Allocating in uncertain times

Editor's note: Read the latest on how the coronavirus is rattling the markets and what you can do to navigate it.

Ruth Saldanha: One of the questions we've heard a lot recently is, should I be doing anything with my portfolio right now? The answer always is, it depends. It depends on your own goals, your financial circumstances and your own personal situation. However, for some broad insights into what investors should be doing with these volatile times, Salman Ahmed, Portfolio Manager at Steadyhand, is here today with us.

Salman, thank you so much for being with us today.

Salman Ahmed: Thanks for having me.

Saldanha: First up, as a manager yourself, what changes have you made to your equity portfolio?

Ahmed: Yeah. So, for context, we use sub-advisors for all our mandates. And their investment philosophy is to look into the long-term, our average view of the stocks, for five years or longer. So, they've been looking at their companies and assessing which of them are going to come out of this the other side strengthened and which might be weakened by this. So, they've been doing some changes to their portfolio. They've sold companies that might be more impacted by COVID-19 and also, sold some of those that have held better, because they can now allocate it elsewhere. Which brings me to the second thing that they've been doing, which is, they've been adding. They've been adding a fair bit. They've found new opportunities. Some of our managers have said that these are the best opportunities that they've seen in the last 10, 12 years, which has resulted in some new holdings in our portfolios. Of course, we don't know if they're going to go straight up from here or if they're going to go down further. But what we do know is that stocks are cheaper today than they were a few weeks ago. So, for them anyways, it's a good time to get started and to look for those or invest in some of those opportunities.

Saldanha: Let's talk about individual investors now. For young investors with a long-term investment horizon, is now a good time for them to be buying?

Ahmed: Well, I'd say, for longer-term investors, midlife professionals or even young clients, they can be broken down into two groups probably. The first group is one that has extra cash. And we definitely think this is a good time for those investors to start investing in the markets or at least have a plan to start deploying their money. We think investors should act similar to professional investment managers who come at this with a process and with a plan and it will be individual for each one of those investors. But we definitely think it's a good time for people with extra money to start investing, that can be immediately or spacing it out over a few months. We often suggest taking the emotion out of it and having preset dates that can help.

The second group of those clients are those that are already on an investment plan. To them, we say, this is not the time to flinch. We have a saying around the office, follow your plan when you trust it the least. And it's perfectly understandable for investors to have less faith in their investment plan right now. You've seen your portfolios drop in value. But like I said, this is not the time to flinch; this is the time to follow your plan. Those investors that are investing monthly are benefiting from averaging in. Some months, they're going to have a lower price. Some months, they're going to have a higher price. And over time, they can hit that average of that and that's a good way for investors to continue their process in this regard.

Saldanha: A third group of investors are either soon to be retirees or already retirees. Now, with these markets and this downturn, they've seen a lot of their retirement nest egg also fall. What should they be doing right now?

Ahmed: Yeah, it's challenging. And I'd add to that, there's a group of clients, lots of clients, that are drawing from their portfolio, not just retirees, but others that have been directly impacted by COVID-19 either through layoffs or can't work right now because of childcare needs. And whenever you're drawing from your portfolio, we always talk to clients about having some type of withdrawal strategy and at times, that means having a cash withdrawal reserve. And that might be something that is what they tap into in times of market stress such as what we're going through right now. So, we're encouraging those clients to use that reserve, this is what it's there for, and draw on it. But there are a myriad of withdrawal strategies that we certainly recommend to clients, retired or those that need money short term. And we've been asking them to have those conversations.

Now, for this group of clients, so I would say Ruth, it's hard to provide a blanket piece of advice. Because each situation is nuanced, it's different. What we suggest to a retired is going to be different than what we might suggest to someone that's just looking to fill a gap in their income. So, I think, in this situation, it requires a little more conversation and a little more thought. But there are cash strategies that we're recommending clients who are in that scenario for sure.

Saldanha: Finally, Canadians across the board seem to be quite overleveraged. And this is a time where many people are dipping into emergency savings where they exist. What are the options to say fiscally prudent in a time when the economy seems to be headed further lower or further deeper into a recession?

Ahmed: That's a really hard question. But in these times, it's also – this is also a good time for clients to take stock of what they need versus what they want. And certainly, when times are good, we often assume we might need something even though it's unnecessary. So, one of the strategies that, for example, we've been following at home is, we're being really ruthless in writing down things in our home that we use frequently versus those that are sitting on the wayside. So, for example, do we need two vacuums? I like my robot vacuum. But do I really need it? How often do I use it? Those are the kinds of things that – it's painful, but investors are going to be forced to do in this scenario, and I certainly think investors are already doing that. Sometimes it's forced; sometimes they're being more responsible. But this is the time where investors can take a step back. You certainly have a little more time because you can't hang out as much with friends or family for that matter. So, use that time to be diligent and be ruthless, I would say, with what you need versus what you want.

Saldanha: Thank you so much for joining us today, Salman.

Ahmed: Thanks for having me again, Ruth.

Saldanha: For Morningstar, I'm Ruth Saldanha.