What you need to know during a crisis
“If investors have access to cash, the current market situation is a perfect opportunity to consider investing in quality businesses at attractive valuations.”
– Ray Sawicki, Chief Investment Officer at Mandeville Private Client Inc.
For anyone who’s proactive about building and managing wealth, watching the markets is a regular exercise. But market activity lately has been anything but regular. The Covid-19 pandemic has disrupted global supply chains and thrown stocks into turmoil, and investors are watching markets worldwide experience massive swings.
In just a few short weeks, this worldwide crisis snapped an 11-year bull run and put the world markets officially into bear market territory. For high net worth investors, these steep declines can mean unrealized losses of hundreds of thousands of dollars a day.
So how does an investor protect themselves in times of crisis?
Raymond Sawicki is Chief Investment Officer at Mandeville Private Client Inc. and agrees that these are unprecedented times for all investors.
“With respect to financial markets, the dramatic increase in volatility and sharp drawdown in global equities has been disconcerting to the public side of clients’ portfolios.”
According to Sawicki, the end of this market volatility is not over, but this is when he wants his clients to seize the moment.
“Although we expect the volatility of the current financial environment to continue for the near term, we also believe this environment presents unique opportunities for our clients to purchase high-quality companies at a significant discount to long-term value, helping to drive their wealth creation process.”
What you do in a volatile market often depends on where you are in your investment journey. To protect investments Sawicki says investors need to keep emotions out of their decisions.
“Nervous and uninformed investors may react impulsively out of fear and panic – emotionally divesting their portfolios at potentially inopportune times.”
Taking advantage of price dislocations and discounts in sectors that will eventually recover can be a great long-term investment strategy. But if you’re losing sleep at night, you may need to make some strategic changes to match your investing personality.
“If the sleep at night factor is too great, then it’s possible that the risk calibration of an investor’s portfolio was set too high and should be re-assessed,” says Sawicki. “If investors have access to cash, the current market situation is a perfect opportunity to consider investing in quality businesses at attractive valuations.”
Now is when investors need to be proactive about preserving their wealth, make plans about what they want to do with their money, and invest accordingly. In a rising market, it’s easy to say, “I have a high-risk tolerance.” When markets fall or volatility rises, it’s time to lean in and evaluate if this is still true. Part of protecting wealth is figuring out what kind of investor you are and how you can protect your wealth going forward in a way that isn’t fueled by panic.
But, for someone who needs access to capital in the short term, the situation is more complicated. Part of your strategy might be selling some investments now that would have netted you more a short time ago. In this case, it’s essential to look back further than just a few months. If you’ve been investing for the long term, you may still be “in the money,” only not as much as you were before the market decline started.
According to Sawicki the coming weeks will no doubt bring more challenges and a greater need for us to be adaptable and join together as a global community to do what’s necessary for the greater good. As for their team, they plan to stick to their goals.
“Mandeville’s disciplined framework for long-term investing, and access to high quality private investment opportunities, has cushioned the negative effects of the market environment for the majority of our private client portfolios,” Sawicki adds “Including private and alternative investments in a person’s asset mix has a series of benefits, including dampening overall portfolio volatility as they are often more insulated from the emotional fluctuations of the public markets, diversification which can reduce overall portfolio risk and long-term growth potential.”
Steven Turner is Portfolio Manager at Oakvest Group with Scotia Wealth Management. He says the key right now is to remain nimble.
“The global markets are being aggressively taken down with panic and disregard as to what is being sold and at what price. We have not seen moves of this severity take place with such swiftness in modern history.”
Taking the long view when it comes to investing has historically been more advantageous. But the day-to-day business news headlines can make investors nervous. As hard as it may be, block out the noise of the daily market activity and look at historical market performance, over five years, ten years, even 25 years. This can help conservative investors, especially, feel better about their long-term prospects.
“A well-diversified portfolio has fared much better than the capital markets as holding cash and fixed income have helped to isolate investors from the full degree of market pain,” says Turner. “Investment decisions should not be reactive, and there is very little that can be done to protect a portfolio after a market event like this. A disciplined approach to rebalancing will provide investors a quicker route to recovery and future gain as opposed to simply riding it out.”
Turner warns the bottom may still be coming making it even more important to stick to your core investment values. Don’t become a speculator when you are a buy and hold investor. For example, if you invested money three years ago that you planned to hold for ten years, keep on that path. Speak to your financial advisor about asset allocation, but don’t try to buy and sell that long-term investment in hopes of making quick money. This can be hard to do when you see market swings of more than 10 percent, but remember you increase your risk when you try speculating where the markets will go today.
Turner says the news is changing fast and investors need to adapt quickly. “With news coming in by the hour, our team has had to make almost daily adjustments to our stance and strategy. High grading our equity exposure towards sectors that will recover more quickly, and offering increased distributions in the interim are a couple of strategies we are employing.”
Many investors remember the 2008 financial crisis, but Turner warns this is different and investors should be aware of that.
“In 2008, investors had the opportunity to reduce equities and raise cash as the market began to roll over. There were signs both fundamentally and technically that the markets were vulnerable.”
Despite this, history is still a good indicator of where we are headed. According to Sawicki, the current pandemic has exhibited greater market volatility and daily price swings than they’ve historically seen in modern history.
“Monetary and fiscal stimulus response by central banks and governments has been equally unprecedented,” he says. With short-term lending rates taken down to zero overnight, and trillion-dollar stimulus packages proposed to support the economy and cushion the impact of a long-term recession or possibly depression. But despite the doom and gloom scenarios painted by the media in headlines over the last 30+ years, including the 2008 Global Financial Crisis, each event passed with the economy rebounding and eventually attaining new highs.”
It’s hard to speculate were the market is headed, but one thing is for sure, learning strategies to protect your wealth has never been as crucial as it is right now. An uninformed investment decision can end up costing you in the future, resist the impulse to react to out panic. Instead, seek out creditable sources and trusted advice to help protect your wealth when markets are dealing with a worldwide crisis.
“The view from Scotia Wealth Management and our Global Portfolio Advisory Group, is that the pandemic will not have a material impact on long-term growth – exogenous events seldom do.”
– Steven Turner, Portfolio Manager at Oakvest Group with Scotia Wealth Management