Coronavirus and How to Protect Your Wealth

Hi all. At this point I assume you all are well aware of what is being called COVID-19 (THE Coronavirus). This virus has caused lots of pain physically, emotionally, and financially around the world. Let me be the first to say that we are all in this together and I stand by everyone trying to make it through this difficult time. Two major shout outs. #1: The healthcare workers on the front line around the globe. My brother and sister-in-law are both physicians and I cannot be thankful enough for the people going into the hospitals everyday to care for the sick. #2: Shout out to the great companies around the world that are re-configuring their product lines to create healthcare supplies - this quick ingenuity says a lot about the large businesses in today’s world.

Wow, where do I start. I am writing this having lost a significant amount of my net worth in the past 30 days. Being in my late twenties, most of my wealth (net worth) is tied up in the financial markets, which have been wrecked in the last 30 days primarily due to economies around the world shutting down due to COVID-19. First, we saw China shut down when the outbreak began and this had fairly little impact on US markets. It was not until we saw cases start to spread globally, I am thinking Italy then the US, that financial markets really crashed. This crash set tons of records across the market. If you watched the news you would see headlines like: “Dow has its worst week since October 2008”, “Dow has 5th worst week in 124 year history”, etc. you get the point. On the way down, however, you would also see days where the headline would read “Dow has biggest one day gain in the last 30 years”. Watching the headlines here is enough to drive you into a profuse sweat. It had this effect on me and I found myself having to take a step back to think rationally about how to 1) stop panicking, 2) stop panicking, and 3) to START acting to protect my wealth. Not panicking in the face of experiencing a crisis and mounting loses in the markets is something not a lot of investors can do and it’s trait I have noticed over and over again in books about some of the best investors in the world - so I try my best to rationalize situations.

Okay, so going from panicked to completely rational is seemingly impossible, but I think I got as close as I could. Here are a few things I did to help me get to my “rational zone”.

Turn off all the news: This is super hard to do during a crisis. However, I found the media blasting constant negative headlines and propping up “talking heads” who knew little factual information to take a serious toll on my mental state. The negative headlines flashing across my screen constantly honestly did it to me. They sent me into a panic before even checking my brokerage/investment accounts. Turning off the headlines allowed me to calm down and to take a second to grasp what was really driving the markets and the crisis.

Talk to somebody you trust: Luckily I have two doctors in the family. Being able to talk to a doctor you trust during a health crisis is very important. Hear me out. COVID-19 is no joke. My grandfather is currently locked down in a retirement home in New York because numerous people in his retirement facility have passed away due to COVID-19. No visitors in or out. This causes constant worry on my end. However, being able to talk to two medical professionals (both worked at Johns Hopkins) who assure you that everything will be okay is very calming. Their guidance helped me take a step back and study the statistics of the virus itself then other causes of death around the world (to keep a holistic view). In the essence of this post I will not get too far into these statistics - maybe I will save it for another post. If you have a trusted doctor or general mentor/advisor in your life take the time to talk to them about how you are feeling. Usually just the act of verbalizing your feelings will make you realize that they may not be the most rational.

Tune into your life: Okay… what’s this mean. This means take stock of everything around you for a second (or a minute, hour, day). Realize what you have. The act of sitting still and thinking about everything I was blessed enough to already have instantly reduced the anxious feelings swirling around my stomach. My girlfriend, our apartment, our wonderful Frenchie, our jobs, our friends and family and most importantly our health. Taking time to realize what you have while facing losses in the market or in life can help you relax. It definitely works wonders for me and is a tactic I use anytime I am feeling anxious or worked up about something going wrong in life.

Now, on to what I wanted to write about this morning. How to protect your wealth while staring down a global pandemic. The strategies I lay out below are a few quick ideas I have that I will try to expand on in future posts.

Don’t Panic Sell: This is probably one of the worst things you can do. So, you have your portfolio of stocks and bonds and one day you see it down 20%, so you sell everything to avoid losing more money. Wrong. Don’t do this. Look at the statistics. After a recession (consensus says we are in one) the average recovery time is 12-18 months and the return from trough to peak in a recovery amounts to 20-50%. So, not only would you lock in your loses by selling, but you would also miss out on the upside in the recovery. Which brings me to my next point.

