From COVID crisis to recovery: How investors can prepare
While 2020 will be forever defined by the COVID-19 pandemic, it was also a year of financial gains fueled by massive government stimulus boosts – and more help is on the way.
We’ve learned many lessons over the past year, too, and while it’s impossible to know what’s around the next investment corner, there are ways we can smartly invest during this post-COVID era. Consider it one move you can control while uncertainty and controversy persists regarding everything from lockdowns to personal freedoms, vaccinations and variants.
Personally, I cannot wait to once again hear the Southwest Airlines voiceover announce: “You are now free to move about …the country.” Getting people healthy and back to work, earning and spending, is the remedy.
So, what will the road from crisis to recovery look like, and how can investors prepare? Here are five tips to consider from the financial experts at Enso Wealth Management in Mt. Shasta as you get ready for the year ahead.
1. Vaccine rollouts create the opportunity for stronger growth.
As vaccination distribution ramps up across the country, hope blossoms. As we reign in the pandemic, the economy can finally begin to recuperate. Once we can more safely congregate, we can begin to reopen schools, restaurants and bars, and travel can resume. As COVID-19 risks are mitigated, pent up consumer and business spending is likely to propel GDP growth to about 3% this year, backloaded into the second half of 2021.
2. Review the balance of your portfolio.
Some industries have grown dramatically over the past year. Because big capitalization digital and technology stock returns have massively outperformed most other industries, these businesses may have outgrown their planned share in many portfolios. Growth, in general, may have taken a larger than intended role. That’s why the new year’s planning cycle is an opportune time to make sure that your portfolio is still aligned with your goals.
Consider another change worth noting: the shrinking level of bond ownership. Generous equity returns and low bond yields have given us reasons to forget one purpose of fixed income: providing a shock absorber for stock market declines.
3. Identify post-pandemic winners and losers.
Create a process to assess your investment choices moving forward. One effective way to do this is by listing industries as either expanding or shrinking. Did said industries experience growth over the past year or were they depressed by COVID-19?
Consider the following four quadrants as a frame of reference:
- Accelerators – stimulated and growing
- Disruptables – depressed and shrinking
- Pent-Up Demanders – expanding but depressed
- Rebalancers – stimulated but shrinking
Expectations are higher for accelerators, such as e-commerce, digital payments, renewable energy and mobility companies, as well as for demanders like air travel, food service and hotels, than are expectations for disruptables, including retail and traditional energy.
4. The future is digital.
There’s no question that we were all forced to adapt at light speed to the new contactless habits of 2020, and some of those habits are likely to endure. Internet, TV streaming, online health care and shopping, and increased mobility companies have benefited from the pandemic and have the potential to grow even further. One trend certain to continue to progress is the movement to digital payment systems: no touch, no cash and no paper. Cash is no longer king.
5. Go global when looking for innovation.
America has long been the primary engine of innovation in the world and likely will be well into the future. But it would be ill-advised for investors to forgo opportunities from innovative companies just because they are not based in the United States. For example, Asia has quietly become the world leader in digital payments and telemedicine.
America and the world are moving toward recovery. Investors can best prepare for an unpredictable road ahead by reviewing and rebalancing portfolios, considering investments outside of the U.S. and by having a process to evaluate post-COVID winners and losers.
For more information about Enso Wealth Management, visit truewealthguide.net.