Impact of COVID-19 on your investment portfolio
The Coronavirus pandemic has moved people across the world towards making changes to their social and personal lifestyles. In addition to this, their investment portfolios have been affected too and may require adjustments amid the crisis in order to maintain balance and profitability. The primary purpose of these alterations is to secure the investments amid turbulent times due to an increase in market volatility. The market valuation of several companies has displayed a significant decline as a result of the unparalleled adverse effects of COVID-19 in the sectors in which these companies operate. As a result, it has caused strong implications on the financial portfolios of investors, who may now need to revamp their asset arrangement.
Here’s how some funds in an investor’s portfolio are impacted by the coronavirus pandemic:
1. Stocks and mutual funds investments
It is being argued whether investors should retain their investments in the equity market or withdraw them. There have also been views that this might be the best opportunity to invest in stocks and mutual funds. Several companies are currently dealing with an alleviation in their prices. This reduction has come about due to several factors like the decline in customer volumes, adverse impact on human resources, shutting down of stores or plants and delays in production, disruptions in the supply chain, and significant effects on distributors as well as changes in monetary and fiscal regulations. In addition to this, many companies are losing their contracts due to the above issues further putting a question mark on their credibility. All these factors are resulting in a constant volatility in the market. Hence, it might not be useful to retain funds or indulge in fresh investments in relatively new or unreliable companies. However, investments in well-established companies is likely to prove fruitful. This is because though many companies are facing a decline in their stock prices, the strong companies can regain their position, thereby resulting in profits.
2. Treasury bonds
Treasury bonds are considered to be one of the safest investment instruments in a financial portfolio. The returns on these bonds are backed by a federal guarantee. A recent survey revealed a slump in business operations in the US for the first time in four years during the first quarter of 2020. This was coupled with the returns from TMUBMUSD30Y, the 30-year Treasury bond, coming down to its lowest ever point of under 1.30%. In addition to this, the 10-year Treasury bond was badly affected and slid down to 0.75% for the first time. The slump resulted from investors’ looking to safeguard their funds and the hit taken by the stock market during the COVID-19 pandemic. Meanwhile, the day-to-day transactions in the Treasury sector are showing extraordinary trends. On one hand, the inflation anticipation is at historically low levels, and on the other hand, returns on these bonds are dipping into negative points on an inflation-adjusted basis. Low inflation expectations are encouraging investors to give their money to the government to hold in bonds for nearly 25 years. This boost in the purchase and retention of funds in Treasury bonds is not only due to the security associated with them but also due to the loss that investors had to bear in the equity market.
It is generally not preferred to keep a lot of cash as a part of your portfolio. The reason is that cash does not enhance your future purchasing power or bring returns. However, the current scenario has challenged these notions. With uncertainty spread over most financial instruments, cash is now being considered one of the safest options. It is also being suggested that instead of keeping hard cash, investors might want to keep their funds in savings accounts that offer some amount of return. So, while the interest rates are lower as compared to other investment avenues, at least the funds are not kept redundant. A government savings account can be a safe option since it is backed by the federal government.
4. Real estate
This investment avenue is vast in terms of the various types of properties that can be purchased. The real estate sector is likely to witness a slightly alleviated blow due to the implications of coronavirus as compared to the consequences faced by other investment instruments. The impact on this sector can be seen in scenarios where tenants may face issues in making payments. If the social distancing norms are further extended, they are likely to eradicate the need for office spaces. In addition to this, properties used for social purposes like hotels, restaurants, malls, casinos, and other ventures in the hospitality sector are expected to suffer a setback due to a lack of business. However, with companies attempting to adjust their business operations around the COVID-19 pandemic, there is also a requirement of additional space for the establishment of data centers, warehouses, logistic facilities, mobile towers, etc. Thus, investment in the real estate sector can be considered depending on the purpose for which the property is used.
To sum it up
The COVID-19 pandemic has impacted every dimension of life globally. Financial markets are no exception and they too have been significantly affected by this crisis. Thus, every investor must revisit their investment portfolio to make necessary modifications. These adjustments are necessary to ensure that your funds are not only safe but also earning profits for you in the long run. The many instabilities surrounding investment instruments are new for investors, and there are not many historical events that can be used to understand the actual outcomes of these instabilities. Thus, investors can get suggestions and guidance from financial advisors. They can help make the necessary changes in their portfolio after evaluating all probable scenarios.