Smart, Sensible COVID-19 Investment Advice for an Uncertain Age

Since the pandemic began, the stock market has gone up and down so often, like a yoyo. Even the experts aren’t quite sure what will happen in the future. Just ask nationally syndicated financial columnist and author Terry Savage. “I think we’re in more uncertain times than any I’ve seen since back in the early seventies.”, cited by PBS’s Next Avenue.

So how should we invest our hard-earned money amid such uncertainty? Amid all the panic, it’s worth noting that in August, the S&P 500 stood at a record high since March. As reported by The New York Times in August, the market had rebounded after a collapse of almost 34 percent in February and March – an economic collapse not seen since the Great Depression. According to the article, this improvement reflects “a remarkable rally of more than 50 percent that has underscored the dissonance that sometimes exists between the markets and the economy.”

Unfortunately, without three high-priced stocks, Amazon, Apple, and Microsoft, the return on the S&P 500 would have been -4.1% this year through July’s end. This includes dividend payments. Furthermore, the Federal Reserve has been essentially printing new money to buy Treasury bonds and other assets, and interest rates remain low. That being said, historically, the stock market has always rebounded over the long term after a crash.

Focus on the Dividends

Pam Krueger, co-host of PBS’ Moneytrack, founder of financial adviser referral service Wealthramp.com, and investor advocate recommended inflation protection in the form of conservative, dividend-yielding stocks. “Going back to 1926, there has never been a twenty-year period where people lost money in a diversified portfolio of stocks with dividends reinvested, even with all the market crashes, and even adjusted for inflation,” columnist Savage added, as cited by PBS’s Next Avenue.

Weigh Short-Term Versus Long-Term Bonds

While bonds protect investors from stock market volatility, Savage is concerned about today’s low-interest rates. Fixed-rate CDs chosen at many banks will yield especially low returns, too. Keep in mind that increased inflation would worsen the problems with bonds. Notably, high-quality, taxable intermediate-term bond funds have been yielding around 2.0 percent, high-quality, taxable long-term bond funds have been returning about 3.0 percent, and short-term, taxable bond funds have been yielding about 0.6 percent. Municipal bonds may also become riskier as the recession drains government resources.

Evaluate Your Target Date Funds and 401(k)

Notably, some 401(k) investments have gained access to private equity, diversifying their portfolios. These include target-date funds in which the fund manager makes investment decisions based on the date you wish to retire. As your retirement date approaches, the intention is to invest more conservatively. Therefore, before investing in a particular fund, check on the balance of stocks to bonds, as this differs among funds and changes as the investor ages.

What If You Don’t Make Any Changes?

Some cryptocurrency experts have warned of the problems that inflation will continue to cause, speaking of “overbought” stock market bubbles, along with low bond yields, that will limit traditionally lucrative investment options millennials into the foreseeable future. At the same time, other financial experts have recommended making no changes to your current long-term investment strategy and withdrawing as little money as possible now. In general, the financial experts cited by Quicken Loans advocated the commonsense approach of buying low and selling high, which also means that the current market offers opportunities for long-term investors to profit from the lows eventually. If there’s one big mistake they recommend you avoid, it’s panic-selling.

Investment Advice for a Diverse Portfolio

Sadly, during a pandemic, investors may also run into unscrupulous issuers and others who tout misleading or sham investment opportunities. Be sure to watch out for these COVID-19 investment scams. As always, a good investment adviser can help you sort through the noise and make sound investment decisions.

Diversity is and has always been, the key to any sound, long-term investment strategy. Now, as the market is rebounding, investing in private equity is more accessible than ever, because the SEC recently adopted new accredited investor categories. This is significant because accredited investors may choose from many more private placement offerings than general public members.