The Informed Investor

Financial Planning & Global Events: Should You Change Strategies?

Randy Garcia, ICC Founder

March 2, 2020

No one can predict when a crisis or global event will occur. Take the coronavirus: it came out of nowhere, and now it’s affecting most of the world. After its onset in China, the country was put into an unprecedented lockdown, which means manufacturing came to a screeching halt in some areas.

China is a hub for electronics, consumer products, and pharmaceuticals, so what’s this going to mean for your investments?

Willy Shih from Harvard Business School, an expert on Asian industrial competitiveness, believes this event will significantly affect the global economy. “The supply chain in finished products, as well as components, will be impacted,” he said. “China is such a force in the global economy. Some things are only made in China these days, and not just the usual electronics and toys — consumer products — it’s active pharmaceutical ingredients that go into pharmaceutical supply chains worldwide. If you look at travel, several airlines have shut down all flights. I don’t know if it is because of the risk of contamination or that demand fell off. There was also a report out of France that I saw about how the number of Chinese tourists shopping for luxury goods in Paris has fallen off a cliff.”

The impact will likely continue to trickle out of China into the world long after the coronavirus has done its damage. These effects may be seen throughout 2020 and beyond, but this isn’t the only event that will affect the economy. The election is coming, and that will likely have an impact. Other global issues will inevitably arise in the upcoming years—some predictable, some unexpected.


To Change or Not to Change Your Investment Strategy

Investors who are investing in the stock market are likely watching the coronavirus and politics, wondering what they should do. Some may be quick to sell, but unless they are short-term investors, that may be a mistake. Why?

Part of a successful investment strategy is having a plan for good times and bad. Your strategy should not just be to “make money” or you may be subject to emotional decisions. A good investment plan should anticipate the ups and downs of the market and include a preplanned strategy for what you’re going to do when these types of events occur.

One key is the right risk management. If you’re not diversified, then a hit to one part of your portfolio may produce widespread damage.

But you probably need more than that to help you feel secure through volatile times. That’s why you need something else, and that’s an Investment Policy Statement.


Investment Policy Statements to the Rescue

An investment policy statement, or IPS, is a document created between an investment manager and his or her client. The document outlines general rules about investment goals and objectives. These rules have to do with asset allocation, risk tolerance, and liquidity. Also, the policy should have monitoring and control procedures followed by everyone involved in the investment process. This can help when it comes to portfolio rebalancing and targeting specific minimum and maximum asset allocations.

But the IPS goes even further: it also defines when you will change the strategy or the IPS itself. This is key. Why? Well, investing is inherently emotional. When our portfolio is rising, we feel good and feel like we’re smart investors. When the market drops—especially when it drops precipitously due to a global event, we tend to second-guess ourselves.

But the absolute worst time to make a decision is when you are under the grips of fear or greed. After all, these are the emotions that can often tell us to sell a stock right before it’s finally due to rebound, or to load up on the latest hot sector that has been on the top for the last year (right before it runs out of buyers).


Investing Systematically, Not Emotionally

The Investment Policy Statement can help create the discipline to stay on course. More specifically: to invest according to our system, not our emotions.

And when the market undergoes crazy days when it drops significantly, it can help to pull up the IPS you agreed to and read it again. It will remind you why you’re invested the way you are. This can be comforting and can help you ignore the noise and keep your long-term goals in mind.


Singles, Not Home Runs

This is all critical because investing for your future is a marathon, not a sprint. Especially as you are nearing retirement, you should be aiming to achieve the rate of return you need to achieve your goals. That can be very different from simply trying to beat the averages, which can lead you to take more risk than you need to.


Staying in Balance

An integral part of your investment strategy should also be rebalancing. Rebalancing a portfolio means realigning the weight of assets and resetting it to the desired level of asset allocation or risk. So, if you started out with 50% stocks and 50% bonds, but your stocks have grown to 70%, that means selling some stocks and buying more bonds to get back to that original 50/50 allocation.

Notice in the process you’re doing something really smart: you’re selling high (in this instance, stocks) and buying low (bonds).

Rebalancing should be part of your investment policy statement and handled on a consistent basis, too.


Getting the Help You Need to Stay on Track

Events like coronavirus might resolve themselves quickly, or their impact may grow. What’s important is that you avoid emotional mistakes.

It isn’t always easy. On very high-volatility days, it can be painful to see red, as other investors dump their assets and you wonder if you should join them. That’s when having a high-quality financial advisor can help. You should be able to call or email your advisor to get some insight and sound advice when you need it most. While he or she may simply pull up your Investment Policy Statement and review it with you, sometimes the ear of an experienced professional can help you put things in perspective.

In the long run, these are the steps that can help you avoid setbacks and keep you moving toward true financial independence. Surprises good and bad, big and small, happen every day. But if you make a plan when the seas are calm, you’ll have a course already set for when things get rough—one hopefully written with the help of an experienced advisor and a clear head.



[1] Powell, Alvin. “The Global Economic Impact of the Coronavirus Outbreak.” Harvard Gazette, Harvard Gazette, 13 Feb. 2020,