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The markets today appear set to open mixed with some major indicators in the red and some in the green at time of writing. That follows yesterday’s drop, caused in part by pandemic anxieties including a fear that we face a second wave of the COVID 19 virus. That could mean another round of business restrictions, closures and job losses. (Many would argue that the first wave is still continuing.)
Additionally, blue-chip bank stocks such as J. P. Morgan, Bank of New York Mellon, Barclays, HSBC, Standard Chartered and the already low-rated Deutsche Bank took an extra hit with allegations of suspicious financial transactions which could also trigger calls for more bank reforms. The total potential fallout of these allegations remains to be seen in the coming days, but they won’t help the share prices of these banks.
Political wrangling, heightened by the controversy over U.S. President Donald Trump’s intention to name a new Supreme Court judge adds to the jitters.
Whether these and other shocks lead to a deep correction remains to be seen but those who fear the worst can consider several strategies, explains Jay Nash, Senior Vice President and Portfolio Manager at National Bank Financial in London. Nash recommends that investors take some profit when markets are up and increase cash holdings. Still, cash and bonds offer little return, meaning an obvious dilemma.
“What’s an investor to do? Should you worry about the short-term or focus on what will give you better return 12-18 months out?” he asks, paraphrasing a common investor concern.
The answer comes down to each investor’s personality. An extremely worried investor should consider going to less than 50% equities which will enable him or her to get excited about ‘buying cheap’ when the time comes, he says. Otherwise, a balanced portfolio could stay at around 55% equities to get through short-term turbulence. A balanced investor who wants to outperform can go to 60-65% equity if the market pulls back.