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Review Your Pandemic-Era Portfolio with the 3Rs of Portfolio Management
Easy, flashy strategies peddled at the start of the pandemic had many newcomers believing that investing was easy.
2022 was a tough year for asset classes in the fixed-income, equities and crypto markets.
Easy, flashy strategies peddled at the start of the pandemic had many newcomers believing that investing was easy. Portfolios heavy in cryptocurrencies, equities, fixed income and real estate inflated strategies that without the global shutdown may have never been as fruitful.
As 2021 and 2022 rolled on, issues in these strategies began to arise—namely due to rising interest rates, inflation, geopolitical conflicts, supply chain issues and continued COVID-19 uncertainties. Trying to get rich quickly in the short term rarely pays off, especially in combination with insufficient financial literacy and knowledge, which can make investing resemble gambling in a casino.
At the start of 2023, these investors—regardless of age, gender, experience, and status—may have been sitting on sizeable losses in their portfolios, with some losing faith in the market entirely. However, this reasonably pessimistic view is misguided. Instead of losing faith, investors should take the opportunity to review their portfolio in detail, which may necessitate pivoting from pandemic-era tactics to steady and proven investment strategies.
A shift from chasing short-term gains to building a long-term wealth plan requires a change in mindset, strategy, and discipline. Heeding the moral lesson from DH Lawrence’s, “The Rocking Horse Winner” there is no such thing as free money, which forms the basis of the 3 Rs.
Quietly and introspectively review your current portfolio. Ask yourself objectively: would you be better off liquidating all your current positions and starting on a clean slate? Answer these four questions:
Would you still invest in the same assets as you had before and why?
Have you invested according to your objectives and risk tolerance?
How did you arrive at the current allocation and was it what you had in mind tactically at the outset?
What are your goals with regard to your wealth strategy?
There is no shame in admitting to errors of judgment. Even so-called investment gurus make mistakes from time to time. In fact, admitting to it allows us to take a fresh look at our existing portfolio and think more clearly about how to rebalance the portfolio. In addition, a rebalance may be required simply because your needs from your investments have changed over time. Perhaps you are looking for more income than previously. Try asking yourself these questions:
What are my current convictions towards a particular security? Am I convinced of its fundamentals and business prospects going forward?
How would I allocate to meet my desired objectives? Does it meet my risk tolerance?
Diversification is the only free lunch in investing. Is the portfolio diversified enough to ride out whatever future storms lay ahead? Would I still be able to take advantage of future opportunities?
Savvy and astute investors who tend to make wise investment decisions are usually characterised by their ability to learn from past mistakes and apply the learnings in the future. These investors believe the adage of time in the market rather than timing the market, greatly increases the probability of coming out ahead. Also, the right investment process allows for better investing outcomes. Typically, this is true, however, there are times, such as amid turbulent and volatile market conditions, we might see even sound processes do not necessarily produce the desired outcomes.
Taking a long-term approach to managing your portfolio, maintaining discipline, learning from past errors and having better processes and frameworks should result in better-desired outcomes and restore your faith in the markets.
This article was written by Tong Hoe Sng, Director of Wealth Management.
This information is for accredited, qualified, institutional, wholesale or sophisticated investors only and is provided by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887). Aura Funds Management Pty Ltd is the Trustee of all the Funds mentioned and a subsidiary of Aura Group Pty Ltd.
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