Weather Proofing Your Portfolio

The last few weeks have been quite traumatic for us Jamaicans, first we were very shaken up by an earthquake, which followed on the heels of the one experienced in September, then just a few weeks later, we experienced storm like conditions which understandably would have left several of us still feeling traumatized. As I thought about the shocks and the aftershocks, which were felt literally and figuratively, it got me thinking about the shocks experienced in investments.

The investment world has not been immune from shocks, which include the fallout from increased interest rates and its impact on different types of assets. The conflicts around the world, particularly in the Middle East, have left investors on edge since the outcome is very uncertain. Investors got some rays of hope from the four-day truce announced in Gaza. We all hope that it will lead to a more permanent truce, but that remains to be seen.

When global or even local shocks hit our portfolio, depending on its composition, we may see the value of our investments falling rapidly. It can be very frightening, but the most important thing is to stay focused on the long-term strategy and avoid acting or making decisions based on panic.

Don’t compromise on the quality of your investments. Even if your investment is temporarily depressed in value, if the company is sound, whether a fixed income investment or other type of investment, the likelihood is strong that the asset will rebound, this is the advantage of conducting proper due diligence on your investments. On the other hand, weak investments may be completely wiped-out during shock scenarios.

You’ve been told countless times to keep cash for emergencies and short-term needs, but the other more exciting use of cash is to go shopping for deals when assets go on sale. Even when financial markets are depressed, sometimes the lowest prices do not stay low for very long, and it can be difficult to sell or liquidate other assets quickly enough to take advantage of “sale” prices. Similar to Black Friday and Cyber Monday, there are often great deals to be had, however, unlike these very predictable sales, in the investment world, it is really not possible to time these things. It therefore forces you to be constantly prepared.

It is hard to go wrong with income producing assets. No matter what conditions prevail at the time, generating income is always a welcome part of any portfolio. Income may be used for so many things. It can be used to augment your emergency fund, it can be used to average down on investments, it can also be used to rebalance your portfolio. Small fluctuations in the weights of the assets in your portfolio are normal, but there are times when it can go completely out of whack, at which point you may be well advised to speak to your financial advisor to slowly restore the original weights agreed at the start of your investment plans.

Lastly, look ahead. While it is important to stick to your strategy, technology is changing very rapidly, and with the advancements expected in Artificial Intelligence, it may render certain industries obsolete. This means that what might have appeared to be a quality investment may be worthless in a few years. Even if you don’t understand all the tech talk mumbo jumbo, it is still good to listen to the experts so that they can explain the implications of the different advancements. Unfortunately, what you don’t know or understand can hurt you. Always remember to speak with a licensed advisor about making any changes to your portfolio.

Lisa Minto is the Assistant Vice-President, Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm

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