Diversification is Key - An Investment Insight during the Pandemic

Diversification is Key - An Investment Insight during the Pandemic

As Covid-19 has demonstrated, there is never a better time to show the benefits of a resilient portfolio - one that is well diversified - to ride out the volatility and impact that such events can have on global stock markets and consequently, your investment dollars.

There are two key points that we'd like to highlight here that are important to keep in mind whether you have an existing share portfolio or considering it:

  1. Diversification:

    Ensuring that your portfolio contains companies across a variety of sectors, asset classes and both national and international markets. This can help to balance out the highs and lows of any given industry. During Covid-19 the travel industry took a hit, an example being airline companies, while the health sector showed strong growth as did the tech industry.

  2. Longevity: 

    Staying in your investments providing they are diversified and 'good' investments, is a wise move. It's about being able to consider volatility (while this can be nerve-wracking) in a positive light. Reacting to market volatility by panic-selling, can mean that you may miss out on future returns that the risk of volatility can provide.

To illustrate riding out the volatility and navigating the recovery phase, we have two client portfolios that allow us to show in real terms, the impact of Covid-19 on the Australian market and specifically on their investments.

We show the specific dates below as being significant comparative trading dates on the Australian All Ordinaries index during the pandemic.

Client A $117,000 $93,000 $105,000
Client B $576,811 $474,418 $524,141

Client A:

Client B:

While it's clear that both portfolios suffered drastic losses from 20th March to 23rd March of 2020 (yes, in just three days!), it shows the resiliency of the stock market to recover. While both portfolios are still very much in the recovery phase, because our two clients have diversified portfolios and long term investment timeframes, they are well positioned to capitalise on the market volatility.

At Sound Life, we continue to be strong advocates for ETF's or Exchange Traded Funds as an investment option. Despite COVID-19 we have seen that our clients who have invested in ETF's which offer a diversified portfolio have not been hugely impacted, nor have they panic sold. You can read more about ETF's here. 

As people's circumstances do differ, it's important to seek independent advice from your financial adviser. If you would like to explore your investment options or to discuss your financial planning needs, you can contact us here for a free initial consultation.

(Written 5th November 2020)

Sound Life & Superannuation Agencies Pty Ltd ABN 009 253 258 trading as Sound Life Financial Services is a Corporate Authorised Representatives of Synchron, AFS Licence No. 243313.

The information contained in this article is general in nature and does not take into account your personal situation. You should not consider this to be advice and you should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

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Sound Life & Superannuation Agencies Pty Ltd trading as Sound Life Financial Services are
Corporate Authorised Representatives of Synchronised Business Services Pty Ltd
ABN: 33 007 207 650 trading as SYNCHRON
Principal address: Level 1, 65 Palmerston Crescent, South Melbourne Vic 3051
Australian Financial Services License Number: 243 313