Where Should We Invest During The Pandemic?

For many of course this would be wishful thinking. If you are among the thousands in Bali affected by the impact of the coronavirus the priority is to survive the crisis and hold everything together until a vaccine is found and the world returns to normal. Bali is used to coping with crises and has always come back stronger. No doubt it will again although this time it will take longer to recover as the problem is a global one. Ironically, in terms of the virus itself Bali is coping better than most of the world, but to keep it that way it has to keep its doors temporarily closed for its own protection.

But if you have disposable cash where should you put it?

You are unlikely to be planning to build any hotels or open new restaurants, unless you can manage for a long time with little or no return from your investment. Any new business is going to prove very challenging unless your clientele is already in place, that is local, and you have a product that is in demand.

But if you have plans for a new venture and are convinced it will take off in time then you may find this a good opportunity to buy or lease some space while there are few other takers but hold back the main development until there are clear signs the sector is starting to pick up. In the meantime where do you place your cash for the best return? The fact is, if you will need the cash in say, two years’ time you would be wise not to seek the ‘best’ return. What you need is the certainty of your capital in two years’ time and that means basically keeping it in the bank. Or several banks if the amount is above the guaranteed deposit protection level. Be aware that if your deposit is in Rupiah you will get a better interest rate than with a USD deposit but there is a risk the purchasing value may be lower in two years’ time should the Rupiah fall significantly.

And if you don’t need the cash in the near term?

If the cash is not needed in the short term then the bank is still the place to keep healthy reserves, which could mean the amount you would need to stay afloat for a two year period such as you might expect in the case of a pandemic! During this particular one the businesses that will come out the strongest will be those that maintained healthy bank balances. Not always an easy thing to do if you are in a competitive environment and profit margins are tight.

Apart from a sensible level of reserves the bank is no place to have money sitting for the long term. For long term growth you are really looking at property or the financial markets.

The two big risks with property

The first is owning one! Apart from all the physical things that can go wrong the biggest risk is probably liquidity. It can be very difficult to sell a property in a hurry. If it is your residence and you wish to move to another country it can pose a big problem. You can’t raise cash by selling a bedroom. If it is an investment property and your tenants don’t want to move that can be a hassle too.

The other big risk is not owning one! Properties generally rise in value over time. Sometimes the rise in value can be exponential and if you missed the opportunity when prices were lower you could find yourself shut out of the market completely.

Clearly a property is a desirable asset to hold, particularly as a permanent residence which will free you from paying rent. An investment property with reliable tenants and a purchase covered by a mortgage can also mean you are able to buy a property with little cash input of your own. But it is not without risks so needs to be very carefully thought through.

The financial markets – more flexible but not risk free

There is no question that long term investors in the stock markets have made fortunes in the past. But many who have dabbled in the markets have made heavy losses. Usually the reason for losses is one of psychology. People tend to buy when markets are high. The same people often panic and sell when markets fall. The result? – Inevitable losses.

The key to success is to realise that time is more important that timing. If you are thinking of investing but ‘waiting for a good time to buy’ the chances are you have already missed it. Many are afraid of the ‘crash just around the corner’. The coronavirus led to one of the steepest market falls in history in March. Pessimists said it would take years for the markets to recover. Yet by June the markets had already recovered most of their losses! If you had invested in tech. stocks at their lowest point in March you would have made around 30% by late June.

But where to invest when so many companies are losing money?

Firstly you avoid companies that risk going under, such as airlines and the travel business in general. Technological disruption has been very much in play in the past decade but the coronavirus has accelerated this process. The retail sector has been hard-hit by the temporary closures but companies like Amazon are recruiting like mad to meet the demand for home deliveries. While this has been forced on to people while they cannot or do not wish to visit shops it is likely that many will enjoy the convenience and lower prices and will continue to do business that way.

With more time to spend at home people have needed more home entertainment; companies like Netflix have met that demand. The coronavirus has made it difficult or impossible for conventions and meetings to take place. So people have been turning to online alternatives such as Zoom. The low cost and convenience will have persuaded many companies to continue doing business this way. This will no doubt have a lasting impact on the travel and hospitality industry.

So for those who do their own share dealing there are plenty of new opportunities and there are also areas that they should now avoid. If you don’t have the time or urge to deal in shares you can access the above companies conveniently via mutual funds that in turn can placed in a simple investment account. But don’t focus solely on the ‘rising stars’. The tech. sector has experienced ‘bubbles’ in the past. While the sector warrants a place in a modern portfolio a long term investment should remain diverse and not limited to stocks. There is still a place for bonds, commodities and an old favourite, gold which as I have said in the past is a useful insurance against political or economic disasters and as in the current case, the most serious global health crisis in modern history.

Stay safe!