How to survive and thrive financially amid the pandemic


How to survive and thrive financially amid the pandemic

Friday, May 29, 2020

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The emergence of the novel coronavirus has plunged the world into uncertainty, crippling industrial activity and generating great unpredictability in markets globally.

For investors, this uncertainty has led to a reassessment of their portfolios, with the question on the minds of many being, “Should I seek to protect existing value or identify the opportunities for significant returns to give myself a buffer against the economic storm?”

Marian Ross, VP trading & investment at Sterling Asset Management, believes the best answer is a well-planned pursuit of both. “We believe that the two goals are not mutually exclusive,” she says, adding, “Investors should make sure that they are invested in assets that can give them a positive return in the long run and that can honour their obligations in the short term.”

While it's clear that both bond and stock prices have fallen in the wake of the pandemic, investors, Ross warns, should not heed any urge to rush out and sell, provided that companies can still make payments in the case of bonds or that the businesses have enough cash and remain competitive post-crisis in the case of stocks.

Indeed, there are — even in this time— attractive opportunities in the market. But investors should remember that the timeless equation of risk to reward still applies, as does the adage 'Cash [liquidity] is king'. “Substantial returns carry substantial risk,” declares Ross. “Certainly, investors should be very prudent about what they look at, but there are good opportunities in the market for those investors with liquidity. A few weeks ago, you could earn nine to 14 per cent per annum on a bond of fairly moderate risk. Now that's more like seven to nine per cent, but it is still attractive compared to the four to six per cent that those investments were yielding pre-COVID19.”

So, how should investors be looking at the available opportunities in this period?

One very important metric for bond investors, Ross states, is credit quality. For older investors who want less risk, “You want to be sure the investment, or more particularly the issuer, is investment-grade — that is, AAA to BBB-.” Credit quality, as determined by the international ratings should, she argues, trump familiarity when allocating assets.

As an example, the Government of Jamaica is rated B+, which is categorised globally as 'high-risk'. Countries like Mexico (BBB) and Brazil (BB) have higher credit ratings than the Government of Jamaica— but local investors generally interpret these nations as being riskier than Jamaica.

For equities investors specifically, the sectors that had been generally attractive prior to the pandemic sell-off have essentially remained so. In particular, technology outfits like Microsoft, Amazon, and Netflix have benefited mainly by virtue of demand for the services that they offer, while energy (particularly oil), travel and retail have been hit the worst.

“But even in the worst-hit sectors, there are still individual opportunities,” Ross says, reminding investors to continue to be aware of their risk profile and have a better understanding of that classic risk:reward equation. Outside of a derivative, there is no way to 100 per cent avoid market volatility if you wish to be an investor. The best way to guard against losses is to make sure that the issuer can repay your interest and principal if you are a bond investor, or that the company can remain competitive and relevant during and post-COVID-19 if you are a stock investor.

So, in times of crisis, investors should, first of all, remain calm. They should have an understanding that yes, a massive disruption is at hand, but even so, the tried and true principles still apply and in fact, more so. Stay cautious and prudent in your examination of investments but stay alert, in concert with a professional investment advisor who can assist you in making the best choices consistent with your portfolio goals.

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