Reallocate and Build: With the market down now about 30% we should be close to a bottom in the market. If you have a large fixed income position in your portfolio you should really consider a reallocation to gain some exposure to equities. This is a historic sell-off - the news headlines tell you that everyday - and we know from history that the recovery from something like this is usually strong and generally pretty swift. So, if you are in a 60/40 portfolio of stocks/bonds maybe you reallocate 10-20% more to equities here to try to catch the upside and actually use the downturn to build wealth. This reallocation would make your portfolio look more like a 70/30 or 80/20 portfolio of stocks/bonds. I really do think the market will recover from the COVID-19 crisis strongly and swiftly and urge you to consider a reallocation of your portfolio during this time to try to protect and grow your wealth. I personally had a lot of money in cash before the crisis and have been buying up equities I think look very cheap with strong balance sheets. There are tons of opportunities out there in the equity market right now if you can do your research and find them. Since I am a bit younger my reallocation has not looked like moving money from bonds to stocks, but rather cash to stocks. Of course, always make sure any reallocation matches your risk tolerance and consult a financial advisor.

Real Estate: This is something I am also actively pursuing during this crisis period. The front end of the US Treasury curve went negative yesterday. The 10 and 30-year Treasuries are at historic lows (the whole Treasury curve dipped below 1% at one point). When long dated Treasuries begin to fall so do mortgage rates. Getting into a cheap mortgage right now seems ideal and I am hoping the market noise causes some buyers to press pause and consequently sellers to lack demand. My hope is to pick up a good deal on a house in a market that is on hold with cheap long-term financing. Full disclosure - I have rented an apartment since graduating and admittedly have done so for the convenience. It seems like an opportune time to buy my first piece of real estate in order to start building wealth and stop burning cash on rent. I believe real estate should be a part of every investment portfolio in some manner and so far I only have real estate exposure via REITS. Another reason to take advantage of the market turmoil and to get into real estate is the fact that the asset class tends to be more stable. Of course, after 2008 we all now realize that real estate values may in fact fall, but the fall tends to be to a lesser degree than publicly traded investments or investments that are marked to market. Taking some excess cash and putting it to work in a home or investment property while financing is cheap can help you build wealth and avoid near term market volatility. You won’t see the price of your house swinging wildly day-to-day which will smooth out fluctuations in your net worth and an investment property may give you an extra cash boost.

Gold: Ah, gold. Gold has had a crazy rally in price over the last month. Gold is up almost 6% vs. the S&P down 20+% over the last month amid tight supplies and what seem like unlimited monetary stimulus. I personally have about 2% of my portfolio in gold at any given time. It’s widely regarded as a safe haven asset and also tends to act as a natural hedge against a long equity portfolio and inflation. I know my 2% position seems small, and it is, but I also didn’t increase my exposure as I should have through the equity sell-off. Hindsight, right. Anyway, gold tends to act as a hedge against an equity sell-off and it proved to do so during the recent COVID-19 crash. If you don’t have a small gold position in your portfolio maybe you should consider building up a small position that you carry as a natural hedge. You can do this primarily two ways: 1) buy a gold ETF or 2) buy physical gold. Now, I personally get my exposure to gold via an ETF backed by gold bullion because I worry about storing physical gold in my apartment. Physical gold is clunky, heavy and not too easy to hide in a small apartment so I opt for the ETF.

In summary, utilizing the above strategies can help you preserve and I hope even grow your wealth during this crisis. The strategies may not mean you don’t experience a decline/loss, but my hope is that they will help you come out on the other side of this in better shape. Real estate and gold can smooth out some volatility, while reallocating and purchasing high quality stocks can help you come out stronger post-crisis. Remember the statistic I mentioned above about recoveries from market trough to peak: 12-18 months, 20-50% bounce. Stay rational and remain nimble during these times.

Let me know if you have any other strategies to protect and grow your wealth during this COVID-19 crisis and please keep everybody on the front line fighting this virus in your thoughts and prayers.