Update: As the US flails at containing the virus, many things in the investing world are changing rapidly. The bottom line up front is that I am searching for “Covid proof” investments and ensuring investments can be sustained as part of a new normal.
In general, sticking to a long term strategy and diversified “all weather” portfolio still seems relevant. With extra capital we are looking to investments that can thrive as society adapts to the pandemic.
Now that this Covid pandemic has lingered so long, we have missed more and more events with family and friends. I originally wrote this after Easter. We called our family. Left baskets on doorsteps with masks on. It was still good within our little family unit, but strange not to be surrounded by the bigger family and the buzz of major little kid energy. We watched videos of last year’s celebration which even included a bounce house for the kids, major germ factory. But we did not think about it that way in 2019. Oh what a difference a year makes!
This year I contemplated on the concept of resurrection. Of course, a powerful thing to think about on Easter. See, things get damaged, life and the world take a toll, there are things like viruses and complete economic meltdowns, like 2020 thus far. I do believe in my heart we will all come out of this stronger and changed. but at the moment many are suffering and are enduring major emotional, physical or psychological pain. We must focus on helping each other at this time.
The points in this article are a little different twist. Basically, what can we do to build our defensive strategies right now to protect our assets and ability to provide for ourselves?
How can we resurrect ourselves during and after this collective trauma?
As I wrote about previously, it seems that this pandemic will change us and many things about our world. Since I tend to be a guarded optimist, perhaps some things will change for the better. But at the moment we must survive and then resurrect. In other words, we need to play defense.
From MIT technology review, a way to stop covid and save the economy:
The key, says Romer, is repeatedly testing everyone without symptoms to identify who is infected. (People with symptoms should just be assumed to have covid-19 and treated accordingly.) All those who test positive should isolate themselves; those who test negative can return to work, traveling, and socializing, but they should be tested every two weeks or so. If you’re negative, you might have a card saying so that allows you to get on an airplane or freely enter a restaurant.
All this said, here are some concepts to consider in times of distress, with a focus on being stronger and more defensive financially.
Check asset allocation and pivot to “Covid proof” portfolio
Most people lost value in the recent stock market shock. But if the percentage or amount was earth shattering to someone or severly stomach churning, then they may not have the appropriate asset diversification. This is a strange time and many folks are looking for a “place to hide.” History has shown that waiting things out may be the best bet in the long run.
Diversification is important due to the old saying “don’t put all your eggs on one basket.” If that basket drops, then all the eggs are busted.
For quite sometime I have been interested in “All weather portfolios” not just portfolios that do really well when the market is going up, and then do really poorly when the market crashes. Check out my Sleep at Night Portfolio.
Here are some thoughts on defensive investments:
Vanguard Information Technology (VGT)
Defensive high quality dividend stocks, especially in healthcare, consumer staples, etc. Think Medtronic, Microsoft, Amazon, Clorox, etc.
Assess Job Security
We are all probably taking stock of our employment security at the moment. We have seen the sharpest drop in employment in modern history. Virtually within a week millions of people lost their jobs. This is very sad in many ways.
This is a good time in my mind to recommit ourselves to a future of FIRE, especially the FI for Financial Independence.
To be defensive in this area will require several actions. If you were laid off, then certainly take advantage of the various social safety net programs out there. Then assess if the industry you are working in can withstand future shocks and disruptions.
Build An Emergency Cash Pile
So ideally we would all have an emergency fund built at this time. I believe emergency funds play a couple of critical roles as the economy does it’s inevitable ups and downs.
First there is the obvious. If one loses their job and main source of income, the emergency fund can float the person ideally for the months it typically takes to secure new employment. Otherwise a person will be living off credit cards and doing the opposite of building wealth.
Secondly I think an emergency fund can play another interesting role at a time like a global pandemic. If your job is relatively secure, then part of the emergency fund could be deployed to take advantage of cheaper assets or stocks. This plays into the whole Warren Buffett investing concept of being “greedy when others are fearful…”
Cut Discretionary Spending
Jerry and I are always fans of assessing where our income and cash is flowing. Even during good economic times we should assess where our money is going. Is it going into too many frivolous and wasteful things?
Defensive stocks and asset classes
In general no one really knows what asset classes are going to do better than others during these unprecedented times. And although this pandemic is bad, past history shows us that typically being diversified and staying the course pays off in the long run.
Our country and world seems to be always going through some kind of existential struggle or challenge. Covid 19 is a bit unique because it has challenged the whole world to work together, which is very hard to coordinate even during “stable” times. Viruses do not care about borders, politics, religion or socioeconomic factors. We will only manage them through sound scientific actions and developments.
I am personally thinking of asset classes that will stand the test of time and stress. Although not perfect, I had developed a “Sleep At Night” portfolio prior to the crisis that is holding up relatively well and I have no plans to make any major moves. The sleep at night portfolio is diversified among different asset classes so to protect principal and achieve some level of growth and dividends over time.
In terms of individual stocks I’m thinking Proctor & Gambel, Johnson & Johnson, Target, etc.
How Can We Help Others?
In a time like this it is vital to the health and strength of our country to ask ourselves what we can do for others. This could be as simple as staying home or as elaborate as serving as a front line worker (grocery, healthcare, etc.)
The reason I added this to a list mainly dedicated to financial considerations is that a feeling of True Wealth actually comes from what we give, not what we get. How did we treat our family, how did we take care of ourselves, how did we contribute and add value to the world. Millions and millions of these collective actions make the world a liveable place.
Back to Basics & Focus on Health
For me this is a time to consider getting back to basics. What are the frivolous things in life before that I was just mindlessly doing? How can I focus more on family, friends, creativity, health, etc. All the stuff that makes life great!
I recently wrote about how I believe what is happening right now in the world will actually strengthen the FIRE movement. People will want to be more independent and prepared for major disruptions. Check out FIRE Movement, More Important Than Ever?