Investment strategies during pandemic, election season

By , Special to the Daily Memphian Updated: September 10, 2020 8:31 AM CT | Published: September 09, 2020 4:35 PM CT

Whether you’re a young professional or someone closer to retirement age, the COVID-19 pandemic has caused investors to reevaluate their investment strategies, especially with a polarizing presidential election on the horizon.

Nancy Knous, founder and CEO of Benchmark Wealth Management, believes the economy is in “fantastic shape,” and currently provides younger people with plenty of opportunity.

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“A lot of the media has made it sound like the economy is in a lot of trouble,” Knous said. “There are restaurants that are having trouble, and maybe we won’t have Stein Mart anymore, but there are a lot of people who are hiring.”

Sam Fraundorf, principal and chief investment officer of Diversified Trust, said the interesting aspect about the COVID-19 pandemic is that it is “substantially disruptive,” but at the same time equity in stocks is up 8.5% year over year.

“It’s absolutely crazy that we’ve gone through something that our grandchildren will think, ‘How did you go through that? It’s so scary.’ But 8.5% equity is a great year,” he said.

<strong>Nancy Knous</strong>

Nancy Knous

Initially, in the latter part of March, portfolios were down nearly 30%, Knous said, but have rebounded.

Still, individuals are concerned about their investments and whether they should shift portfolio assets due to the pandemic and upcoming election.

Investment strategies for younger professionals

The challenge for younger professionals, Fraundorf says, is they don’t yet know how to solve their investment problems.

“They (younger professionals) need to put money away, but the problem is, how much? What is my money trying to accomplish? How should I place money into my portfolio cooker?” he said.

Generally, some high level of risk tends to make the most sense, since younger investors have an unknown ending point.

“But 100% of equity is never the right answer,” he said. “Even if you are the most aggressive investor in the world, you should have 10%-15% in an offset to that equity risk such as bonds. Interestingly, that will actually maximize your return. You end up with as high or better returns than if you did 100% stocks.”

Fraundorf says younger professionals should be less concerned with volatility.

“It’s really about how much I can get over my 30- to 40-year spend horizon,” he said.

<strong>Sam Fraundorf</strong>

Sam Fraundorf

Mark Ruleman, principal of Ruleman Asset Management and Planning, said younger professionals should keep in mind that their horizon is not months and days and weeks, but rather years and decades.

“Their ability to take advantage of whatever gyrations the market gives us — like this year has been one heck of a gyration — they should be able to take advantage of that by consistently adding to their investments,” Ruleman said.

Investment strategies for those closer to retirement

Older professionals should ask themselves if they can accomplish their portfolio goals with a 60% or 50% equity allocation, Fraundorf suggests.

“The older person probably has a better idea of their problem. ‘I know the lifestyle I want to have. I have some idea of my goals.’ It’s easier for them to think about the definition of success and how much investment risk they need to make those goals come true,” he said.

One tip Ruleman suggested was to take advantage of rolling out assets from a company plan. Many companies, such as FedEx, offer in-service distributions.

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“The reasons they (employers) offer that option is there’s an investment strategy that’s available outside the plan that’s not available inside the plan,” he said. “What I recommend that they do is utilize a variable annuity with a guaranteed growth rate so they know in the next, say, five years when they’re going to retire, they can guarantee a growth rate, but they can also shift some of the risk of that growth rate to an insurance company.”

Ruleman said this allows those near retirement to “back off” in their 401(k) and lower their risk. Doing so would also be a non-taxable event.

Prior to retirement, Knous recommends people consider health care options, which can be pretty pricey and upwards of $25,000 per year for a couple.

“A lot of us don’t appreciate how much our companies are paying for our medical,” she said.

While retirement may seem appealing, there are many reasons to continue working.

“If you’re considering retiring, you might consider slowing down and not quitting altogether,” she said. “If you’ve ever had kids, you can be a nanny, you can practice child care. You can’t practice retirement.”

How election may affect investment strategies

Fraundorf does not expect election results to have substantial changes on the economy. He suggests looking at it in three different camps: how the election affects the economy, how it affects the stock market and bonds, and how it will affect sectors or industries with regard to the stock market.

“I think you have to walk through big to medium to small in terms of looking at that (election effects),” he said.

If the Democrats have control of all three legs of the government, Fraundorf expects to see taxes increase.

“It’s (taxes) going to be felt, so you might get a little bit of headwind, but overall, it’s not going to do anything to derail the economy,” he said, also citing low interest rates, which will likely remain low for some time.

Health care will be one of the biggest sectors to be affected by the election, he says, and he wouldn’t be surprised if the Democrats made that the keynote component of their first two years in office, should Joe Biden win the election.

“Other than that (health care), I’m not sure I see this as a defining moment that the Democrats are going to crater the market and the GOP would cause it to do spectacularly wonderful things. Both can latch on to the good things going on in the economy,” Fraundorf said.

In terms of the market, Fraundorf believes Democratic control likely means that the U.S. dollar will continue to weaken, which means international investments would probably do “particularly well.”

“I don’t think there are huge changes that people should be making considering this or any election,” he said.

<strong>Mark Ruleman</strong>

Mark Ruleman

Ruleman agrees with Fraundorf, saying ultimately, it is less about who wins and more about what history says.

Ruleman explained an election year is typically the best of the four years of a presidential cycle. The first two years are usually the more difficult time for the markets, as there is more “jockeying around.”

Whoever lands in office will likely be giving the economy a “taste of their medicine,” and then things tend to calm down significantly.

“No matter who wins, the next two years will be rocky, which, historically, is the case, and then we’ll be blowing and going the next two years of the presidential cycle,” Ruleman said.

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Nancy Knous Sam Fraundorf Mark Ruleman

Christin Yates

Christin Yates is a native Memphian who has worked in PR and copywriting since 2007. She earned her B.S. in public relations and M.S. in mass communications from Murray State University.


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