Looking back, we can see how the coronavirus pandemic has provided investment opportunities, some of which delivered unusually strong returns. “Retrospective investing,” though, is a fool’s game. Since past performance can’t predict future results, we need to consider other approaches, not just historical gains, when designing portfolios.
How to invest if you lack prophecy
It’s amazing how many people tell me, “I knew the stock market was about to shoot up last year.” But if they knew this, why aren’t they billionaires? In general, people have selective memories. Perhaps when the market bottomed out in 2020, they thought, “It’s got to go back up at some point.” But before they actually bought stocks, their defensive brain advised, “Maybe the world will never recover. Millions are dying from corona and the world political situation is explosive.”
Follow the fundamentals
Though everyone wants to make money, not every person has the ability or personality to take risks. Make sure that you have investments that make sense for you. If you are comfortable with market volatility, you can consider entering the stock market and hope that the end of corona will mean the beginning of a refreshed economy. While it is likely to be a rough ride, it can be smoothed out a bit by broad diversification.
Individual stock pickers must be especially careful since a non-diversified position means that if they miss the mark, they could get wiped out [think of Blockbuster, Brooks Brothers, J.C. Penney, Lord & Taylor (Click here for a joke about companies who went bankrupt)].
If the stock market isn’t for you
For those folks who worry about a potential drop in the stock market, there are other investment opportunities: bonds might seem like a good choice. With low-interest rates, though, it’s hard to get a reasonable return. Instead of buying longer-term bonds that may offer a higher yield, though, consider using shorter-term bonds. That way, if interest rates rise, you’ll be able to reinvest the proceeds at a higher rate.
While designing your portfolio, look forwards, not backwards. Keep your eyes open to future possibilities, not only historical data. And, most importantly, discuss your investments with a licensed professional.
Douglas Goldstein, CFP®, GFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published April 29, 2021.