The
COVID-19 pandemic has created a sense of uncertainty and fear everywhere.
Nations, people and economies are going through time times. Though economies
have suffered bruises from other pandemics, no other pandemic in modern history
has managed to leave a deeper scar on lives and economies than COVID-19.
COVID-19
also had a major impact on individual investment and portfolio management.
People are selling in panic and most investors have now become risk averse. If
your portfolio included a 50:50 balance of equity and fixed income assets
before the coronavirus scare, post-pandemic it is certainly going to be 60-70%
fixed income and 30-40% equity.
Like
all pandemics, this too shall pass, but it will certainly impact your portfolio
for a long time to come. The world will change in many ways post-COVID-19;
therefore you need to realign your investment portfolio to the changing
reality. Here’s how.
Revisit your asset allocation
As
mentioned above, due to the coronavirus impact many investors have become risk
averse and their portfolio is skewed more towards fixed income instruments.
Even those who were faithful with their mutual fund investment are having second thoughts.
Post-pandemic,
you should ensure that your investments are divided into three major asset
groups with safety, income and growth in mind. You should invest in debt instruments and
minimize your exposure in equities during this turmoil, but make sure that you
are not sacrificing long-term returns at the cost of safety.
Revisit
your portfolio after 3 months and speak to your advisor to discuss if you
should increase equity exposure so that your portfolio is in sync with your
investment goals, time horizon and risk profile. Remember to continue with your
mutual fund investment
and take advantage of rupee cost averaging to acquire more mutual fund units
when NAVs are low at this time.
COVID-19
had a massive impact on the net-worth of many individuals. Whether you are
running a business or a salaried person, the pandemic may have affected your
net worth. It may have eroded your investments or your source of income may
have dried, even though temporarily. Thus, it is important that you review your
risk profile after life returns to normal because it will significantly impact
your investment decisions.
Market
Value Erosion Highest in India (April 2020)
Source: BusinessToday.in
Ensure proper diversification
You
may be reallocating your portfolio for risk mitigation during and after the
pandemic. However, it makes no sense if you have just one type of stock and a
single type of bond in your portfolio. Diversification is not only about
investing in different asset classes but different types of securities in each
asset class.
For
example, when you invest
in debt instruments, make sure you are including different types of
instruments such as debt mutual funds, bonds, and corporate FDs of varying
maturity and good credit quality. While investing in equity, diversify your
investments in different types of instruments which have diversified exposure
to various market caps and sectors.
Be extremely cautious with
equity selection
Your
safest bet during this time is to leave the work of selecting stocks to your
portfolio manager, investment advisor or wealth manager. If you are experienced
enough to select stocks on your own, focus on FMCG, pharma, logistics and
telecommunication companies with strong fundamentals. Zero down on companies
with low debt, good cash flow and steady dividend payments.
However,
be positive with your equity investment because the market will make a rebound
in the near future as it has always done in the past.
Continue your SIP and invest in bonds
Remember
to continue with your mutual
fund investment through the SIP route. This is the right time to take
advantage of rupee cost averaging and acquire more mutual fund units as NAVs
are low. Don’t panic and stop your SIPs now. This is also the right time to invest in bonds with high
liquidity. If you purchase
bonds now, it will help you tide over the market uncertainty and
volatility that we will witness post the pandemic.
You
can also take a look at the Sovereign Gold Bond Scheme launched by the RBI in
April, 2020 and add gold to your investment portfolio. Finally, as any good
wealth advisor will recommend, never invest or sell because of fear, greed or
without knowledge even when you see a financial bloodbath all around.
If
you are not sure how to navigate the choppy water in these tough times, let Tata Capital Wealth help you with bespoke wealth management and investment
solutions. With Tata
Capital Wealth, you can take advantage of holistic and hand-picked
investment opportunities, selected according to your investment goal, horizon
and risk profile.
18 June 2020
5 mins read
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