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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