Investment risk is always present, but during COVID-19, the stock market has experienced so much volatility that investors are beginning to wonder where to invest. Investors must consider how investment risk can decline their portfolio’s value due to economic events that impact the entire stock market.
The primary investment risks to a portfolio are equity risk, interest rate risk, and currency risk, which is when investors choose to invest in other countries with stable interest rates and currencies and not their own country’s offerings. This risk creates a loss of economic confidence for domestic investors who choose not to invest in their local economy.
Investors should take the time to investigate the U.S. company stocks in their portfolio to determine how they pay out dividends, and if the payout is reliable during this period. Other considerations investors must address to offset investment risk:
- Keeping mostly cash in a portfolio can create other risks such as inflation risk and time-horizon risk.
- Taking more market risk during a recession can reap higher returns later when the market recovers.
- Examine investing in foreign markets or emerging markets to determine if these investments may provide positive returns if their economies recover ahead of domestic markets.
- Modify allocations appropriately, rebalance, and continue to invest using dollar-cost averaging.
- Maintain a diversified portfolio, which is one way to offset Investment risk.
- Longer time horizons help reduce the impact of investment risk; investors should stick to their overall investment objectives and overall portfolio, not individual holdings.
Investors must remember that with more risk comes more reward and that the lowest risk investments are the ones that also produce the lowest yields. Additionally, remember that no investment is without risk.
During COVID-19, it is essential to continue to work with your financial professional to determine a strategy that fits your risk profile. With unemployment high and the economy down, volatility will continue as investment risk for certain types of investments progresses. Remember that letting your money sit idle during this period may mean missed opportunities for your portfolio.