In the famous song “My Way” sung by Frank Sinatra, the crooner sings “Regrets…I’ve had a few, but then again, too few to mention.” However, when you look back years from now on the events of 2020, what will you wish you had done differently? In this column, we have written ad nauseum on the principles of investing and the importance of good habits, but, as with most things, you don’t realize the importance of these until something goes awry, or in the words of Warren Buffett “Only when the tide goes out do you discover who's been swimming naked.”
If you haven’t thought about it yet, I would like to offer a few lessons that I have learned during this period. When we look at the hard-hit sectors in Jamaica alone, and I won’t mention them here since we are all too familiar with what is going on, the main lesson here is that a diversified portfolio still makes sense. It is so tempting to invest in what appears to be popular at the time, or what seemingly has the highest yield. However, it is important to include less “sexy” options in your portfolio to balance out your risk. This is why fixed income has made such a comeback!
It is also critical to keep cash in your portfolio. Who likes to sell assets at a loss? The short answer is: nobody. Keeping cash doesn’t sound impressive and it certainly has the lowest rate of return. But in a crisis, there is no doubt that the hackneyed saying “Cash is king” is absolutely true. Cash is needed not just for emergencies but also for opportunities.
There are some opportunities that only come along in a crisis and in order to take advantage of them, you need to have the liquidity available. This can only happen if you keep cash. The problem is that none of us knows when a crisis will occur and keeping cash indefinitely can appear foolish, to say the least. However, even without crises, opportunities will arise, and they often come with very short windows.
When credit is abundant, it is easier to increase debt to fund your lifestyle, especially when funds come in readily. However, that rainy day fund that every Finance 101 article refers to, sounds so simple but it is also extremely difficult to maintain. Additionally, when we were all worried about possible lockdowns, we were all running to get supplies, and we needed money to fund that. In this hurricane season, we may be similarly panicked in the near future, only with a lot less money.
Lastly, as you consider how you are going to modify your approach to investing. There are things that will take much longer to implement than others-especially if your job situation has changed for the worse. However, there is nothing to stop you from doing all the things you couldn’t do before, like calling your advisors, making certain that you are on top of all your investments or loans. This is the best time to organize your affairs as we work towards accepting new norms.
Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments 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 Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at [email protected]