Date: May 4, 2021

#1 Question Asked Since the Pandemic: Am I Invested Correctly Post-COVID-19?

Unfortunately, the COVID-19 pandemic caused many investors to alter their portfolios, often not to their long-term benefit. It’s certainly understandable to have wanted to do something in response to this unprecedented catastrophe. The problem is, as is often the case, that emotional responses often lead into unwise financial moves that must be corrected before they do permanent harm.

This is especially true when it comes to retirement planning for high net worth individuals, because the more you’re investing, the more you have to lose. Check out our new guide: Personal Finance for High Net Worth Individuals.

At Heritage Capital, we find it beneficial following challenging times to get back to basics, starting with the importance of a well-diversified portfolio and risk-appropriate asset allocations. Your personal attitude toward risk should influence your investing decisions but not act as the sole driver, as being too conservative is as big a problem as being too aggressive. Both can lead to underfunded retirements and/or portfolios that do not reward you sufficiently for the risks you take.


Time for a Status Check

As life begins to slowly get back to some kind of normalcy, it’s the perfect time to reassess your asset allocations – how did they change as a direct result of pandemic-related decisions, and do they currently reflect a long-term strategy for a post-pandemic world? Many investors will find that COVID-19 distorted their investment decisions, requiring remedial re-allocation of their assets.

It’s also a good time to consider expanding the set of asset classes in which to invest. Most portfolios have a mix of conventional investments, such as stocks, bonds and cash. Notwithstanding your personal ability to absorb risk, adding new asset classes can reduce overall volatility while improving the long-term returns.

Modern portfolios can accommodate a variety of additional asset types. There is also the international dimension to explore, as the pandemic has revealed strengths and weaknesses of many developed and developing countries.

If your portfolio risk has drifted out of your comfort zone in this last year, there’s no better time than now to talk to a financial advisor and get back on track.


How has COVID-19 affected your finances? Schedule a no-strings-attached consultation with the Heritage Capital team and find out.


I Think My Portfolio Is Too Conservative! What Do I Do?

The main goal of a conservative portfolio is capital preservation. Loosely, that means you’d rather give up significant gains as long as you don’t lose significant money. That might be fine if you are dependent on portfolio income to pay the bills, but over the long-run, inflation will erode your buying power, making it much harder to keep up with your expenses. Read our recent blog post: Do You Really Need a Financial Advisor? Investing Mistake #1: Not Considering Inflation!

The chief risk of an overly conservative portfolio is that you will not achieve the long-term returns you will need later in life. A conservative portfolio may contain low-volatility investments, such as investment grade bonds, Treasury bills, CDs and cash. You can increase your exposure to risk by allocating more of your wealth to higher volatility fixed income, stocks and other forms of equity, such as equity funds, warrants, equity options, equity futures and selected equity sectors. If you are an accredited investor, you have access to private equities, hedge funds, private placements, equity crowdfunding, venture capital and other lucrative assets.

If you are naturally risk-averse, you don’t need to make huge changes to an overly conservative portfolio to increase your long-term potential for higher returns. An example of a moderately conservative portfolio might contain 50 percent in fixed income investments, 30 percent in equities, 15 percent in alternate investments, and 5 percent in cash equivalents. This is not a magic recipe, but rather an illustration of one way to add risk to your portfolio without impacting your tolerance for risk. At Heritage Capital, we can work with you to make sure your asset allocation is properly balanced based on your situation.


I Think My Portfolio Is Too Aggressive! What Do I Do?

On the other side of the coin, you can reduce the riskiness of your portfolio by increasing your exposure to low-volatility assets, such as fixed-income securities. If you are 100 percent invested in stocks, you can begin to take some chips off the table and either invest in lower volatility equities or move to bonds and bond funds. You can also consider allocating to high dividend paying instruments like REITs or commodities. A final non-equity allocation of 20 to 25 percent might work best for you, as it is still an aggressive stance without being overly so. Once again, this is just an illustration! At Heritage Capital, we do not believe in cookie-cutter portfolios, as each investor is unique!

Whenever you decide to shift your asset allocations, it’s wise to do so gradually and deliberately. Your goal is not only to have the optimal amount in each investment class, but also to include investment classes with returns that are relatively uncorrelated to those of other classes. You want some of your investments to zig when others zag, a classic way to reduce overall portfolio volatility through diversification.


Should the Pandemic Change My Investment Strategy?

The COVID-19 pandemic provides an object lesson in this fundamental rule of investing: Don’t panic! Had you sold your stocks as many did during the four-week crash, you would have missed one of stocks’ strongest performances since the second world war.

Measured from March 23, 2020, to March 23, 2021, the Dow Jones and S&P 500, climbed 76 percent, and Nasdaq climbed 95 percent. Had you liquidated your stocks in a panic, not only would you have missed these returns, but you would also have had to re-enter the market at much higher prices, more than likely, than when you left.

Selling into a vacuum, usually during sharp downdrafts like the Corona Crash, is emotional and rarely a rewarding strategy. Yet DIY investors take this approach often.

Greed and fear need to be balanced, which requires the D-word: Discipline. If this isn’t your strong suit (and even if it is), a dispassionate financial advisor can help tame your emotions and help prevent you from making costly mistakes. As fiduciaries, the financial advisors at Heritage Capital pledge to do what is in your best interest, a task that requires independent judgement based on facts, experience and expertise; not emotions.


The Bottom Line

Schedule a time to review your portfolio with a fiduciary financial advisor to develop an asset allocation strategy that matches your long-term risk tolerance – and then stick with it. Any changes you make should be gradual and driven by facts, not emotions. Knowing your portfolio is structured to recover from short-term volatility might let you sleep better at night and keep you out of trouble during the day.

If you’re currently looking for a financial advisor to work with, contact us! A no-obligation conversation can go a long way.

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Paul Schatz, President, Heritage Capital