Off the top I’d have to state that you should have already been prepared for the coronavirus. You should have been prepared in 2020. You should have been prepared in 2010 when the current bull market found its legs. Investors should always be prepared for the next big one. Once again, it’s time to do a gut check. Are you investing within your risk tolerance level? If you need to take steps, we’ll look at what you can do to prepare your portfolio for the recent coronavirus outbreak.
Once again, there is nothing more important than our health. Wealth is nothing without health. We all feel for the citizens of China and those affected around the world. Let’s hope the suffering is contained as much as possible.
These events cause stress to all. That stress can be exacerbated as folks look at their portfolios and read the investment headlines. It looks like scary stuff.
It is real, and scary.
From CNN Business …
Of course the ‘mask shot’ is standard practice.
And here’s some common sense from Tim Shufelt in the Globe.
But let’s step back for a second and see what has happened to US stocks in the past viral outbreaks.
We only see one 6-month period where stocks remained negative. There were two 12-month periods when stock remained negative. We see that the returns are largely very generous. Stocks mostly go up. Most years are positive. They do not appear to get knocked off track by viral outbreaks and hysteria.
Do nothing, stay the course.
Quite often the best course of action is no action. If you’re investing within your risk tolerance level you are already prepared for a 10%, 20% or 50% stock market correction. More importantly, you and your portfolio are prepared. You don’t have to prepare your portfolio for the coronavirus.
De-risk your portfolio.
I often write that these love taps from Mr. Market are a courtesy. They give you the opportunity to assess your risk tolerance level and act if necessary. I get the opportunity to remind readers every year or so. From Seeking Alpha, early 2018 …
Mr. Volatility is asking you, so you wanna go?
Often Mike Tyson will step into the ring for those posts. They key message here is don’t wait until you get punched in the face. Take that opportunity to put yer dukes up after a friendly body shot.
As we know from our ETF winners in Canada post for 2019, Canadians were already de-risking. They added more bonds than stocks at a good clip.
Bonds are certainly the go-to asset when managing stock market risks. How many do you need? You might have a read of risk levels and bond allocation in this post covering the Vanguard asset allocation portfolios.
And keep in mind not all bonds are the same. Many ‘types’ of bonds punch above their weight with respect to managing stock market risk. There’s nothing better than US long term treasuries and mid term treasuries. Many will write that the only better risk manager is an inverse-market ETF. If that’s’ your thing you’d see our friends at Horizons ETFs. You can even double down on that hedge. Of course these products are for experienced investors only.
Treasuries do their thing.
Here’s a one-month chart for long term treasuries, via iShares TLT.
It was up more than nicely last week. It is up over 2% from Wednesday when fear started to truly take hold. Over the last month it’s up about 6.4%. Canadian core bond funds were flattish last week. But they’ve offered some gains over the last few months. Here’s the one-month chart for iShares XBB.
And of course that disaster insurance known as Gold has been shining.
Here’s the 5-day for the SPDR GLD ETF.
And if you do want to prepare for the worst, in any deflationary spiral here’s what works according to The Balance.
The best investments during deflation include long-term bond funds, zero-coupon bond funds and sometimes dividend stock funds. Investment types that may not work in deflationary periods, with some extreme exceptions, include precious metals funds and money market funds.
Gold would be on the side of the ledger of things that do not work in a deflationary environment. So, as many advise, we do have to be careful about the allocation levels of our risk managers. It can be tricky business building the all-weather portfolio. In the moment, gold seems to make sense as that disaster insurance.
Ray Dalio of Bridewater starts with sensible diversification that many of us already practice.
…. the best investment strategy is to diversify across geographic locations, asset class and currencies to protect against the unknowns.
Ray Dalio
If you are taking steps to prepare your portfolio for the coronavirus you might look to past outbreaks . We land on sensible diversification, good bonds and gold.
Weekend Reads.
On to happier notes, and speaking of dividends, here’s milliondollarjourney’s financial freedom update. Uh, wow?
And with more on folks doing everything right, Mark Seed and readers have maxed out RRSP and TFSA accounts. Now what?
I told you the mood would pick up. 🙂
GenYMoney looks at the best high interest savings accounts in Canada.
On that front I updated my post on Wealthsimple with their new spending/savings option, at 2.4%.
eatsleepbreathefi looks at the Scotia Momentum Visa Infinite Card. Thas has some wonderful cash back features. I am a big fan of making monies off of regular spending.
A Wealth Of Common Sense looks at 5 types of retirement savers. I’ll let Ben take care of some great US read links, as per usual.
At Lowest Rates Ellen Roseman offers this on credit card loyalty programs.
Fritz at Retirement Manifesto reviews Money for the rest of us.
Here’s a great post from Boomer and Echo. I agree that it’s hard to understand why RRSPs often get a bad reputation. Here’s Robb’s guide for the anti-RRSP crowd.
On the Rational Reminder podcast they look at gold and bitcoin as an asset class.
Here’s an overview of Jonathan Chevreau’s first two articles on mutual funds for MoneySense.
And also on MoneySense Jason Heath offers some important thoughts on health insurance in retirement.
