In the age of coronavirus, is it time to cash out investment portfolios?

Your Investments: The world is always in a state of craziness. My advice is to do nothing.

By AARON KATSMAN
traders watching stocks (photo credit: Rafael Marchante/Reuters)
traders watching stocks
(photo credit: Rafael Marchante/Reuters)
Recently I was having a phone conversation with my oldest sister, and after lots of nostalgia we got on the topic of, what else, corona. We were talking about all the death and self-inflicted economic devastation and then she put things into perspective. She said, “What can I complain about. I still have a job, a great family and we have food in the refrigerator – as long as someone feels safe enough to go to the store!” The she said, “I am so grateful to be living in Israel. The great and mighty US is being brought to its knees, and everyone is looking to Israel as a place of stability.”
While I disagree with the part about the end of America, the fact that the world is looking at Israel as a source of stability and hope for a cure for corona is not new.
A few years ago I wrote, “The world has gone mad. Terrorist attacks throughout Europe, the move to bring down US President Trump, UK elections, Saudi Arabia taking a tough stand against Qatar, the horror that has befallen Venezuela. Who would ever imagine that Israel has turned into an island of tranquility! Investors are jittery and wondering how all of this geopolitical chaos will impact their investments.”
How to proceed?
For the last three months I have received countless calls from readers asking if they should sell out their investment portfolio and sit on cash until the craziness passes over. Many actually believe that this will never pass, and we are living in a new normal. As I quoted before, the world is always in a state of craziness. The difference here is that in an effort to combat the virus, there has been, with few exceptions, global unanimity to close down the economy. I don’t subscribe to the view that this is the new normal, and as economies have slowly stated to re-open, markets have reacted positively. As such, my advice is to do nothing.
It’s important to stay the course and follow the investment plan that you have created. The world’s always been a dangerous place; pundits have always been calling for crashes, and over time the market moves higher.
That’s not to say that you should leave your portfolio on autopilot. There are certain industries that may reap huge rewards, such as telemedicine companies, while brick and mortar retails stores continue their march into oblivion. Will the way we work, i.e. more and more remote work and less office time, be sustainable? I know the analysts think the answer is yes, but I am far less certain, and as the recent lockdown showed, people crave social interaction. I can’t help but feel for my in-laws who were more or less stuck in their apartment for two months, unable to see their children and grandchildren, and of course their favorite son-in-law! Zoom is great but it’s not like the real thing.
Retirement investors
While I believe that most investors should just stay the course and do nothing, retirees are different. For retirement investors who don’t have a large net-worth and can’t afford the possibility of a second 20-30% loss, pragmatism should win out. For these investors, we may be entering a period of time where capital preservation takes precedence over capital appreciation, and they should make some changes in the way their portfolio is allocated. I say this for two reasons. First, because they don’t have the luxury of time on their side and the ability to rebuild their wealth in the event of a market drop, and second, because the most important aspect to investing is being able to sleep well at night and not be nervous that a sudden market drop will wipe out your savings.
Markets can drop any time, 10-15% drops are common and if you don’t have the ability to weather that storm, you have no business having so much exposure .
It will drop.
Let’s say you disagree and think that you can accurately predict the market drop. Now what? From my decades of experience including the last three months, you may be able to predict the drop, but you’ll miss most of the bounce back. It’s almost inevitable that that’s what will happen.
If you are worried that the corona-inspired economic meltdown will cause even more damage than we have already experienced, speak with your financial advisor to make sure you have the proper asset allocation for your risk level and long-term financial goals.