Updated: Feb 12, 2021
By Stephen Yong
What does it take to be an investor in the new normal of a post-pandemic world? Whether you’re a new investor or a seasoned one, there lies both risks and opportunities.
The World is Changing
Or, perhaps it may be more apt to say the world has already changed. And, it will continue to change.
“Change is the only constant in life.” ~Heraclitus, Greek philosopher
The level of debt in the world has hit an all time high at $253 trillion in debt. Interest rates are increasingly lower with cuts and negative rates being increasingly common. A global pandemic has changed how people work and travel. Oil futures prices went negative for the first time in history. The income gap between M40 and T20 is increasing. And there’s increasing tensions between US the dominant global superpower and China as the next emerging global superpower.
An increasingly debt-fueled environment between almost all countries is leading to a situation where countries are all virtually in debt and increasingly dependent on printing more money. This threatens to spiral out of control when central banks lose the ability to print money in low/negative rate environments risking continued devaluation of their currency, defaults and debt crisis. Covid-19 was the trigger (or, some may say, the excuse) for a global economic and market downturn. There was a rush to hold liquid US Dollar (USD), the world’s #1 reserve currency. Every other asset class from equities to bonds to alternate asset classes saw a sell off. March 2020 recorded the largest one day crash in the US Dow market, exacerbated by algorithmic trading, and over dependence on the USD.
It is important to know what has happened and what is happening as it gives us a picture of what is to come.
Shifting from the macro to a personal level, one’s investment journey always starts in knowing yourself. Investing is still a personal journey requiring your investments, goals, and resources to be aligned. It’s always important to start with the end in mind as otherwise it is easy to get distracted and make major mistakes while chasing the latest hottest thing.
Here are some questions to ask yourself:
What am I investing for, going deeper beyond a generic outlook of just making money?
What life stage am I in whether early on in life, looking towards retirement, or in between?
What investment experiences do I have from my past?
What sort of investment risk or potential losses can I psychologically withstand?
What do I know that I don’t know about investing?
If you’re new to investing, it may make sense to focus on one or two new types of investments as you start learning and make sure you know what you’re doing. If you have little time or interest for active investing, more passive investments may be better suited for you. If you don’t have a large sum to invest, you may want to look at investment options which allow you to start from smaller amounts of RM1,000 or less. If you have a large sum to invest, you may want to ease into the market with the current volatility in markets and economies. If you’re retired or near retiring, you may want to look at lowering your overall investment portfolio risks (or reversely increasing your exposure to higher risk investments if all your investments are currently low risk).
You may be able to achieve your goals purely by saving, but you will face an uphill battle against inflation and low interest rates. Investing helps you to reach your goals faster, provided your do so guided by a personal investment plan and avoid making major financial mistakes.
Rise, Fall, and Diversity
Economies and markets are cyclical by nature. Businesses will rise and fall. Industries will disrupt and be disrupted. Technology, politics, and public perception will continue to accelerate the pace of change. Long gone are the days that one can choose a single investment (or investment class) and put everything in one place. It doesn’t work whether it’s a “star performing” unit trust, investment properties bought en-bloc, or loading up all-in on stock in your favorite company in the world. On the flip-side, being overly diversified outside what you know as your circle of competency or having way too many investments that you cannot effectively monitor your investments in an issue too. You need to be diversified without being spread too thin, while keeping an eye on how costs and fees affect your investment returns.
The pandemic has, I dare say, permanently altered the landscape of investing. Certain sectors are significantly disrupted for the next few years, and beyond that may be forced to change to become very different animals from what they are now to survive. Below is a glimpse on how positive or negative various sectors are in the new normal.
Bullish Sectors (from most to least bullish)
Bearish Sectors (from least to most bearish)
Oil & Gas
Travel and hotel
A recession or correction is all part of an overall major cycle that is bound to happen. We need not be fearful but to be prepared and invest wisely today with our vision for the future.
In Conclusion (;TLDR)
The new normal is here to stay and continue to evolve. You will be less worried when you know that the changes in the world and increasing volatility are to be expected. Do have a good work-life balance, and avoid burnout as there continues to be an overload of information and noise. Do be wary for yourself and loved ones as scams and false gurus continue to increase preying on the trap of easy money. Don’t have a fear of missing out (FOMO) as everything from life to markets to economies all move in cycles. Know that there will be more opportunities ahead. Do take this time to learn and grow. Know yourself, your investment choices and how the world is changing. Don’t put all your eggs in one basket but don’t have too many baskets either. Investing is not easy, but it can be simple and profitable.
Share your thoughts on investing in the new normal.