Posted on Friday April 24, 2020

Investments and COVID-19: How to protect your assets

During this period of strong turbulence, the investments of many New Brunswickers are suffering from the climate of uncertainty. To help us make good decisions and to guide us through this economic fog, Daniel Bergeron answers your questions. He is Director of Wealth Management at UNI and a mutual fund investment representative with Credential Asset Management Inc.

Be patient and prudent during a crisis

This significant market volatility—caused mainly by emotional reactions to the health crisis and economic turbulence linked to COVID-19—is a new reality that is affecting many people. According to our expert, this period of fluctuations will likely last for some time to come.

“The record drops followed by record increases indicate that emotions are really the main factor in this stock market crisis. The stock market is always the first to react, well before the actual economy. At the moment, there is a lot of volatility and more speculation than normal,” Mr. Bergeron says.

“The markets are more interdependent than in the past. American, Chinese and European decisions are affecting us more. Until the curve has truly flattened, there will be volatility. During a period of turbulence like this, prudence is essential.”

Financial crises: A cyclical phenomenon

“From the 1929 stock market crash to the 1974 oil crisis to the great recession of 2008, a series of stock market crises have rattled investors over the years,” Mr. Bergeron says.

“Stock market and financial crises have always been—and will always be—part of the equation for investors. All crises are different but share certain similarities. The 2008 crisis originated in the financial world. This one is a world health crisis that has affected a number of sectors and is also being driven by an oil crisis. Things are more intermingled this time. The consequences for the economy are much bigger than in 2008, with the closing of retailers and restaurants, the explosion in telework, etc.

“Governments seem to have learned the lesson from 2008 and are responding with major economic stimuli. The health component is also fundamentally different. As an investor, it’s important to remember that all past crises were resolved and then followed by growth cycles,” he says.

Sell or buy: What should you do?

The onslaught of bad news creates anxiety and raises very legitimate questions about which strategy to follow in times of crisis. Many security holders are often tempted to sell before further potential declines.

"Unless you have a crystal ball and sold your investments last January or February, your portfolio, like most others, will have suffered a decline in value as a result of the crisis,” Mr. Bergeron says. “You need to analyze this decline objectively against your long-term strategy before making any emotional decisions that could have an impact.

“People often say that they have made or lost money on the stock market, but the reality is that until the securities are sold, there is no real gain or loss; there is only a market value that fluctuates over time. Selling quality securities that fit your long-term strategy in a market low rarely pays off. Conversely, there are certainly buying opportunities for those with cash on hand.”

Reviewing your short- or long-term strategy

Crisis situations are a good indicator of investors’ actual risk tolerance. When markets are rising, it is easier to tolerate risk. On the other hand, our limits become more obvious in periods of decline, when long-term strategies take on their full importance.

“These days, many clients are asking us to review their investment strategy in light of the new market parameters. In times of uncertainty, we have to stay focused on the goals: if they are very short-term, such as for retirees in a disbursement period or for people who are very close to retirement, adjustments may be necessary. Others who have urgent financial obligations created by the crisis, such as some entrepreneurs, may also need liquidity,” Mr. Bergeron says.

“In any case, we must be careful and avoid panic decisions. The changes made must be part of a coherent strategy to take advantage of the recovery. At UNI, we are there for our clients on the phone and by email, and we’re working on adding videoconferencing. This is essential in order to answer our clients’ questions, help them make the right decisions and reduce their anxiety.”

An oil crisis under the radar

In addition to the historical turmoil we are experiencing, an oil price war has triggered a drop in the world price of this resource, one which is still central to the functioning of the world economy.

Triggered by unsuccessful negotiations between OPEC and Russia to reduce production capacity, it led Saudi Arabia, the world’s second largest oil producer after the United States, to slash its selling price in order to put pressure on its competitors. As a result, the price of crude oil collapsed in the midst of the global health crisis, with major financial consequences for a number of oil companies. Producers of shale oil in the United States and oilsands in Canada, whose production costs are relatively high, are not immune to this.

“It’s obvious that the oil price crisis is not helping the stock market. However, we must remember that the Eastern Canadian provinces, with the exception of Newfoundland and Labrador, are not major oil producers. Here, the drop in prices could have a stimulating effect. Even though Canada, the world’s fourth largest producer, could be affected globally, many New Brunswickers are taking advantage of the low prices at the pump these days, which relieves pressure on their finances. An agreement to reduce production seems to have been accepted by the world’s major producers in the last few days, which should also allow crude oil prices to return to a more stable level,” Mr. Bergeron explains.

An opportunity for rapid economic recovery

Almost all economic fundamentals were positive before the health crisis. Low unemployment, controlled inflation, solid and steady growth, business investment, consumer confidence… Everything seemed to point to a continued economic boom.

“No one knows exactly what the post-crisis period will look like, but successive market rebounds suggest that when there is a recovery, it could be quite fast,” Mr. Bergeron says. “The consequences of the crisis are global, and people seem very aware of the need to help each other in the recovery. Some companies are shifting their production to essential goods, while others are setting aside the pursuit of profit to serve the community. I think there are a number of reasons to be optimistic about the future.”

To make a telephone appointment to discuss your investments, contact your investment advisor or email them directly with any questions you may have. Their role is to develop an investment strategy that meets your goals, takes into account your risk tolerance and is consistent with your values. At UNI, we are always there to support and assist you.

The data cited in this article were valid at the time of the interview in early April 2020. Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered trademark of Aviso Wealth Inc. This article is a general source of information and should not be considered as personal financial advice, investment advice or solicitation. The information contained in this article has been obtained from sources believed to be reliable, but we cannot guarantee its accuracy or comprehensiveness.