of lockdown mode, and people are adapting to their new life with COVID-19 risks, attention is starting to shift back to previous issues that had faded into the background. Tensions between China and the USA over trade, geopolitical influence, and technology leadership have moved to the forefront again, triggering market volatility in May. Negotiations between the UK and the European Union (EU) about a post Brexit trade deal are not progressing as well as both parties may have hoped. Investing in equities always entails accepting the peaks and the troughs of these risks in the markets.
The key takeaway: Start to look beyond COVID-19 when investing and look to invest in the secular trends that were created or reinforced by the pandemic. Ensure that your portfolio is optimally positioned.
