The coronavirus pandemic has rearranged so much of how we manage our day-to-day lives, and financial investing is no exception. As shutdowns and stay-at-home orders changed the shape of our regular routines, they also impacted our economy and, as a result, our investments.
COVID-19 turned a lot of financial portfolios upside-down and underscored the importance of exposure in all sectors of the market. When the unthinkable happens, seasoned investors seek opportunities to develop their portfolios. And while global-scale economic change of the type introduced by the environment of this past year can feel intimidating, there's plenty of room for smart investing and financial growth. Here are four tips for approaching investing in a post-COVID world:
1. Understand what you own and why.
Now more than ever, be sure to ask your financial advisor: What is it that I'm buying in this portfolio, and why are these investments right for me?
It's your advisor's job to ensure your portfolio represents what the current economy looks like, and to explain how your investments are aligned with the market. Because the pandemic came on so unexpectedly, more traditional forms of allocation in a portfolio were turned upside down. Traditional asset allocation has changed, because now we know how important it is to have exposure in sectors that are currently trending. At times it may be more beneficial to overweight trending sectors, such as businesses that are considered essential businesses may offer more stability. Make sure you're taking a close look at your investments and aligning them to the market.
2. Be aware of sector selection.
Sector discussions are essential in today's economy. The pandemic has changed how we work, socialize, shop and learn. These massive shifts in behavior ripple directly into the economy, and investors need to be selective about sectors in order to meet that change.
Before COVID, specific sector selection wasn't so common. But now we have an awareness that we didn't before — we've seen certain markets, like healthcare and tech, thrive this past year, while others, like energy and finance, struggled. The way people conduct business during volatile times has shown us how important it is to drill down, get specific, and choose sectors intentionally.
3. Look for value opportunities.
The harsh reality of the pandemic is that some industries will suffer long-term hits and could take years to bounce back — such as co-working spaces, airlines and cruises. This isn't necessarily an issue of those sectors being unprepared, but rather a question of peoples' comfort level with returning to them in a post-pandemic world. Some of these industries may require full facelifts to come back swinging. Others, though, could bounce back quickly and offer significant opportunities for return on investment.
Financial sectors, for example, struggled in 2020 — but they've bounced back considerably in the last month alone. As you consider investing in 2021, don't be afraid to look for cheaper stocks and then be patient. As vaccines roll out and more stimulus is added to the economy, stocks in some of these "struggling" sectors may offer stronger opportunities for higher returns, compared with those that already returned in a big way in 2020. These types of stocks can rally back, so don't write them off.
4. Consider downside protection investments.
One final financial avenue you may want to explore is adding investments to your portfolio that provide some element of downside protection or buffer in the event of a downturn. Really, these can be an essential component of a healthy portfolio. Financial advisors often incorporate downside protection investments — for your irreplaceable capital — that we know will be more stable no matter what's happening in the economy. These investments provide buffers and a certain percentage of downside protection in the event of a market decline.
As we move ahead into the new year, a good degree of uncertainty remains. But you can invest wisely even in the midst of volatility if you're aware of what you own, willing to make adjustments and disciplined about taking profits. Consider reviewing your portfolio more frequently to see if, because of our shifting economy, there should be some rebalancing. There's no need to overanalyze or over diversify your investments, but do revisit them a little more often to ensure your bases are covered.
Faron Daugs, CFP, is Founder & CEO Harrison Wallace Financial Group.
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