A Portfolio Allocation Shift During the Coronavirus PandemicSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on April 27th, 2020
By Bob Reby, CFP®, April 24, 2020
The following article has been adapted from Bob Reby's April 24, 2020 client letter.
I write this article with mixed emotions. I remain saddened by the magnitude of this pandemic and the devastation it is bringing to many families’ wellbeing and the economic landscape. Yet I believe this is the start of a new chapter of American resourcefulness, determination, teamwork, and resiliency. Despite the current challenges, I’m very excited about what the future holds. But that’s for another day.
I think it’s reasonable to say that once the health crisis appears to be mostly behind us, much of the discussion will turn to the impact of the economic recession we are already in.
One might ask, “how do you proceed rationally with this significantly heightened level of uncertainty?” Markets fear uncertainty more than anything, and we have no control over the current uncertainty. However, we have perfect control over how we respond to it. Or maybe, how we don’t respond.
Goal focused investors, with well-designed portfolios, stay the course with a long-term investment strategy. Making occasional allocation adjustments, which align with your investment objectives, can take advantage of opportunities and potentially reduce risk.
As you may know, we have many different portfolios at our firm. For the purpose of this discussion, I am going to focus on the Moderately Conservative strategy; we have a mix of thirteen proven asset classes spanning equities, fixed income and liquid alternative investments. In January 2020, we made an adjustment that effectively made the fixed income portion of the portfolio more conservative by reducing exposure to Emerging Market Debt and High-Yield Bonds. The shift increased the investment in Aggregate Fixed Income, as we came off a stellar year in 2019. This was a strategic asset allocation shift, based on long-term fundamentals and it has worked out well in the short- term.
Now, with an economic contraction upon us, we feel comfortable attempting to take advantage of the other investors’ fear as they have been selling Short-Term Bonds, thereby depressing prices. This is a slight strategic shift; one that will require patience as we navigate through the uncertainty.
Communication is always important, but in times like this it is paramount. We will continue to share our thoughts and plans and, if you're a client, we will work hard to meet or exceed your expectations. Financial planning is in our DNA. Please consider us a resource if you would like guidance or a second opinion during these uncertain times.
Most importantly, stay safe and well. Don’t ever hesitate to reach out to ask questions or just to catch up.