The coronavirus has upended everyday life for millions of Americans since the pandemic was first declared back in the spring. It has also reshaped the business landscape, forcing many industries to adapt on the fly in order to thrive or, in some cases, survive.
Given this, it might be smart to give some fresh thought to the balance and asset allocation of your investment portfolio. There will surely be new opportunities and risks in the future, which makes now a good time to plan your post-pandemic portfolio strategies.
Diversification, Rebalancing and New Exposures
A new report titled “The Great Rebalance,” which was prepared by Merrill and Bank of America Private Bank, discusses some of the factors to consider as you think about portfolio rebalancing given the pandemic. According to the report, “investors will need a higher level of diversification, more frequent portfolio rebalancing and exposure to newly developing themes.”
One of the factors identified by the report is the high level of government debt that has resulted from efforts to stimulate the economy. Another is the ongoing low interest rate environment that continues to suppress bond yields, pushing many investors into high-quality U.S. stocks. And with market volatility elevated, some investors may favor active vs. passive investment management in order to better manage risk.
Four Tips to Consider
The report offers several tips for managing investment portfolios in light of the current and ongoing effects of COVID-19, including the following:
- Review your portfolio more often than normal. While the economic recovery from the effects of the COVID-related lockdowns has begun, a full recovery is still probably a long way off. In the meantime, there will likely be periodic setbacks and higher levels of market volatility.
Therefore, it’s smart to review your investment portfolio on a more frequent basis than you normally would to make sure that your asset allocation hasn’t shifted, which could affect your long-term investing goals. If it has, work with your financial advisor to rebalance as necessary — and be sure to capitalize on new opportunities that emerge.
- Keep up with mega-trends that are changing the world. The report notes that the pandemic “has accelerated a number of major investment themes that were already underway.” One of these, for example, is de-globalization as more companies move their supply chains closer to home. This could be a boost for industries like robotics, automation and 3-D printing, according to the report.
Also, remote work and social distancing are creating new investment opportunities in industries like e-commerce, e-health and virtual reality. The rise of so-called “smart cities” and the growing importance of cybersecurity and tech infrastructure are other megatrends to keep an eye on.
- Consider alternative investments to diversify your portfolio further. Precious metals are one alternative investment that the report recommends investors consider. Low interest rates, a weaker dollar and rising economic uncertainties potentially make precious metals attractive, according to the report. Tangible assets like real estate, timber, and farm and ranch land are other alternative assets to consider.
The report notes that high-quality stocks and bonds also help during times of increased market volatility. Remember that any investment in alternatives should work in concert with your overall portfolio objectives.
- Be disciplined. Financial markets today are more fragile than in the past, says the report, “moving from relative calm to stress at much higher speeds.” This can lead to taking on too much risk when the market peaks or trying to avoid risk altogether and missing out on opportunities.
In market conditions like these, it’s more important than ever to carefully analyze risk, set long-term investing goals, plan strategies to achieve them and stick to these strategies — even, or perhaps especially, in the midst of high volatility.
Give us a call if you’d like to discuss portfolio rebalancing and asset allocation strategies in more detail.