Your portfolio may only need a small tweak rather than a drastic rethink
Thursday 26 Mar 2020 Author: Tom Sieber

These are extraordinary times. In a matter of weeks the coronavirus outbreak has gone from an event which was seen as having a localised impact in mainland China to a global crisis which has effectively seen the pause button hit on the world’s economy.

Equity markets, slower than other asset classes in pricing in this risk, are now reacting at pace and are down around 40% or more.

Just as in our day-to-day life, where many of us are desperate for news on when we might see a return to a measure of normality, so too investors want to know when the pain might be over.

Difficult as it is, we need to try and remain patient and not act too hastily. Governments and central banks across the globe are throwing huge resources at the situation but ultimately we probably need to see some breakthroughs on the medical side for sentiment to improve markedly.

In the meantime, checking your ISA every day won’t help. That doesn’t mean you should do nothing, it is worth at least doing a one-off examination of your investments and ditching shares in individual companies which have a dodgy balance sheet.

BALANCE SHEET AUDIT

You should examine how cash generative the company has been historically (even if this may be affected going forward) alongside its absolute level of borrowings and it’s also worth looking at when its debt matures.

Many companies with distressed balance sheets have already seen their shares react accordingly but there is still a risk of being wiped out completely. Assuming you have the cash available there may also be opportunities to buy good, durable companies at attractive prices.

We highlight some long-term ideas to make use of your ISA allowance in this week’s main feature.

Otherwise the best thing to do is to sit tight. Research from BlackRock shows that for a hypothetical $100,000 investment in the S&P 500 over the last 20 years (from 2000 to 2019) missing even just the best five days would have seen the size of your resulting investment pot drop by a third.

Shares will continue to provide insight and education through this tumultuous period and we are planning an in-depth article examining strategies for investors to get through the current volatility and hopefully emerge the other side bruised but not beaten.

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