A financial downturn, like the one we are experiencing as a result of COVID-19, can be a rollercoaster, as we ride daily market ups-and-downs. It can also be a time of opportunity to purchase quality, long-term investments at a discounted price.
Before you consider making any investments, it’s critical to make sure you have access to enough cash to cover around six months of your basic living costs. We typically recommend retaining this buffer at all times, but it’s even more critical as we enter periods of increasing uncertainty.
If you are in the fortunate position to have excess cash, a financial downturn can prove an opportunity as the prices of some growth assets, such as shares, take a tumble. Of course, it doesn’t come without risk, and it is critical that you do your homework.
First and foremost, seek expert financial advice. Investment analysts, like myself, apply our expertise and work closely with the leading research houses to keep up to date with market movements and opportunities here at home and across the globe. We then provide that information to our client advice team, who apply it as appropriate to their client portfolios. This ensures that any financial moves are made within the broader context of your particular situation and life goals.
Your goals really should be at the heart of any financial decision. Your investments should be about the long-term, about protecting and growing your wealth for the things you want to achieve in life. If you are looking for short-term, quick wins by buying and selling shares – you’re not investing, you are trading, and that’s a different ball game altogether.
If you do want to investigate the direct investment opportunities available to you while share prices are falling, here are the key questions you should be asking before you even consider putting your money at risk.
Is the company’s business model able to weather financial storms?
In the current climate, if the business is anything related to tourism or travel, tread carefully. We don’t know how long this will go on, so even if the price looks attractive, there are too many uncertainties. Look for companies whose business model isn’t prone to market conditions or the company operates in diverse industries.
A good tip is to look for companies who are the leaders in their industry or have a monopoly position in industries that will still be needed regardless of the COVID-19 pandemic. Some companies may see significant profit growth during the pandemic if their product serves a consumer need that remains valid in our changed circumstances. In challenging times, it’s often the market leaders who can continue trading and, in some industries, may even see profits.
Does the company have low debt and stable cashflows?
Debt is not necessarily a bad thing, and most companies need a certain level of longer-term debt to maintain their operations, but if they have too much debt, a financial downturn could see them closing their doors. Take care to avoid companies with a significant increase in short-term financing; this can be a red flag that things are going wrong fast.
Ideally, you want a company that has stable cashflows, even if their revenue has dropped during COVID-19, they should still have enough incomings to cover the costs of their operations at a minimum.
Is it a company you would have been happy to hold prior to COVID-19?
Your approach to investing should be long-term, so it’s important not to panic buy or make decisions you would not ordinarily make. You should be looking for long-term quality investments in companies whose products or services will continue to be needed long after COVID-19 is behind us.
Do you have the expertise to make this move?
There are certainly opportunities to be had during financial downturns. In fact, during the Global Financial Crisis (GFC), many Apt clients made significant gains on investments, like their superannuation, because with the right advice, their portfolios were structured to protect their wealth and take advantage of opportunities.
When it comes to your money, expert advice makes sense. By taking into account your situation and what you want to achieve, an Apt adviser can apply the wealth of information they receive from an expert investment team to your portfolio, putting you in the best position to live for today while planning for tomorrow.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.