How to keep your portfolio intact in a crisis

Keep calm and carry on may look cute on mugs and t-shirts, but it can be a bit harder to apply in real life. It is, however, precisely what investors have to do right now. What they don’t have to do, however, is carry on just as they were before. You can adjust to circumstances, in fact, it often makes a great deal of sense to do so. Just avoid panicking and making a challenging situation even worse.

Assess your financial needs for the foreseeable future

If you’re dependent on investment income, then your top priority is probably to work out how much money you actually need and then how much you would like to receive for the foreseeable future. When thinking about the former, consider whether now would be a good time to extend your insurance cover. For example, if you’ve been self-insuring your pets, would you be safer to get formal pet insurance or see if your local vet has a pet-care scheme?

When considering the latter, think about how you’d like to keep yourself occupied during lock-down. Remember that this could potentially extend far beyond Easter. Also, think about whether you’d like to be in a position to help anyone you know who might be struggling at this time.

Secure the income you need to keep going for the present

Ideally, this would be the point to get professional financial advice. Even if you can’t leave your home (except for essential activities), you might still be able to talk to an advisor over the phone. If that’s not possible, or you simply prefer to control your portfolio yourself, then be sure to give yourself sufficient time to think through your options.

Be realistic about the fact that you may have to consider possibilities you would really have preferred to have avoided, like liquidating some of your investments so that you have enough cash in hand to cover you for the next 6 months or so. Remember, you cannot necessarily count on dividends, not even from previously reliable stocks, especially not in industries which are subject to heavy regulation, such as financial services.

Decide how to deploy any remaining investment capital

There is no right or wrong here, just whatever suits you best. The key is to take all decisions mindfully rather than to react in a panic. It’s entirely understandable that some people may simply wish to protect their capital and head to the likes of cash deposits, bonds, gold and, perhaps, real estate. Others, however, might see this situation as an opportunity to buy into companies which are being unfairly punished by circumstances and market sentiment.

If you’re leaning towards the former camp, then take care to avoid boxing yourself into a corner so you miss out on the returns you need to keep moving forward ahead of inflation. If you’re in the latter camp, remember to be prepared for volatility and for some of your decisions to go against you, at least in the short term. Make sure you can keep going until the market steadies.

Prepare yourself for the recovery

While COVID19 might be a first in living memory (except for the extremely old, who lived through Spanish Flu), it’s certainly not a first in human history or even in history since the invention of modern stock markets. Even without pandemics, the simple fact of the matter is that markets periodically go into turmoil, but then they recover. Sometimes that recovery is sudden, often it is a slow (and not necessarily steady) process.

Getting in at the start of the return to growth could see you book some excellent returns with less risk and volatility that you would have experienced had you stayed in the market throughout (although there is nothing wrong with that if your circumstances all). Remember, you don’t have to dive back in head-first. You can start by dipping a toe and take it from there.