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It’s probably safe to say that, wherever you are in the world right now, investors are taking one of two actions as regards their shares.  They’re either reaching for their parachutes and bailing out of the stock market or they’re buckling their seatbelts and preparing themselves for turbulence.  The latter might also be looking at their options for heading forwards as smoothly as possible.

Bracing for impact in 2021

New Year 2021 looks set to be one of the most interesting periods in the UK’s history.  Even if COVID19 disappears before then, there is still Brexit to come.  There is also the U.S. election which could have massive implications for the global economy.

Hopefully, everything will settle down as the year progresses, but, as the old saying goes, hope is not a strategy.  Investors staying in the stock market will therefore need to come up with their own strategy for finding a safe path forward.

What’s more, this strategy will need to account for the transactional costs of buying and selling shares and hence will probably need to emphasize holding them.  This raises an interesting question. How do you create a balanced portfolio of shares with long-term potential when the ground keeps shifting beneath you?

Look at the fundamentals

Never lose track of investment fundamentals.  Basic financial data is the starting point for most, if not all, financial decisions.  The quality of a company’s management can also be hugely important, especially when companies are facing major challenges.

Similarly, a company’s business model can tell you a lot about its future prospects.  It’s common knowledge that companies which have a strong online presence are, generally, faring better than ones which are largely dependent on face-to-face sales.  There is, however, a spectrum of success.

Digital-first companies, like Amazon, have generally coped far better than real-world-first companies suddenly forced to operate mostly, if not wholly, online.  Amazon struggled but largely delivered. Regular supermarkets, by contrast, were clearly overwhelmed.

Get ahead of developing trends

At present, COVID19 is influencing our lives in all kinds of ways.  For investors, however, it’s important to think about whether these changes are short-term trends, medium-term waves or long-term developments.

One way to assess this is to think about the general direction of travel pre-COVID19 and look at what impact the pandemic had on it. For example, remote working has been a growing trend for years. The pandemic just accelerated it.  It, therefore, seems very likely that it will continue to be a fact of life post-COVID19, at least to some extent.

By contrast, home fitness, while definitely a reality, wasn’t such a major growth area.  There are several possible explanations for this. One of the most obvious is that exercise requires space and houses in the UK are often very short on this.  Home fitness may continue to grow to a certain extent, but it’s hard to see it having the same impact as home working.

Manage your asset allocation and diversification

Challenge really can bring opportunity.  You do, however, need to think carefully about how much of a challenge you can really handle.  It might be sensible to allocate a greater portion of your disposable funds to cash/near cash and/or real estate/other assets.

Remember that real estate does not have to mean residential buy to let. It could mean short-term lets and/or commercial property.  You could also split the difference and look at bonds and/or shares related to the property market.

Similarly, you also need to think carefully about diversification and what it means for you. In particular, you will need to consider how broadly you can diversify without diluting your returns.

If you need help or advice, please contact us.

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