Five actions investors should consider during the second half of 2020

July 13, 2020 | GET MORE : Economic Trends

Share Article:

Share on Facebook Share on Twitter Share on LinkedIn

This informational material is provided by U.S. Bank Asset Management Group who provides analysis and research to U.S. Bank and its affiliate U.S. Bancorp Investments. Contact your wealth professional for more details.

Over the past four months, the global economy and capital markets have seen an ongoing series of changes due to the global COVID-19 pandemic.

“The volatile market has led to obstacles for investors, consumers, businesses and governments. Now is a good time to reflect on your personal situation and goals,” said Lisa Erickson, U.S. Bank Asset Management Group. “Planning is a critical step in preparing for whatever comes your way.”

There are three stages during a major economic event – the downward-biased stage, when some investors quickly buy or sell without engaging in deep analysis; the muddle-through or stabilization stage, when it is unclear how an event will ultimately resolve itself; and the growth stage, which is shaped by investors who wait to make decisions based on the longer-term implications. 

Currently, Erickson and the Asset Management Group consider the U.S. to be in the muddle-through stage. She emphasizes the importance of taking five actions to protect your portfolio in this time of market ambiguity. 

1. Revisit your overall financial plan

Her advice is to make sure you have a well-defined plan to help ensure investment actions reflect your needs and goals.

“Given today’s fast-changing circumstances and recently enacted pieces of legislation, there are a number of financial planning opportunities that can help solidify both your current and long-term financial situation,” Erickson said. 

2. Check your current asset allocation plan

After reviewing your plan, consider reevaluating risk tolerance and adjusting target asset allocation. Times of market stress can reveal an investor’s true risk tolerance. An adjustment in risk tolerance may also lead to an adjustment in savings and spending plans. 

“Once you set up targets, keep working toward those goals,” Erickson said. “You don’t have to invest all in one lump sum. Come up with a systematic plan to invest a specific amount every month. I understand it’s hard to know what to do these days but keep investing.” 

3. Review your bond portfolio

According to Erickson, bonds play two important roles in investment portfolios and financial plans. First, they provide a steady source of cash flow into portfolios. Secondly, they can provide some defensive characteristics relative to global stocks, especially higher-quality, longer-maturity bonds. If the bond portfolio has not had enough of this type of exposure, Erickson recommends that investors make a plan to begin a transition in the target bond portfolio to help weather any future economic downturns.  

4. Rebalance portfolio asset allocations back to long-term target weights

With year-to-date losses across major global stock markets, Erickson says portfolios are likely below our recommended equity exposure. She recommends returning to long-term policy benchmarks in equities, fixed income and real assets. Investors should emphasize yield, cash flow and income but be selective about sources as dividend and distribution cuts remain a potential major risk.

5. If you decide to raise some cash, have a plan to redeploy it

“When people get nervous about the market or have an urgent financial need, they may decide to raise cash and sell some investments,” Erickson said. “However, over time cash is the lowest returning security, and there’s always the risk that you will find it difficult to put it back into the market.” 

“Studies show that moving in and out of markets is hard and redeploying cash from the sidelines may be psychologically challenging. Develop a plan based on time or price to reinvest this cash.” 

According to Erickson, cash left on the sidelines can undermine the achievement of your financial goals as cash holdings have historically returned less than most other investments and inflation over time. Success in a financial plan is often delivered through time invested in the market, rather than timing the market.

With all of this in mind Erickson says when making investment decisions, you should always go back to your long-term plan. 

“Our team expects the market to go through some back and forth price action. There will be some stopping and restarting of economic activity,” she said. “People are starting to understand the new normal, but there’s not a clear resolution to the pandemic yet. Stick to focusing on your long-term portfolio target. Of course, planning is always subject to your particular situation.”

Read up-to-date market information at usbank.com/marketnews.

Disclosures

U.S. Wealth Management – U.S. Bank is the marketing logo for U.S. Bank.

This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.