Robert Francis, Managing Director of multi-asset investing platform eToro shares his insight on maintaining a healthy stock portfolio during these turbulent times.
It’s no secret COVID-19 has injected the global stock market with an unprecedented level of fear and uncertainty. The stock market’s seemingly most stable stocks have plummeted in value, while others, such as Amazon, Zoom and Shopify are booming and in higher demand than usual as society shifts to remote working, online shopping and virtual communication.
Despite the instability, the pandemic-induced market volatility has put investing in the minds of many- whether newcomers, or well-seasoned, investors are evaluating their best options to take advantage of the peaks and troughs.
Is now a good time to invest in the stock market? Perhaps you’re unsure of where to start? Here are seven ways to maintain and build a healthy stock portfolio during COVID-19.
1. Adopt an investment mindset
While the idea of quick cash can often entice market neophytes, this is unrealistic (and risky) and adopting a longevity mindset in times of severe market volatility can be key to greater success. By chopping and changing investments frequently, investors are at a higher chance of missing out on profits because these companies might not have the chance to reach new resistance levels. If investors remain level-headed during difficult times, it’s much more likely any losses will be recouped once markets bounce back.
Consider what happened during Black Monday. When the Dow Jones Industrial Average lost more than 22 per cent of its value on October 19th 1987, the majority of investors abandoned ship. But those that didn’t panic and remained invested in their stocks were rewarded with returns of 16 percent in 1988 and 31 per cent in 1989.
This is the same mindset that should be applied during COVID-19 in order to reap the rewards once the storm is over.
2. Diversity is key to protecting profit
Instead of putting all of your eggs in one basket, investors should look to diversify their portfolio to ensure that their investments aren’t too heavily weighted towards one company or sector. A smart investor spreads their wealth across multiple sectors such as technology, to biomedical or even entertainment, to ensure that all of their bases are covered just in case an industry experiences unforeseen losses
3. Keep a pulse of the news cycle
Read the news and read it daily. Successful investors tune in to their favourite news platforms and social networks to find out the latest trends and news about their investments. Whether you’re watching a particular stock, or if you already have it in your portfolio, keeping a pulse on the newscycle will help you to gather an understanding around how they are performing.
In times of extreme market volatility, investors will notice peaks and troughs almost daily, which are often reflective of the newscycle: new lockdowns, government stimulus packages, economic data reports and more- so it’s important to make this part of your daily investing routine.
4. Be guided by responsibility
The most important way to keep a stock portfolio healthy is to be responsible. Research your stocks, practice with virtual portfolios and educate yourself before you open your wallet. The stock market is not supposed to be gamified. Investors should only invest what they can afford to potentially lose, and apply low leverage during market volatility to minimise risk. The stock market isn’t a ‘get rich quick’ scheme but should be viewed as a long-term solution to building wealth.
5. Consider the industries that support COVID-19 relief efforts
While a lot of the market has experienced a decline, some industries are thriving and delivering significant returns for investors, especially if the company’s offering supports the work-from-home transition or COVID-19 relief efforts.
Industries such as healthcare and biotech such as Pfizer and Johnson & Johnson, materials corporations like Newmont Mining Corp, mask manufacturers like 3M, video game companies such as Activision Blizzard and home entertainment like Netflix are all in high demand across global economies
6. If you can’t beat ’em, join ’em
For new investors learning the basics or those who don’t have time to watch the markets, eToro has an exclusive CopyTrader function, which allows users to copy and leverage other investors’ expertise. Similar to hiring a broker to help you make investments, copy functions allow novices to automatically make the same investments as top performing, experienced investors. It’s of course important to remember that past performance isn’t an indicator of future results, so new investors should check potential CopyTrader bios, read up on their strategy and take a look at their performance graphs to decide if they’re the right person to copy. The good news is this information is available on the eToro platform and easy to find, making it more simple for you to choose which popular investor to copy.
7. Find your balance, regularly
Finally, it’s important to rebalance your portfolio regularly to ensure it remains healthy and on track. This allows you to maintain a desired asset allocation over time, which is essential for hedging against any risks associated with long-term investments. How do you balance? Simply look at your current portfolio, assess which companies you need to increase or decrease your holdings in, and identify any gaps that could be filled with a high-potential stock, commodity or cryptoasset.
Robert Francis is the Managing Director of multi-asset investing platform eToro, the world’s leading multi-asset investment platform, which offers both investing in stocks and cryptocurrencies, as well as trading CFD with different underlying assets.