Updated: Nov 18, 2020
There have been a lot of changes in our economy and around the world from COVID-19. Many businesses have been shut down while other ones have exploded with growth. Here are the five areas that I talk about areas to consider investing moving forward:
1) US Markets
Even with the United States having a lot of confirmed cases and widespread business shutdowns, the US economy is still moving ahead. There are lots of great areas that have growth throughout the pandemic such as technology and healthcare, and many more that are positioned to be able to recover such as energy and financial sectors.
2) Index Funds
Owning the entire market is a good way to own more of the companies that are doing well, and less of the ones that are shrinking automatically. In the S&P500 for example, by owning an index fund mirroring that index, you are taking a low cost approach to benefit from the profits of the largest 500 companies in the United States.
3) Mutual Funds
Mutual funds sometimes get a bad rap for being more expensive than index funds; however, they serve a great purpose of hiring a manager and their team to pick stocks. In that example above about the S&P500, a mutual fund that invests in large US companies may not want all 500 companies, but may decide that 200 of them are the best ones. This is an especially useful analysis in a post COVID world with regards to small and mid sized companies. Many of them have been hurt financially which has made analysts jobs even more important in those sectors.
4) Short Duration Bonds
Because of COVID and the economy entering a recession, the government has stepped up and provided both fiscal and monetary stimulus. One of the ways that they have done this is to lower interest rates. These low rates, while good for mortgages currently, are bad for long-term bonds and fixed income. When interest rates are raised in the future, that will mean that bond prices will go down. By holding short duration bonds, you could be able to mitigate the loss that an increase in interest rates would cause.
5) High Quality Municipal Bonds
If you have investments in a taxable investment account or a trust, you are most likely familiar with municipal bonds. We often hold these bonds in taxable accounts because they provide federally tax exempt income since you are investing in local governments. Because of COVID-19, many local municipalities are under a lot of financial strain from paying out additional benefits while receiving less revenue. In the event that they could declare bankruptcy or have major financial setbacks, it is important to be more selective about which municipalities you may want to invest in.
As always, your situation is specific to you and you should have your advisors work to help you integrate good investing plans into your overall financial plan. Please let me know if I can ever help with a review or second opinion on your current portfolio.
Any opinions are those of Andrew Creme and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investments mentioned may not be suitable for all investors. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income tax professional to assess the impact of holding such securities on your tax liability. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. Particular risks include: Manager Risk: The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives. Market Risk: The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. An index fund takes on the risk of the underlying index it tries to replicate and, as a result, if the index goes down value, the fund can lose value. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.