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Excellent article! For the most part, I’ve stuck with option #1, as often doing nothing is the best case scenario instead of selling off stocks that are down in your portfolio and, perhaps, even worse, parking them in assets like gold or bond ETFs, to which you probably have had zero exposure to it in your personal financial history but are just doing it because of fear or because others are suggesting that this may be the best course of action.
With that being said, since the Coronavirus has gained traction, I have offloaded stocks having Chinese exposure to which that I had gains overall in, to take money off the table. More specifically, I sold my entire positions in Starbucks, Tencent, Alibaba, and McDonalds as I’m expecting more headwinds on future earnings reports or at least more macro pressure on these names.
One option that I can totally understand and respect is if the investor has low yielding stocks in their portfolio and has enjoyed nice gains and upside in their portfolio and decides to sell and keep a healthy cash position. For example, I have a positions in Visa, Mastercard, Amazon, Microsoft, and a basket of US plays that are S&P monsters in terms of market cap but offer lower yields and hence less cash flow. As a result, I would offload these within my portfolio if there was a substantial, unprecedented hit to the global markets .
What I would not do however, is sell off core high dividend paying stocks in my portfolio such as the Canadian banks, ENB, TRP, FTS, BIP.UN, BEP.UN, and numerous REITs, etc that effectively “pay you to wait” until the situation is under control and markets begin to get back to some level of normalcy.
I’m old enough to have been an investor during the great recession, when my portfolio size was much smaller, and I can tell you it was not pretty. I’m looking at things with the glass is half full so to speak for the moment, but watching things closely.
Thanks 1 up, for sharing and all of the great thoughts. I am an not making any moves.But I can understand why some will remove certain assets. Not my cup of tea 🙂 I’d be more of a fan of adding when they’re down. The key might be the core of balance and diversification with the bulk of our holdings. Thanks as always,
Dale
In market corrections I wait until the bounce off the bottom to start buying my watchlist, we can’t time market highs or lows but we can identify markets moving up after correction, presenting opportunities. Some times we miss the dead bottom but we most always miss another leg down. Pick where you feel you get great value, is it 20%, 30% off highs and begin accumulating incrementally.
Hi Brett, to each his or her own for sure. I think we prepare in advance and then stick to a simple plan. We have no idea what markets will do, and there’s no market timing that works. Holding back cash does not work.
Dale
It took me a long time to overcome a discomfort with gold. When faced with the decision of buying the majority of the US market or having a baseball infield full of gold, I’d prefer to own the companies.
However, as you’ve pointed out, gold in combination with income producing assets can provide a calmer ride towards your goal.
The important part is to know why your investments are what they are, and to be comfortable that you’ll be able to stick to the plan through thick and thin.
Thanks Steven. I agree at the core is that big growth driver known as company ownership. I had a good allocation to gold in 2000 through 2012 or so. Made out very well. We love it when it works. It makes me think. But I would not change things much. It’s a shading of risk managers. I’m considering. I love having some treasuries.
Thanks for stopping by.
Dale
Great post – clearly I fall under the long term investor – do nothing category because my only thought about this little market dip was, “what should we buy?”.
For me personally, that kind of comfort is the only way stock market investing makes sense. Zero stress.
Really enjoyed the read!
Thanks Phia, yes, doing nothing is the best course of action, most often. Well buying as per schedule as you show.
Thanks for the kind comment and for stopping by.
Dale
Great post, Dale. Your recommendations on bonds are good informative as that is an area I’m looking to improve. Just wondering what your take is on Canadian gold producers? I have Franco Nevada as my Canadian gold security but in your estimation, would you favour something like that over an inverse market ETF or a bond ETF? It seems the yield curve is flattening so that is my hesitation. Thanks for the info!
Thanks Sunday Investor. ‘They’ say we should mostly go for the ‘real’ gold or gold price ETF. That said, in the past, I was also treated very well by the a few gold stocks and a gold ETF. When we own the companies we have that management risk of course. But that company ownership could add some torque. I’d have no idea how to evaluate them 🙂
Dale
Thanks Dale. I also have trouble evaluating them. I’ve heard some big-time analysts call them terrible investments as the assets are often mismanaged, but at the same time there must be some good ones so I just picked a big holding company. Feels like I’m flying blind a bit in that space, so hopefully it works out. Thanks again for the post!
I have some gold stocks that became penny stocks. Can’t miss stock tips. One from a gold analyst friend ha, from like 15 years ago. I keep it there to remind me to not be stupid and listen to stock picks, ha. They’ve all been crushed. I’ll stick to investing.
Dale
My question to anyone who asks whether they should invest in gold vs gold miners:
Do you want exposure to gold?
Or do you want exposure to gold + production costs + management team?
Maybe some of both? That’s what I did when I had a bunch heading into the Financial Crisis. Most will say the physical or physical backed as the core.
Dale
Hi Dale, I have the following stocks at the present time, I picked them up the past week after watching them get destroyed: CCL, MGM, ERI, AGS, ASNA, WPG, HOME, and two biotechs with their hat in the ring for a vaccine, AKER and VXRT. They are in my IRA and can’t be touched for another 7 years. Would yourecommeed holding them?
The “everyone has a plan quote” originated with Joe louis, not Tyson.