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March 17, 2020

For the last 7 days I have been getting calls and emails from clients who are concerned about their investment portfolios and what they can do to mitigate the effects of the current market volatility.

Reason 1 - COVID19 Effect on Stock Markets

There are many companies globally that depend on Chinese manufacturers and suppliers for their business. One of the examples is Apple Inc. The main product that Apple manufactures is the iPhone. The turnover of iPhone alone is more than the annual turnovers of many companies. This year the delivers of the latest iPhone models are going to be delayed because of the stoppage of manufacturing in China.

The Chinese government has rightly been trying to contain the spread of the virus by stopping manufacturing and activities that require many people to be in the same area together. So this has obviously affected the deliveries of the iPhone, and when deliveries are affected, turnover is affected. When turnover is affected, profitability of the company for that year reduces. When profitability reduces, the stock price drops.

When investors globally see different manufacturers and companies get affected by COVID19, obviously the stock values of those companies and markets as a general drop. Now how is this going to play out. Hopefully with the rising temperatures, COVID19 might die down in the next 3-6 months, because of the all the measures that different companies are putting in place to make sure that it does not spread and also because of the rising temperatures in summer. So COVID19 is hopefully not going to be an issue after the next 5-6 months.

Reason 2 - Upcoming US Elections

The second reason is the US elections. Now as you know Donald Trump is trying his best to get elected for the second term and all the measures that he has been putting in place such as the tariffs and the sanctions on different companies is a bid to get reelected.

Again, that’s a temporary situation, and one or the other if Donald Trump gets elected or not, or if some other president replaces him, the market fluctuations that are happening will subside and the portfolios will stabilize again.

Reason 3 - Oil Price War between Saudi Arabia and Russia

The third reason which should take longer to subside is the oil price war between Saudi Arabia and Russia. The Saudis are content to keep the oil price at 25-30 dollars per barrel, and so is Russia as well.

Having said that, these prices aren’t sustainable for more than 5-6 months at the most, because this will reduce the turnovers and foreign exchange buffers that these countries have been building through the revenues from oil production and this definitely cannot last long. Russia will eventually reach an agreement with Saudi and the OPEC on oil prices.

In summary, the three reasons that are disrupting the markets today are temporary.

What can investors do about this situation?

Firstly, try and remember that unless you need the money from your investment portfolio in the next  5-6 months, you don’t need to be overly worried about what’s happening.

Remember our financial goals and milestones are long-term, whether we are planning for our own retirement or we are planning for our children’s college education fees, or buying or home, what have you. Unless we need the money in the next 6 months, we should not be worried.

Now I have one client whose savings plan is maturing in May and I know for a fact that he does not need the money even though his savings plan is maturing in May, and what he can do about it is leave the money invested, wait for the markets to recover and then take the money and use it for his son’s education.

If you have specific types of investments, this is what you can do about it.

If you have a Savings Plan:

The savings plan is built in such a way that you contribute a monthly, quarterly, or a yearly amount regularly, and keep buying units. That’s how dollar cost averaging works. If you have a savings plan, my suggestion is to prepay the contributions for the next 3, 6 or even 12 months if you can afford it.

What will happen in this case is, all the money that you are pre-paying in advance will buy more units at way lower prices. You will get the biggest bang for the pre-payments that you make today and over time when the markets recover, your savings plan will perform well.

If you have a Lump sum Investment:

The recommendation for a lump sum investment is simple. If you have Stocks, ETFs or Mutual Funds that are positive in value, my suggestions is to book the profits and get into a physical gold fund. There are many ways to buy physical gold online. My favourite physical gold ETF is the iShares Physical Gold ETF or the iShares Physical Gold Trust ETF which is slightly cheaper.

Gold performs inversely as compared to the broader market. When markets are up, gold goes down, and when markets are down, gold does well. If you have gold in your portfolio great, if you don’t this is the time to switch the funds that are up into physical gold. If your stocks or funds are down, my suggestions is to not panic and hold on till the time the funds recover to at least the value at which you bought them, and then book the profits into physical gold.

Either ways, if you have a savings plan or a lump sum investment you don’t need to worry about this temporary fluctuation in the market, keeping in mind that your goals or long-term.

Please feel free to leave your comments, questions or suggestion in the comments section below.

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