Shockproof your investment portfolio, says Scotia Investments


Shockproof your investment portfolio, says Scotia Investments

Sunday, July 12, 2020

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WITH global markets expected to remain volatile throughout the near and foreseeable future, at least one local investment company is aiming to quell the anxieties being experienced by investors who may be tempted to exit the market during these uncertain times.

Scotia Investments says doing so could put long-term financial goals at risk.

According to Tracia Woodburn Morris, a senior Scotia Investments advisor, the world economy is experiencing an economic shock, and financial worries have caused some investors to act out of emotion. “They are unable to divorce fearful sentiments from the practicality of staying invested, thus making financial decisions that don't align with their financial goals,” she explained.

“It is possible to manage risks and threats to your investments, even in these times of increased volatility,” Woodburn Morris sought to reassure.

“This should include careful consideration of set financial goals and objectives, the length of time in which the goal must be achieved, and one's individual risk tolerance,” she offered.

Cashing out low- to medium- risk unit trust and mutual fund investments at this time, Woodburn Morris said, is not recommended, “as we have seen the negative impact of these decisions played out during the heights of this pandemic”.

Woodburn Morris said the first step for investors at this time is to revisit their personal financial plans. She cautioned, however, that these decisions are highly individual ones and should be explored in consultation with a licensed financial advisor.

“Investment opportunities during a crisis can be twofold. Firstly, there are opportunities in industries that are performing throughout the crisis.” Woodburn Morris points out.

“In the case of COVID-19, some such companies include consumer goods, technology and sanitisation.” However, while these may be tempting, she advises that investors should not neglect the long-term potential of companies in depressed industries such as oil.

Portfolios should be diversified across various asset classes in order to be considered shockproof.

“As you diversify your portfolio, ensure that it is not heavily weighted in any one industry, asset class or product. Investing in this manner creates what is known as 'concentration risk' and puts your portfolio at greater risk for shock and detrimental effects,” she further noted.

With respect to expectations for recovery, Woodburn Morris says it is still difficult to predict a timeline for the recovery from this downturn. However, strict portfolio management and periodic reviews can really help investors withstand market volatility and potentially take advantage of opportunities as they arise

“While it may be tempting to trim investments, staying invested can potentially translate into a significantly better outcome when the markets rebound,” she urged in closing.

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