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Cash Course with Shiva: Investing During the End of the World

by Aiden
Community Features

Shiva Sachaphimukh from Farnam Tree gives his insight.

At present, the global environment is one filled with fear and uncertainty. Geopolitical conflicts have surfaced, and the macroeconomic environment has led to volatility in financial markets. The price of U.S. treasury bonds has fallen by 60 percent from its high. Closer to home, the Thai Baht has depreciated by 10 percent against the dollar since the end of January.

As dire as current circumstances may be, investing over a long-time horizon necessitates contending with such periods.

Turbulent events are difficult to predict by nature. Instead of trying to forecast the future, we believe that you are better served by focusing on variables under your control. Here are some items to keep in mind that can serve you well in times of distress.

Do Not Time the Market

Investors are often tempted to sell when asset prices fall fast, and invest again later when the outlook is better. This is one of the biggest investing sins.

By trying to wait for the ‘better’ time to invest again, you will most likely miss the rebound when prices rise. Investors have lost more money preparing for corrections than from the corrections themselves.

Consider the following as evidence: if you invested USD 1 in the S&P 500 from 1990–2018, and missed the 25 best days, it would have grown to ~USD 5. If you just left it, it would be worth ~USD 15. The best days usually follow the worst days and vice versa. Compounding is best left undisturbed.

Asset Allocation Is Your Friend

Asset Allocation is Your Friend

Investors have the highest degree of control over how their assets are allocated in their portfolio.  Even before turmoil begins, if you have properly allocated assets according to your risk profile, it becomes easier to ride.  Better yet, you can even take advantage of price declines.

Having some defensive assets may help investors sleep better at night. Gold prices tend to be stable and can be used to protect your portfolio from big drops in other assets during difficult times, as they tend to rise. Another good defensive asset is real estate, though it matters more where it is located; and the cost of maintenance, interest rates, and the price you paid, compared historically.

Moving or holding most of your portfolio in safe assets such as money market funds may help if you are getting close to retirement and need to start to withdraw to cover living expenses. Planning this ahead of time helps to negate short term gyrations of asset prices.

Beware of Speculative Investments

Speculative investments are a double-edged sword. In rising markets, these assets can produce very high returns. They are also the ones that have the largest falls during periods of stress.

If the fundamentals of the assets are strong, prices may eventually recover. Most investors do not have the wherewithal to hold through painful drawdowns, and more so when the rationale behind buying is based on excitement or optimism.

Investors need to be cautious investing in such assets all the time, but even more so during periods of high turmoil. Even when optimism is at a high, it pays to remember that financial markets always experience periods with large asset price declines. Trying to predict when or how this happens is too difficult an exercise, and investing in speculative assets can be like playing with fire. Investors are best served by remembering that consistency beats out intensity.

Shiva SachaphimukhShiva Sachaphimukh is a Director and part of the investment team at Farnam Tree.  He is a licensed Investment Consultant with the Thai Securities and Exchange Commission (SEC).

Farnam Tree is a boutique investment and wealth management firm based in Bangkok.  The company is a licensed Investment Advisor under the Thai SEC and Ministry of Finance.

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