Coronavirus: How to Invest in a Volatile Market
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Fears over the impact of the coronavirus on the global economy reared their head again on Monday, sending global markets sharply lower.
How is the coronavirus triggering market volatility and which sectors are most affected?
The Dow Jones Industrials and S&P 500 each fell by more than 3%. How should investors approach a volatile market to protect their holdings?
The key is to have the discipline to maintain your strategy. Whatever that strategy is, you have to do it. You need to make up the rules of your strategy before you actually need to use them when you're calm. In situations like this, a lot of investors are almost in a panic state. And generally, when we're panicked, we don't make very good decisions.
What is Beacon Capital’s core rule for protecting assets during sudden market swings?
That's Beacon Capital Management President Chris Cook. He'll explain how investors can protect their holdings in the face of market volatility. That's next.
The coronavirus epidemic has curtailed Chinese manufacturing, exports and consumption this year. And since factories worldwide depend on a supply chain tethered to China, it's threatening to dampen global growth. Officials and economists are warning that an extended Chinese shutdown could cost the world up to $1 trillion in lost output. That has sent global markets into wild swings, with investors dropping stocks in tech, aviation and oil, and piling into havens like government bonds and gold. But is that the best way to protect holdings? Let's bring in Chris Cook. He's president of investment advisory firm Beacon Capital Management for some answers. So Chris, when the markets swing hard like they've done, the fear factor plays a role in investors' decisions.
And for investors in this market, what's the best rule of thumb to protect their assets?
the first way to protect assets is through diversification that's that's always our go-to you know in our particular case we like to spread assets across all market sectors we divide the market into 11 sectors and we we allocate evenly across there so we don't try to make bets on a particular sector like technology or healthcare financial something along those lines
Why does Chris Cook recommend diversifying across 11 sectors and which ones offer shelter?
And with some luck, the sectors in this particular market, like utilities and real estate, that don't have much exposure to China or any overseas markets, for that matter, will help protect that portfolio.
Now, you mentioned the 11 sectors that you're putting money in. Are there sectors that you would avoid during this stretch of time?
Generally, I don't try to avoid any particular sector. I do like full diversification across the market at almost all times. If you are a particular investor that really wants to try to avoid something at this particular time, then I would probably avoid sectors like technology because they have high valuations to start with. They've been on a pretty big run. And they have large exposure to China. So it's very difficult for them to avoid the outbreak right now. And in China, you have large population centers that are effectively shut down completely. So that's going to affect their supply chains.
How would you advise somebody who wants to put fresh cash to work in this market?
right now if they're set on investing the money right now today i would do exactly that i would allocate those funds across those 11 sectors evenly we don't know what the market's going to do in the next week or two weeks or a month so diversification is still the first rule of thumb but i would also apply a stop loss to the portfolio for current investors as well as those putting in new money
Should investors avoid specific sectors now and why might technology be at risk?
What is a stop loss?
If the portfolio drops by a certain percent and you have to figure out what your risk tolerance is for most clients out there, it's somewhere around that 10 percent mark. So if that portfolio is dropped by 10 percent, we will trigger that stop and we will go to safe assets like a lot of the market is today. They're all going to treasuries primarily today. So the bond markets are doing well. That's a place to go hide. When the markets drop 10%, there's roughly a 50-50 chance that it will turn into a bear market.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:17
2
How is the coronavirus triggering market volatility and which sectors are most affected?
0:17–0:47
3
What is Beacon Capital’s core rule for protecting assets during sudden market swings?
0:47–2:18
4
Why does Chris Cook recommend diversifying across 11 sectors and which ones offer shelter?
2:18–3:44
5
Should investors avoid specific sectors now and why might technology be at risk?
3:44–5:10
6
How should you invest new cash today and what role do stop-loss rules play?
5:10–6:54
7
How can individual investors set and implement stop-losses with advisors or brokers?
6:54–7:30
8
Does a long-term investing approach still make sense amid coronavirus-driven uncertainty?
7:30–7:40
Speakers
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