Coronavirus Special: Investing during a pandemic

Because the world needed another expert telling you what to do, I’ll try to present some facts and describe how I invest during the Coronavirus market crash.

If you have been in a yoga retreat without your phone for the past few weeks, you missed feeling like you’re in a movie. You also missed this:

Vanguard world etf - VWRL down 23% in 2020

The market has lost 23%, peak to trough, in 3 weeks time. This is the quickest bear market in the history of stocks.

If you didn’t bother checking how your investments are doing after living through the worst day in the stock market since 1987, congratulations, read no more.

But for those of us who think their hard-earned money is quickly vanishing, keep on reading.

I am afraid. Maybe you’re too. But we knew this time would come right? I’m not only afraid that I’ll be poorer, but I’m afraid of catching the virus too!

Obviously, the priority in these times is to stay healthy so that we can enjoy the fruits of our labour. It’s extremely important to take things seriously and flatten the curve slowly despite what the UK government is proposing.

flatten the curve

This will ensure the health system is able to cope with the load in Intensive Care Units so fewer people die at once. There will be plenty of years to enjoy going to restaurants, drink, watch live football etc. But for now, let’s self-isolate a bit, better safe than sorry.

Personally, this means not going to restaurants or cafes, only meeting with others when necessary and postponing my sports/gym. Not sure how long this will last but I hope it’s over soon and not many people die! I still have to go to work but I expect this to change next week or so.

I understand not everyone can WFH though 🙁

What about our investments? We see major sales going on as the world’s best voting machine tries to predict the next move of corporate earnings.

If you’re 100% equities then you probably down 20% or so. But then, you must have gained quite a lot already during the longest bull market ever. So time to give back some. Zoom out and see the big picture. Not so bad to be honest.

2012-2020 VWRL ETF performance

So this market drop has moved us back to 2017-2018 levels. The question, of course, is how much further can it drop.

Truth is, I don’t know. But I do know that this is temporary and humanity will see through this. We’ve fought much deadlier viruses so this too shall pass.

If you have just started investing then bad luck, you probably think you’re the unluckiest person on earth. But I have good news for you. For starters, this is a big lesson. You’ll have plenty of market drops in the next decades. So in a way, you’re “buying” your risk tolerance profiling on the cheap!

Next time you know what you can and can’t handle so you’ll plan accordingly.

You also plan to contribute regularly, right? So your next contributions are going to buy you more shares now than before the crash.

In fact, if you’re just starting out a crash works out better for you. The people affected the most are the ones entering retirement with risky allocations who see a big absolute drop (not just percentage!) of their wealth. I’m talking about hundreds of thousands.

Regardless of when you invest, you’re already on the best path of making yourself very wealthy. Have you met Bob, the world’s worst market timer?

Bob, the world’s worst market timer

Bob started investing just before every market crash in an index fundStarting in 1970, he ONLY invested just before the crashes:

Date of Investment% Drop afterwardsAmount
December 1972-48%$6,000
August 1987-34%$46,000
December 1999-49%$68,000
October 2007-52%$64,000
Total: $184,000

So Bob invested only at market peaks. When he retired, end of 2013 here’s how much he made: Over $1 million.

You read it right: $1,100,000 to be exact.

He had one good characteristic though. Bob wouldn’t sell a penny when the market crashed. He just let the money in, didn’t touch it. Had he invested regularly every month, he would sit on $2.3 million dollars. But then he wouldn’t be Bob would he 🙂 

The moral of the story is that even if you’re losing money, you’re full of fear and thinking of selling: this too shall pass. In fact, in a few years, it’ll look like a great buying opportunity. We will be thinking why we didn’t buy more of these discounted prices.

Plus you don’t lose money until you sell. But I know nothing about your situation/liabilities and provide only general guidance. Also, the world, and certainly the UK may be headed for a recession. It may get worse before it gets better. So if you want to sell, at least lower your equity allocation. From 70 to 40 or whatever.

All in – all out thinking never helped as it’s really hard to know when to get back in again and you may lose more money overall.

These are the times where having a plan is critical. If you have a plan just stick to it. I know my plan is roughly 50% equities, 20% property, 10% bonds, 10% other/cash. I’m not doing anything, not selling, not buying more than usual, not even looking at my investments. Despite having CNBC TV literally above my head flashing RED all day (thanks work!). Selling when stocks are down will only lock the losses.

I have a few random thoughts on buying, including some speculative moves but I’ll leave this for next time.

Boring bonds not so boring anymore

We finally see the value of bonds and what a great insurance have they been, recently. Less than a year I wrote the post “Does anyone own bonds, nowadays”?

The point was to highlight their importance despite them yielding only 1% a year, less than inflation! Less than cash in my TSB account!! Here’s the value though:

VWRL vs VAGP Feb-Mar 2020
VWRL vs VAGP Feb-Mar 2020. Source FT

In times of stress, people flood to safety – government bonds, gilts, US treasury etc.

In fact, the popular Vanguard Lifestrategy 60/40 fund is down only -13.5% compared to -23.8% of a world equity tracker, 20th Feb to 13th March.

Even better, if you’ve invested in bonds already you’ve got some dry powder ready to use 😉 Just remember, it may get much worse before it gets better. Or not.

It’s funny that in times like this, it always feels too late to sell but too early to buy – doesn’t it?

Take care, Stay healthy. And as the Bitcoin crowd likes to say – I’m not fuckin selling.

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6 thoughts on “Coronavirus Special: Investing during a pandemic”

  1. Thank you for sharing your view Mike. I personally choose to not only sell but to buy. Alas, I am constrained from my salary and budget but I certainly have confidence that healthy companies will bounce higher.

    Cheers

    Reply
    • I agree Peri, thanks for sharing your thoughts! The question is how low will it go before it bounces higher. If you’re not forced to sell though, that wouldn’t be an issue.

      Reply
  2. Nice article, not too long and to the point, which is much needed in times when information is too much, incoherent and lacking of sources.

    As Buffett said once ‘Be fearful when others are greedy and greedy when others are fearful.’

    Reply
  3. Thanks Michael,
    Your Articles are like music to my ears, while people have been investing for years and making the most out of their investments, ive only dreamt of investing, instead ive been doing what im good at making money from my business. Which is unaffected from what’s going on right now and sitting on a large huge amount of cash. But i think it’s time for me to invest, but as you said markets have only gone back to what they were in 2018. So i fear i might invest then we hit the recession.

    I am thinking of investing in monthly chunks over next 4 months. 25% this week and so on. Any non-personal suggestions? of course, it’s only income i don’t need for a very long time.

    Reply
    • Cash is King, Bill. Just remember, it doesn’t stay king for a long time.

      Nobody knows how long this bear market will last but yeah, drip-feeding sounds like a decent strategy.

      Reply

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Hi! I’m Michael and I love writing about different ways to earn, save and invest our money. Coffee addict :)

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