Insights on portfolio management during times of crisis

In recent weeks, the financial markets have experienced more ups and downs than anyone likely would have expected due to the coronavirus pandemic. From record highs to incredible lows, people across North America are watching their investment portfolios with a combination of trepidation, anger, fear, and hope.

All investors, especially those who have been in it for some time, know all too well how volatile things can be. They take the good with the bad and weather the market storms while they await the re-emergence of the sun.

Some advisors believe that unforeseen crises can often serve as a blip on the timeline. An article on Buckingham Strategic Wealth’s website notes that “In fact, markets have short memories regarding epidemics. Markets may initially react to the uncertainty and fear that comes with any new concern, but, for the most part, viruses get contained and investors return to corporate and economic fundamentals.”

The article goes on to say, “We can see this pattern in the adjacent table. Market returns generally have been up in the six- and 12-month periods following the outbreak of a virus or disease. While this is a small sample set, we know that keeping focused on the long-term helps us keep a level head during all kinds of storms.”

During recent days and weeks, there has been some talk about a possible recession. For many people, it’s easy to think back a few years to 2008 and 2009, when that financial crisis impacted investors around. Is it possible that something similar could occur in the weeks or months ahead?

“I don’t think we’re in any comparable situation to that,” says Jurrien Timmer, director of the global macro at Fidelity. “During the financial crisis, both the banks and US households were way out over their skis because they held too much debt. This resulted in the housing bubble of 2008–2009. We don’t have either of these scenarios right now.”

The timer adds, “That gives me some sense that we will recover out of this when the virus growth rate peaks. Then companies can get back to work and I suspect that the recovery will be a lot swifter than we saw with the financial crisis of 2008.”

Thomas Kane, Chicago private wealth manager, agrees, noting that over the course of its time, the stock market has been hit with disaster before, and it has always bounced back over the long-term. 

One important thing to consider is that your investment portfolio is likely appropriate to the life stage at which you find yourself. If you’re a millennial and especially one with a decent amount of disposable income, for example, you might have a number of high-risk investments. Older investors, however, tend to place a higher value on stability as they’re saving for — and getting closer to — retirement age. 

So what is the average investor to do, especially the one who has been building a strong portfolio for years? 

According to macroeconomist Komal Sri-Kumar, owner of Sri-Kumar Global Strategies, “If you are in your late 50s or older, then I would say just sit tight if you have a good manager and wait for the correction to be over. Don’t get out and into cash because then not only don’t you have equities, but when the recovery takes place, you have nothing to go up with.”