Concerns about the spread of COVID-19 have been weighing heavily on global asset markets, causing one of the greatest losses of asset value since the Great Depression of 1929. Central banks have moved to support the global economy with lower interest rates and other monetary policy measures. So far,these policies have made little meaningful impact towards preventing a global market sell-off or helping the economy.
Advisors are currently scrambling to contact their clients, to let them know that things will get better,and they should stick to their plan. We disagree, if your plan is to hold the same mutual fund or basket of dividend stocks you held last year and the year before.
It is time to be tactical. We felt the stock market was overvalued even before the spread of COVID-19. As an example, our clients replaced much of their equities in 2019 with government bonds. These were all sold for a profit in early March 2020. We think it will take years for the economy and stock market to recover to 2019 levels. Through this process, we do not think holding index or factor-based ETFs, balanced mutual funds, or the same basket of dividend stocks you held last year is the best approach.Through the economic recovery process, we want to be invested in sectors that are going to benefit from an improving economy over the medium term. For example, there may be times where we recommend holding some gold, government bonds, corporate bonds, or equities.
Not all sectors are going to improve at once. For example, it may take years for the travel industry to recover.If you are interested in discussing how a tactical approach might help you get your investment objectives back on track, please give us a call at either of our offices or visit the contact us page for alternative methods.
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