11 May Approaching asset management during a pandemic
The COVID-19 pandemic has resulted in an unprecedented crash in our global markets, unlike anything we’ve seen in modern history. Defined by its volatility, velocity, and magnitude, never before has industry collapse been so sudden and vast. This has left many investors across Canada and beyond, asking how to best approach asset management for the rest of 2020.
While not all downturns are the same, there are some recommendations for investors during a downturn that can be applied to the current unusual economic situation that has been triggered by – and continues to coincide – with a global pandemic.
Firstly, it’s important for investors to remember that fear is the enemy of asset management. When investors are afraid, they’re liable to make unwise decisions. Make as few decisions as possible until the panic has subsided.
Secondly, look at the facts of the current situation carefully, and at how downturns have historically impacted the economy. The big fact is that Covid 19 will be with humanity forever. We need to learn, and we will, how to co-exist.
Thirdly, review your personal asset management plan. Your plan incorporates your time horizon, your income needs, your other assets and your personal emotional risk tolerance. When you created your plan, you did so with the knowledge that markets are volatile and the plan needed to be able to withstand that volatility. In all likelihood, your plan is probably still valid.
While this event has a different beginning, what happens next will be the same as many downturns in the market. There is real financial danger in the marketplace that means valuations of different securities need to adjust to the new reality. This is where the current downturn starts to behave like other downturns. These are the classic events in a dramatic market downturn. The market will return to a new normal, but the virus is going to dictate that timeline.
Be patient – this is going to take time. And above all else, remember why you created an asset management plan in the first place – in the majority of cases it’s best to stick to your original plan.